Good day and welcome to the SITE Centers First Quarter 2022 Results Conference Call. All participants will be in a listen-only mode. After today’s presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Monica Kukreja, Capital Markets and Investor Relations. Please go ahead.

Thank you, Operator. Good morning and welcome to SITE Centers’ first quarter 2022 earnings conference call. Joining me today is Chief Executive Officer, David Lukes, and Chief Financial Officer, Conor Fenerty. 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 is 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 the 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 reports 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 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 supplement. At this time, it is my pleasure to introduce our Chief Executive Officer, David Lukes.

Good morning and thank you for joining our first quarter earnings call. We had an excellent start to the year with OFFO ahead of plan, another quarter of record leasing volume and the investment of the remaining proceeds from the $190 million distribution from RBI in three compelling properties. On top of all this, our balance sheet remains in great shape with debt-to-EBITDA in the low fives at quarter end, which is well ahead of the peer group and the sector overall, which provides capacity for continued external growth. I'll start this morning discussing first quarter results, talk briefly about leasing and tenant demand and then discuss our investments and capital allocation as we look to grow our portfolio of assets in wealthy suburban communities. As I mentioned, first quarter OFFO was ahead of our budget on better operations, which Conor will provide more details on later. Our strongest tenants continue to take market share and our construction and property management teams have done a great job getting tenants open for business ahead of schedule, which is part of our outperformance this quarter. Moving to leasing. Tenant demand remains elevated across the portfolio, and we built upon our fourth quarter activity with another quarter of record volume relative to the last five years. Shop leasing, in particular, continued to surprise to the upside with a number of key deals with first-to-portfolio tenants, including several leases at our tactical redevelopment projects in Princeton, Boston and Portland. To put shop leasing volume in context, in the last 12 months, we signed 62% more square feet of shops than in 2018 and 52% more square feet than in 2019. The success and the quality of our leasing is giving us increased visibility and confidence on our allocation of capital, which I'll discuss later in my remarks. Looking forward, we have another 600,000 square feet at share in lease negotiations, which we expect to be completed in the next six months with similar characteristics to the deals we signed in 2021 and year-to-date in 2022, meaning a concentration on national publicly traded tenants with excellent credit. We continue to expect leasing to be the material driver of our growth over the next several years. Shifting to investments. We had another very active quarter buying out a partner in Orlando and adding convenience properties in Boca Raton and Scottsdale. I'll start with our two Florida acquisitions. With Casselberry Commons, we acquired another public-anchored property from our partner. We obviously know the property well and have significant leasing momentum with two recently signed anchors and elevated shop demand. The asset is accretive to our grocery-anchored portfolio and well above national average sales and an underwritten five-year NOI CAGR of almost 9% in an excellent submarket with great demographics. At shops at Boca Center, we acquired for $90 million, an asset that has all of the attributes of the convenience properties that we've been focused on and investing in. Excellent demographics with trade area household incomes of $126,000, convenient access and parking and a site plan that offers a mix of simple liquid shops in demand from a wide range of national, regional and local tenants. Despite a total GLA of just 117,000 square feet, the property draws from an actual trade area of over 600,000 customers, resulting in high tenant volumes as the restaurant sales alone averaged almost $1,000 a square foot. With lease-up, mark-to-market and a new pad opportunity, shops at Boca have an underwritten five-year NOI CAGR of over 7%, which instantly adds to the company's growth profile. Pro forma for these two acquisitions, Florida now represents over 20% of the company's value. And there is an excellent representation of SITE Centers' portfolio overall with a diverse mix of assets located in the wealthiest submarkets of the state and populated by national credit tenants. The portfolio includes convenience properties like the shops at Boca Center and shops at Addison Place in Delray Beach, dominant regional properties like the shops in Midtown, Miami, in downtown Miami and Winter Garden Village in Orlando. Grocery-anchored properties like Casselberry Commons in Orlando and the shops at New Tampa. The SITE Center's Florida portfolio has an expected five-year NOI CAGR of over 4%, average household income, 70% higher than the national average and an average expected population growth 200 basis points higher than the country overall. It's an irreplaceable collection of properties in a high-growth state, and we're excited about the prospects for additional investments in our other key submarkets. Moving to Phoenix. We bought another convenience property in the core Scottsdale submarket and are confident we can find more opportunities to grow our portfolio in this key market. The Scottsdale corridor has incomes of over $148,000 and significant population growth, attracting a wide range of tenants, including a mix of food service and service users. Going forward, I continue to expect us to be active in both anchored and unanchored assets that fit our growth in submarket criteria. That said, we remain encouraged by our investments in convenience properties, and this compelling subsector in open-air shopping centers remains a key area of focus for the company. Over the last few years, we've invested over $300 million at a blended cap rate of roughly 5.5% in convenience assets with an average household income of $117,000 and an underwritten five-year CAGR of 4% with minimal CapEx. Each of these properties, all located in key markets for the company, including Miami, Scottsdale and Atlanta will be drivers of the company's future growth. The convenience subsector is clearly benefiting from recent societal shifts favoring hybrid work and suburban housing growth. Our property data aggregated over the past few years is showing a distinct rise in customer traffic, especially in wealthier suburbs, where it’s difficult getting new retail construction approved or pencil given rising construction costs driving outsized rent growth due to the scarcity of convenience retail locations close to where people are now living and working in greater numbers. You'll see us continue to pursue this external growth strategy and we've been diligently focused on sourcing a pipeline of potential deals that fit our investment criteria and our return hurdles. Thank you to the entire SITE Centers team for an excellent start to the year. We've been hard at work for some of the time, positioning the company to outperform and remain excited about the prospects for the remainder of 2022. And with that, I'll turn it over to Conor.

Thanks, David. I'll comment first on quarterly results, discuss our revised 2022 guidance and some of the moving pieces heading into the second quarter and then conclude with the balance sheet. First quarter results were ahead of plan as David mentioned, due to a number of operational factors, including earlier rent commencements, higher-than-budgeted occupancy due to higher retention rates and higher ancillary income. These operational factors totaled about $0.01 per share relative to budget. The quarter also included $675,000 of higher-than-expected straight line rent from the conversion of cash basis tenants and $1.3 million from payments and settlements related to prior periods. Both of these nonrecurring items totaled another $0.01 per share relative to budget. In terms of operating metrics, the lease rate for the portfolio was up 50 basis points sequentially and 180 basis points year-over-year with our lease rate now at 93.2%. Leasing activity remains elevated across all unit sizes and based on our current leasing pipeline, we continue to see upside to the company's current lease rate and well beyond pre-COVID high watermarks. Highlighting our leasing velocity, the SNO pipeline increased to $18 million from $15 million last quarter. These signed leases now represent almost 5% of annualized first quarter base rent or over 6% if you also include leases in negotiation in our pipeline. We provided our updated schedule on the expected ramp of the pipeline on Page Six of our earnings slides and expect over 60% of the leases commenced by year-end 2022. Moving on to our outlook. We are raising our 2022 OFFO guidance to a range of $1.10 to $1.15 per share. Rent commencements, uncollectible revenue and transaction timing remain the largest swing factors expected to impact full year results and where we end up in the revised range. We are also raising same-store NOI guidance to a range of 3% to 4.5% adjusting for the roughly $14 million impact of 2021 uncollectible revenue. Details on same-store NOI are in our press release and earnings slides. In terms of additional assumptions for full year 2022 guidance, RVI and JV guidance ranges remain unchanged, along with our assumption for roughly flat interest expense at SITE share versus 2021. In terms of investments, we continue to expect net investment activity of $100 million for the full year. Given year-to-date net investment activity of $113 million, we are assuming that acquisitions are essentially match funded with dispositions through year-end. Lastly, we have not budgeted additional reserve reversals in the bottom half of our guidance range. In terms of the second quarter of 2022, there are a few moving pieces to consider from the first quarter of 2022. First, as I previously mentioned, we had $1.3 million of nonrecurring uncollectible revenue and $675,000 of nonrecurring straight line rent in the first quarter. Second, we closed on the sale of the SAU portfolio subsequent to quarter end. These assets generated about $1 million in JV fees on an annual basis. Third, we settled the forward ATM shares in the first quarter, which will increase the second quarter weighted average share count by about 1.5 million shares sequentially. A summary of these factors is on Page 9 of our earnings slides. Ending with our balance sheet at quarter end, leverage was 5.1x, fixed charge was over 4x and our unsecured debt yield was roughly 21% as we continue to unencumber wholly-owned properties as mortgages mature. The company has just under $20 million of cash on hand and $855 million of availability on our lines of credit. This capacity will allow us to take advantage of future investment opportunities as they arise and to drive sustainable growth and create stakeholder value. And with that, I'll turn it back to David.

Thank you, Conor. Operator, we're now ready to take questions.

First question today will come from Rich Hill with Morgan Stanley. Please go ahead.

Hey. Good morning, guys. David, I wanted to go back to the comment that you made, and hopefully, I'm not putting words in your mouth, that leasing is going to drive your future growth. And so, I was maybe hoping to unpack where you think occupancy can go? I think occupancy is around 93.8% right now, is obviously a little bit lower. But as we think about occupancy relative to history, do you think you can get back to 95.7% where you were in 2014, or do you think a peak in 2019 of around 94%, a little bit higher than that is a better proxy?

It's a really good question, Rich. No, you did not put words in my mouth. It's interesting that with an additional 500,000 or 600,000 square feet currently under lease negotiation, we haven't really seen any decline in the demand from affluent suburbs. Therefore, I believe our confidence in returning to the previous high watermark is quite strong.

Yeah. Rich, I mean, we made the comment, David, this quarter and the prior quarter as well. The high watermark for this portfolio, I think, was 93.9% three years ago. We think we can do better than that. If you recall, we held quite a bit of space offline for potential redevelopments, and we've either chosen to proceed with those redevelopments or decide to release the space just in terms of a retail project. So we think we've said kind of 94% to 95% leased is achievable, and there's a bull scenario where we get as high as 96%. So again, just to reiterate David's point from our script in a minute ago, we think there's still considerable upside from a lease and occupancy perspective.

Okay. Thank you. And I wanted to maybe talk about the interest rate environment and ask a two-part question, both in terms of what interest rates are doing to cap rates, if anything, at this point? And does that give you actually even more competitive advantage. So does it shake out some of the smaller, less institutional owners of open-air shopping centers? And then I recognize you're funding yourself, you're funding acquisitions with dispositions for the remainder of the year. But maybe we could just have a quick conversation about, if you prefer equity over debt at current valuations?

Well, I'll start with the cap rates and then Conor can take the equity side of the equation. But Rich, there seems to be in the last 60 days, a tale of two cities with respect to properties that are in the market. And I'll just remind you that 30,000 strip centers in the US, we own 92 of them. We're very focused on what we want to buy. So, I'm not sure that my comments are going to be taken as a proxy for the industry. But for what we're looking at, when we see properties that are fully leased, the tenants have long-term, and therefore, the growth rate of the NOI is somewhat low. I do think that higher borrowing rates will have an effect in the next month or two as we start to see sellers not being able to achieve what they could before because the competing buyers are levered buyers, and we're generally an unlevered buyer. The irony is that at the same time, we're buying assets like Boca that have a really high CAGR, and that's partly because of occupancy and partly because of tenant rollover and a mark-to-market. And so if you're getting rents that are rising along with interest rates, it means that to hold the same unlevered IRR, even in the face of rising borrowing rates, I do think that cap rates are holding up pretty well for growth assets, even though they might move a little bit for more flat stable assets. So, that's kind of where I'm seeing things in the last couple of weeks.

Yes, that's exactly what I was looking for on sort of the question about unlevered IRR versus levered IRR. So, thank you for that. Conor, any thoughts on equity versus debt here?

I was hoping you forgot about that part of the question. We're really comfortable with our leverage right now. As you know, it took us five years to get here, and we're looking to maintain what we think are prudent leverage and duration level. So, it's always going to be a mix. We've got retained cash flow. We've got disposition proceeds you referenced. We've got the SAU proceeds that post-quarter end. So, it's always a balance. I would just say we're really encouraged by our balance sheet position at this time.

Okay. Thank you very much guys.

Thank you.

Thanks Rich.

The next question comes from Michael Bilerman with Citi. Please go ahead.

Hey, thanks for that. Can you just talk a little bit about sort of the pipeline that you have right now from an acquisition perspective? And how much you have on the market from a disposition perspective? Just as you think about this net funding, I think you've been a little bit more excited on the acquisition front, and I'm just trying to better understand how much more disposition activity could you generate in the portfolio today to match that excitement, David, that you have in finding these assets in affluent suburbs?

Hey Michael, it's Conor. I'll start and then pass it over to David for the acquisition details. On the disposition side, there are a few items to mention. As you know, we've consistently recycled capital, usually selling one to two wholly-owned properties each year, totaling around $25 million to $50 million in wholly-owned assets. I expect 2022 will follow the same trend. Additionally, we discussed last quarter the joint venture side, particularly the SAU portfolio, which we announced as closed after the quarter ended. Some of our partners are approaching debt maturities, prompting them to reevaluate their long-term plans for their joint ventures. Consequently, we may see more joint venture properties sold in addition to SAU. Regarding guidance impact, this isn't a significant factor for the year, probably around $0.05 in terms of headwind from some of the joint venture assets, but I'll let David elaborate on the acquisition side.

Yes, Michael, I would say that our confidence level in what we're seeing of assets that we would like to acquire is growing. I would shy away from trying to guide as to what the volume might be simply because we're most interested in this high rent growth convenience-oriented properties because they're responding best to a lot of the societal shifts that I think have taken place coming out of the pandemic. But the thing to remember is that most of the sellers are private sellers. A lot of them are 1031 sellers. It takes a lot of time to transact with them. And I do think that with rates rising, those types of owners are being incentivized to sell sooner rather than later. So I think John and I are pretty hopeful that the pipeline continues to grow things that we want to buy.

And then, how do you balance, obviously, the asset sale proceeds you can sort of get market. But on the equity, you're obviously beholden to the market and given the fact that your leverage levels are in check and the stock obviously has been volatile and is, getting closer to NAV now than where it was earlier in the year. But how do you sort of balance, sort of goes to Richard's question a little bit, how you grow from here, from a capital perspective if the market is not willing to afford you the cost of capital to do it either on the debt side where rates have moved up or on the equity side where the stock still trades at a meaningful discount to NAV?

Yeah, Michael, to your words, it's balance. I mean, you hit the nail on the head. Look, we've got I think, a pretty good five-year track record for us of balancing debt equity sources uses. And then, I'm not trying to be evasive, but I mean that's what we'll do going forward. We do have a lot of retained cash flow. We do have some assets that are durable in nature and well leased, but still very attractive that we could recycle. We'll have more to disclose on that front to David's point of dispositions and acquisitions in the next three months. The other point is if you look at kind of the range of dollar values of what we bought, 90, so far has been the largest and $4 million is the smallest. That does make it a little bit easier. These aren't all $300 million properties. And so, the vast majority to kind of blend or look at a weighted average and closer to, call it, $25 million to $40 million, that does admittedly make it a lot easier to kind of achieve the balance that you referenced.

The second topic is about the frequency of visits, the hybrid work environment, and inflation. David, in your discussions with retail tenants across the spectrum, can you provide insights into what your data and the retailers' data indicate recently regarding the number of visits people are making to your centers, average spending, and whether inflation is affecting any of this, either from the retailers' ability to operate or your ability to influence these trends?

Yeah. Well, let me talk about the two aspects of data that we do have is factual data. One would be customer visit frequency and duration, right? That comes from the geolocation data. And the other piece of data that I think is really interesting is, we've done so many box leases in the last 12 months that when the tenant goes in for a building permit, we can pull their plans and see what the layout of the store looks like. And so those are two different pieces of information. And what they're telling us is that the customer visits to our properties are up from pre-pandemic call it, 10% to 15%. And that moves around a bit, because the denominator with only 92 properties it's not large. But in general, I think we're up around 10% to 15%. What's more interesting, Michael is that the duration, the amount of time that a customer spends on the property is actually down 10%. And I think the reason that we're seeing that is the impact of last-mile fulfillment. And so let me tie that over to what we've seen in the tenant exhibit when they go in for building permits. There's no question that, that demising wall between front of house and back of house has moved since pre-pandemic. And it's moving to the shrinkage of the front of house, which we get a customer space and it's growing in the back of house, which would be sorting and distribution. So, I think, as we put some data together, we'll try and get something a little more robust for NAREIT. I think it's a pretty compelling story that the customer visits are more frequent, but shorter. And the reason, of course, is that most of our retailers are starting to use their footprint as last-mile fulfillment, which might explain why there's been so much anchor leasing in the last 12 months.

Right. I guess, the worry is that, in some ways, you'd want some of them to stay there longer to increase spend across retailers, right? The dwell time is obviously an important factor in driving aggregate sales and obviously rent.

I believe a key issue is how much cross-shopping influences profitability. This ultimately relates to basket size and similar factors. What we do know is that tenant balance sheets are in much better condition now compared to before. I'm optimistic about EBITDA margins and four-wall EBITDA. Retailers are now quite clear about the number of locations they have and their access to trucking. The entire ecosystem has undergone some changes, but it definitely makes me feel more confident moving forward.

All right. Appreciate the time.

Thanks, Michael.

The next question comes from Todd Thomas with KeyBanc Capital Markets. Please go ahead.

Hi. Thanks. Good morning. Just following up on investments. Conor, you talked about potential joint venture asset sales as part of the capital plan for the remainder of the year. And I was just wondering, if you can provide, or David, if you can provide an update and status of the remaining 23 assets in the Madison joint venture, which you discussed a bit last quarter and were reported to be on the market. Is there any update you can provide there on timing and institutional demand for those assets and whether future investments would be predicated on the wind-down and monetization of that venture?

Yes. Todd, I would just say, as you know, we discussed sales and they close, and you're right, there have been some reports on potential asset sales. And again, to our point, from our comments last quarter and this quarter, debt maturities are a natural time for joint ventures to kind of choose their path or choose the direction. Obviously, for us, it led to some acquisitions in the fourth quarter and the first quarter from that joint venture, and it could lead to some dispositions for the course of the year. But, as you know, just given our policy, we'll talk about things as they close. But you're right to assume that that's a potential source of equity for us. And I don't know, if I answered all your questions, but I'm trying to think if I did.

Okay. And David, you talked about the 9% IRR at Casselberry and the five-year IRR at Boca Center. That was greater than 7%. What's the initial yield or year one yield look like on average for the assets that you acquired in the quarter? Just trying to get a sense and sort of bridge the NOI growth from acquisition during the course of the whole period.

Sure. Well, the assets we purchased this quarter, the going-in cap rate averaged to 5.1% and the five-year CAGR was 7%.

And, Todd, those are the five-year CAGRs we quoted, not the unlevered IRRs.

Okay. Got it. All right, makes sense. And then, David, you sound confident about the growth that you're seeing in assets that you're targeting for acquisition. But are you changing your return hurdles at all in the current environment or the way that you're underwriting future investments as you look ahead?

Yes. I mean, I think that as we're starting to see more things come to market, I think some of the sellers and the brokers out there are starting to realize what we're looking for. We're just being pretty selective. So we're certainly not going down in our unlevered IRR expectations and given where rates are going, I'd like to see them move up a little bit.

Okay. All right. Thank you.

Thanks, Todd.

The next question comes from Alexander Goldfarb with Piper Sandler. Please go ahead.

Good morning. I have two questions. First, in relation to pricing and the existing markets, it seems there's significant participation from non-traded REITs that are largely cash buyers. David, I found it interesting that you mentioned some competition is from leveraged buyers, as discussions with brokers and observations of fund flows suggest that many remain heavy cash buyers. More importantly, if you're acquiring assets at a low-5 cap rate and your stock is trading above 7%, congratulations on securing those deals. However, I'm curious about your perspective on what the public markets might be overlooking regarding the retail rebound. Recent headlines have been positive, with online sales declining while in-store sales have shown double-digit growth. The benefits of retail are clear, yet there's a consistent disconnect that contrasts with the strong results your company is demonstrating, given the cap rates of trading assets and the movement of private capital. What do you believe is missing in closing that gap? Is it simply that the public market holds a divergent view, or are you optimistic that this gap can be bridged, allowing for value to be realized in the public sphere?

Good morning, Alex. I'll do my best to not speak for the entire public market. I believe the main misconception we encounter when meeting with investors is the long-term capital expenditure needed to operate this business in light of the changes that have emerged post-COVID. Companies like ours are still incurring significant leasing capital expenditures over the next year. This is largely due to the increase in occupancy rates, alongside inflation in rental prices, which allows tenants to transfer costs to consumers. Additionally, there's a shortage of new supply, challenges in acquiring entitlements in affluent suburbs, and the escalating costs associated with building replacements. The costs to construct a new shopping center have risen considerably, leading me to believe there will be a scarcity of available space in the future. The main shift from pre-COVID to post-COVID, in my view, is that retention rates will improve while capital expenditures are expected to decrease compared to historical levels. This change significantly impacts the internal rate of return. When we compete with other buyers in the private sector, they seem to be more accurately assessing future capital expenditures, which enables them to be more aggressive in their pricing strategies. This, I believe, highlights a key difference between public and private purchasers regarding their expectations of capital expenditures.

And Alex, to your point, I mean, to David's response earlier on the leverage unlevered question, I mean there's still, to your point, a number of unlevered buyers out there. So I think David is referencing simply the levered buyers are changing their underwriting. But to your point, there are no shortage of unlevered buyers.

Okay. And then to be a classic analyst, we have to ask it on the flip side. There's a lot of – you guys speak about growth coming from leasing and the signed, but not yet commenced. And yet in reality, it takes a long time for occupancy to build, especially your sort of at 90-ish in place versus your expectation of exceeding the prior high watermark. So are we, as the analysts too optimistic about the pace seeing that occupancy grow and that this really takes many years, or is it your view that there's going to be the sudden acceleration that's going to get us to that sort of normalized occupancy a lot sooner than historically would be expected?

Hey, Alex, it's Conor. I would just say, we lay out on page 7 of our slides, the commencement schedule. And you can see and in my comments, I think I said 60% of those leases commenced by year-end. They happen to be pretty back-end loaded, just the windows that retailers like to open. But I mean, we're forecasting effectively 60% of our SNO pipeline, which is 6% of our base rent to open this year. So you're absolutely right. It's taken a while to kind of build this, but we are forecasting pretty significant base rent growth starting in the fourth quarter and into 2023 and 2024. It was also fascinating if you look at the SNO pipeline, we're signing leases with 2023 and 2024 openings, right? It kind of speaks to David's scarcity point. But to answer your question directly it's a this year event. If you recall, Tammi asked the question last quarter about kind of base rent, the base rent build over the course of the year. If you look at our same-store NOI base rent – same-store base rent, excuse me, this quarter is about plus 2.5%. We expect that to build over the course of the year, which speaks to your question of kind of when these leases come online.

Okay. Thank you.

You’re welcome.

The next question comes from Samir Khanal with Evercore ISI. Please go ahead.

Good morning, everybody. I guess, David, maybe on the 600,000 square feet of leasing that's under negotiation, maybe talk around who are the tenants that are active in that space from a demand perspective? And what changes have you seen, if any, from a negotiation standpoint, whether it's terms pricing given the increased volatility from a macro standpoint versus maybe three to six months ago?

Sure, Samir. The pipeline of leases looks strikingly similar to the last few quarters, meaning there's a lot of chunky leases with boxes, they tend to be discounters. The pOpshelf, the Burlington, the TJ concepts, The Ross, a lot of discount activity going into these wealthy suburbs. And then there's a component, which I would say is service-oriented. We're still seeing a lot of demand coming from health and wellness, a lot of dentists and doctors and chiropractors and urgent care and so forth coming out of the urban areas and kind of chasing their customers into the suburban areas. And then the last piece of it is kind of a more recent growing shop demand. And there is a lot of new concepts, healthy concepts, particularly on the restaurant side. There's been a number of new IPOs in the past year that are in growth mode. So I would say, it's probably half to two-thirds larger discount boxes, and then you kind of get into the health and wellness and some of the small shop tenants. It's not very dissimilar from what you've seen in the last couple of quarters. The real question is what's going to happen towards the end of the year because we're running pretty low on box inventory. And I think that's one of the changes you'll see towards the end of this year is that will effectively be running out of boxes to lease. And so that's when you'll see us really have a lot more of the deal flow coming from the shops.

Thank you for that. And I guess, just curious on the convenience properties that you've highlighted, how should we think about the NOI growth of those centers? I mean, there's about 30% of leases that expire with that action. So what's the upside of rent that you think you can get maybe the mark-to-market opportunities there?

Well, it depends on the property, but I'm going to give you an example. In shops at Boca, I think, the mark-to-market is probably close to 50%. The question is how much of it can you capture. But with an ABR of $38 in place and leases in the remainder of our portfolio in South Florida and the kind of 40 50, 60, 70 range, the scarcity value is definitely causing a lot of rent growth. And that's one of the main theses behind convenience or an properties is that the number of tenants seeking a simple 30x90-foot wide space is very large. And so whenever you get the opportunity to renew a tenant who's naked with no options, the CapEx required for a renewal of zero and the CapEx required to replace a shop tenant is pretty low. So I think that a lot of that growth from that subsector is really coming from just general market rent growth and then a lack of CapEx required to buy that growth.

Thank you, David.

Thanks, Samir.

The next question comes from Mike Mueller with JPMorgan. Please go ahead.

Yes. Hi. Conor, I think you said the bottom end of the guidance range doesn't include any reversals or prior period collections, I think, you got that right. But what's baked in there in the top end of the range?

Yes. It's consistent with last quarter, Mike. It's still another $0.01. So effectively, if we have another $2 million reversals that would be the top end of the range. But in terms of what's on the balance sheet, we've got $13 million of AR, about half of that was reserved, so call it 6.5 and about half of that reserve, excuse me, is related to cash basis deferrals. So there's called another $3 million, $3.5 million of deferrals outstanding that we've had a 99% repayment rate to-date on deals. It is a potential source of upside, but I would just give my usual caveat that it's reserved for a reason.

Got it. Got it. And obviously, a lot of talk about acquisitions and pricing and stuff. But your redevelopment pipeline looks like it's about $60 million to $70 million. And I guess, as you look out over the next few years, how do you see the aggregate size of that pipeline either changing or staying the same?

I think that redevelopment can arise from either a need to adjust the property to meet current demand or from an effort to increase square footage, whether in retail or another asset type. It seems that the rent growth post-COVID has made it much more attractive to lease existing spaces. In our portfolio, the limited availability is driving rents up, which leads me to believe that our redevelopment pipeline won't expand from here. Our primary focus is more on straightforward rent growth.

Got it. Okay.

That said differently, Mike. Sometimes what I say to myself is this business seems to have gone from a redevelopment business to a renewal business. And the renewals business is a lot easier to manage, and I'm actually looking forward to the next couple of years because being a renewals business is just a great position to be in, and I hope it lasts for a number of years.

Got it. Appreciate it. Thank you.

Thanks, Mike.

The next question comes from Floris van Dijkum with Compass Point. Please go ahead.

Morning guys. Thanks for taking my question. I want to follow-up on something that Michael Bilerman asked, and you mentioned something, David, about the dwell time being 10% down, while the visits were up. Is that to individual stores, or is that to your center?

It's to the overall property.

Okay. So you're capturing all of the tenants at the center. I just wanted to make sure I understood that correctly.

Yes, that's correct. If you consider it anecdotally, we're still analyzing the data. There are two important input assumptions to keep in mind. First, when someone works from home and orders Uber Eats for lunch, they may visit our shopping center for just a brief three minutes, which counts as a visit. Another example is working remotely three days a week, where instead of having five airings on a Saturday, there are now just two airings over three consecutive days. This indicates that tenants have realized that being close to high-income customers drives the most visits and sales. Therefore, I believe proximity in last-mile fulfillment is key, which explains why we're noticing a slight decrease in dwell time.

Got it. That makes sense. Another question for you guys, in terms of Florida, you mentioned that you're just over 20% of value in Florida now. Do you have a target that you want to reach in Florida? Do you think that can go to 30%? I noticed that you're in Tallahassee now, but just with one asset. Is that a market where you expect to achieve greater scale?

Well, I think part of the migration of our value is simply because we've had a couple of large joint ventures that were in kind of middle market communities that have gone away. And so the remaining portfolio has become more concentrated in our top 12 submarkets. So we don't have a numeric target for the state of Florida or for really any other region. We're pretty happy with our top dozen markets. And you've seen us start buying assets in those markets, including Arizona, but some of our other markets, too, like Boston and D.C. and Atlanta. When we find things we like, I think, we're going to go after those properties in our existing markets. I don't see us going to new markets. The Tallahassee property came in a small portfolio we bought from our partner. But I think we're finding specific property reasons to buy as opposed to a submarket reason.

Yes. Regarding metros, I believe that 90% of our base rent or value comes from Orlando and Miami. These two markets are key, along with additional assets in Tampa and Naples, as well as one property outside of those metropolitan areas.

Great. Can you elaborate on your focus on convenience? When I think about it, the size of the asset seems similar to typical PECO grocery-anchored centers, which range from about $20 million to $30 million for smaller, lower capital expenditure properties. This provides more opportunities for increasing rents to market. How should investors compare this to street retail? While street retail typically has a higher value per square foot, the advantage of traditional urban street properties is that they offer more chances to adjust rents to market with lower capital expenditure. Is this an area you are considering for investment, or are you content prioritizing convenience due to its significant market potential?

I find it interesting to look at the two categories: street retail and convenience retail. They share some similarities, such as shorter lease durations and fewer options, making it easier to adjust to market rates and generally requiring lower capital expenditure due to being more focused on renewals. However, the key difference is that street retail is typically pedestrian-based, while convenience retail caters more to those using automobiles. Considering the pandemic's impact and the cultural shift toward hybrid work, I believe investing in affluent suburban areas with auto-centric shopping is a stronger strategy. Therefore, we do not plan to shift from convenience-oriented investments into street retail, as I expect increased customer demand to lead to higher rents. Additionally, it's challenging to obtain permits for new construction in these areas, and rising construction costs mean that any new competitors would need to charge higher rents. Hence, I see many favorable trends supporting our investment focus.

Yes, the only thing I'd add to that is fee ownership versus a condo, right? We own the land versus typically, it's a condo ownership and obviously, there's a difference there as well.

Great. Thanks guys. Appreciate the answers.

Thanks, Floris.

The next question comes from Paulina Rojas Schmidt from Green Street. Please go ahead.

Good morning. You reported strong leasing, so what are you hearing from retailers? Are there any changes or concerns regarding higher inflation, elevated interest rates, and a possible decrease in consumer spending?

Good morning Paulina, those are great questions. I mean we hear anecdotal information from the retailers. I would say that their primary concern in the past 12 months has been to get into the locations and the communities they want to get into. So, finding space was probably most top of mind. The second kind of conversations we've had with them has a lot to do with finding staff. I think labor is sometimes not talked about as frequently as inflation for products, but I think labor inflation is a real issue for the retailers and I think it's part of the reason we've been focusing on national credit tenants because the larger tenants that have 401(k)s and they have dental and medical programs, they're able to hire staff. And that's why I think you're starting to see a lot of the national credit get tenancies signed, get leases signed and get open because they can hire the staff in order to occupy and staff those stores. Going forward, I think inflation is on everybody's mind and certainly on the minds of retailers. A number of our tenants are discount-oriented and so I think they feel like when inflationary environments occur, when the next recession comes, what normally happens is high-income consumers start to acquire more discount goods. And so I think the discounters want to be in those submarkets where they're going to capture some of that high-end consumer coming down market a little bit.

Thank you. And then how do you commence occupancy change sequential on a, sort of, same property basis? You think, you don't see a decline, but I'm not sure this is a clean more or less in property figure?

Paulina, I'm happy to discuss offline. So I mean our same-store commence is 90.2% in terms of what changed. The only significant pool change I can think of is we added Casselberry Commons, because we acquired it this quarter. But I can come back to you. I mean, I can't think of anything that was material that would impact the sequential change in the same-store commenced rate.

Okay. So then there was a question to time…

Paulina, actually, sorry, just to clarify, that same-store commence is including redevelopment. The number you're probably referencing was excluding redevelopment. But I can get you the apples-to-apples number, if you'd like offline.

Okay. Thank you. And then the last one. I think you mentioned you had been successful in getting tenants open ahead of schedule. Is that the main driver behind the same property guidance increase?

No, it's a little bit of everything. Yeah, sorry, I'm sorry to cut you off. It's a little bit of everything, you're right. For this quarter, the benefit to same-store NOI was in part due to earlier rent commencements. We also, I referenced had higher retention, less fallout this quarter. That has an impact over the course of the year. I think that far outweighed the kind of one-time benefit of a month or two here or there from an anchor opening. But both are impactful and material to us, but the far bigger impact was the full year numbers was greater retention and greater mark-to-market, those factors as opposed to rent commencements. We could have more upside over the course of the year from rent commencements. I mentioned as one of the swing factors for the year. That's one of the big three. But TBD on that front, we've had a great track record, kudos to our operations team, but there's nothing else built in on that front, but it could be a source of upside.

Thank you. That’s all from me.

The next question comes from Ki Bin Kim with Truist. Please go ahead.

Thanks. Good morning. So just going back to your acquisition. The cost base for this quarter was about $550 a square foot. And thanks for all the information on yields and CAGR. But what does this translate to your knowledge in terms of occupancy costs? And if you get that 7% CAGR over time, what does that mean for year five occupancy costs in your underwriting?

Ki Bin, it's a very good question. It's so dependent on who's the tenant. So we've got Charles Schwab that came with the Scottsdale property. We've got restaurants doing $1,000 a foot in Boca. So it really, really depends on the tenancy. And when we acquire them, we do go through their occupancy cost to figure out who's at risk and who can handle more rent growth. So when we're turning properties away that we don't want to buy, it's usually exactly what you're saying. The rents may look good from a market perspective, but the tenant roster can't handle more bumps. So we're trying to find the properties where the tenants are generating enough top-line sales that they can afford to get to market, which is arguably a lot higher than in place.

Okay. And you mentioned the 5.1 going in yield and a five-year CAGR of 7%, which is, call it, 12% low, 12% unlevered IRR. It seems like with those kind of economics, capital would be all over that type of acquisition. So there's a couple of questions. Is it the way you acquired it? Is it a different set of underwriting that led you to be the winner on this type of deal? If you can just provide some color around that?

I think it's only a matter of time before a lot more capital starts chasing similar type of properties. The reality is, when institutional or private capital allocates to an investment thesis, a lot of it is around who the anchor is and what that anchor does. And I think what's changed for us is that the geolocation data that all landlords have access to now does kind of free you from having to go to a specific anchor and it allows you to go into unanchored or convenience-oriented properties. And so, I do think that having that data allows us to be a lot more nuanced about our acquisitions. And we are competing against a lot of other buyers. It's just that we're kind of willing to really work hard to source some of these smaller deals. And that is one of the challenges of this thesis is that the deal size does tend to be a little bit smaller. And so, it just takes a lot of legwork to get the deal pipeline built.

Okay. Thank you.

The next question comes from Linda Tsai with Jefferies. Please go ahead.

Hi. Thanks for taking my question. In terms of your earlier comments just now about going into convenience-oriented properties, because of geolocational data, you don't need an anchor. What would be, like, the mix of certain retailers that you would require in order to do this?

We still have a strong preference for credit. I believe that during the next downturn, our best strategy will be to invest in credit. As you can see from our acquisitions, we've targeted numerous financial institutions and can track their deposits. We've also invested in high-end credit restaurants, as well as many well-known brands like Starbucks, Verizon, Wells Fargo, Chase, Schwab, and JPMorgan. We're accumulating a significant amount of credit. Additionally, we favor non-credit tenants that are service-oriented or restaurants with a strong sales history.

When considering the common factors of our existing portfolio, there are three: first, credit, as our national tenants make up 89% of base rent. Second, market, since we primarily invest in areas we are familiar with or where we already have assets. Third, income. These three criteria serve as strong filters that eliminate many potential investment options. Therefore, as David pointed out in his comments about future expectations, the key attributes we focus on are market, income, and credit, which guide our investment strategy.

That makes sense. And then, last question, just the $3.5 million of potential source of upside from reserve tenants. Do you have any of that that could potentially benefit 2023 earnings?

No. I think to Mike's question, we've got about, at the top end of the range, $2 million of potential reserve reversals that would include either just reserves we have in general or that can include the cash basis deferrals that I referenced. Just know that, as we get longer in this kind of collection cycle, the probability of collection drops, right? Additionally, if you think about a deferral we made with the tenant that implied a 2022 or 2023 and 2024 repayment, means that they probably had a higher level of stress during COVID as well. So, you're right, there's potential source of upside. I would just caution folks that, it doesn't mean we have $3.5 million in the bag. One is spread out over a couple of years and two, these are tenants that needed a longer-dated deferral for a reason.

Thank you.

You’re welcome.

This concludes our question-and-answer session. I would like to turn the conference back over to David Lukes for any closing remarks.

Thank you all for taking the time. We'll talk to you next quarter.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.