Good day and welcome to the SITE Centers reports Third Quarter 2022 Operating Results. All participants will be in 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, Head of Investor Relations. Please go ahead.

Thank you, Operator. Good morning, and welcome to SITE Centers third quarter 2022 earnings conference call. Joining me today is Chief Executive Officer, David Lukes; and Chief Financial Officer, Conor 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 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.

Thank you, Monica. Good morning and thank you for joining our third quarter earnings call. We had another very productive quarter with results ahead of budget, significant leasing volume despite having less available space, a number of asset sales with proceeds used to continue to invest in our convenience thesis, and a balance sheet that remains in great shape with debt-to-EBITDA in the low fives, which remains well ahead of the peer group and the sector overall. Leasing demand continues to be very strong with national tenants looking to expand their footprints in the wealthiest suburban markets where we operate and existing tenants looking to lock in their locations with renewals. This activity, along with execution from our leasing team, resulted in a 60 basis points sequential increase in our portfolio lease rate to 95%, which is consistent with our commentary and goals for the year. I'll start my comments for the quarter, shift to leasing, then move to transaction activity. As I mentioned, third quarter OFFO was ahead of budget primarily on better operations, which Conor will provide more details on later. Despite no shortage of headwinds, our tenant coordination and construction teams continue to do an amazing job working with tenants to get open ahead of schedule, which drove part of our outperformance this quarter. Moving to leasing, as noted, demand and activity remained very high in the third quarter with 1.5 million square feet leased, which is the largest amount of total square footage this company has leased in five years, despite a materially smaller footprint. In terms of new leasing, we had another quarter of over 200,000 square feet of new deals with strength from national shops as a standout. Our shop lease rate was up 180 basis points sequentially and 520 basis points from the third quarter last year. Quite a bit of this leasing was in our tactical redevelopment pipeline with deals from Cava, Starbucks, Sweetgreen, Visionworks, Dry Bar, Club Champion, and a few other first-of-portfolio deals expected to be signed in the coming months. The projects broken out on our tactical development pipeline that are under construction are now 84% leased with deliveries beginning this year into 2024 with immediate expected accretion. Looking forward, we have another 250,000 square feet at share in lease negotiations, which we expect to be completed over the next two quarters with activity from a mix of national publicly traded credit tenants. Based on the trending strength of small shop leasing and considering our current pipeline of unexecuted lease negotiations, we believe that the lease rate on our portfolio will continue to climb marginally through the end of the year, absent bankruptcies. That said, the absolute level of activity will moderate as we simply have less space to lease. Shifting to transaction activity, we had another quarter recycling capital highlighted by the sale of the previously announced Madison Pool A portfolio for $388 million. Net proceeds were used to pay down debt and reinvest in convenience assets in Atlanta and Phoenix. We also opportunistically sold one wholly-owned property in Columbus at a cap rate in the 6% range and used the proceeds to pay down debt and to repurchase stock at a double-digit FFO yield and a mid-8% implied cap rate. The largest investment this quarter was the acquisition of a four-property portfolio for $23 million in Phoenix, Arizona, which is a top 10 market for the company and a market we've transacted in a number of times in the last year. The property is 100% leased to a mix of service and quick-service restaurants with 76% of the tenancy national credit and a drive-through unit at all four properties. We underwrote a five-year NOI CAGR of 3% plus with minimal CapEx, which is consistent with our existing convenience portfolio and one of the key attributes of our thesis. Moving to Atlanta, we bought another convenience asset in our largest market and remain excited about the potential for more opportunities to grow our portfolio in this key MSA given our presence on the ground. The property is located just a few miles west of Hammond Springs, which was another convenience asset we acquired in 2021. Going forward, we remain encouraged by the unique opportunities in the convenience sub-sector that are a direct result of local relationships formed over the past several years. Future acquisitions would allow us to continue to grow our portfolio of properties with strong credit and low recurring CapEx located at high traffic intersections within wealthy suburban communities. 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. The decision, as always, will be measured against other capital allocation options that we have at the time, and consistent with our goal to generate sustainable OFFO and AFFO growth. In summary, we are pleased with our portfolio and the current strength of operations, our investments, which have increased our long-term growth profile and future investment prospects, which we believe will create stakeholder value while prudently managing our balance sheet. Thank you to the entire SITE Centers team for another very productive quarter. 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 fourth quarter and 2023, and then conclude with the balance sheet. Third quarter results were ahead of plan, as David mentioned, due to a number of operational factors, including earlier rent commencements in higher occupancy and higher overage and ancillary income. These operational factors totaled about $0.01 per share relative to budget. The quarter also included $200,000 of unbudgeted straight-line rent from the conversion of cash basis tenants and $300,000 from payments and settlements related to prior periods. In terms of operating metrics, the lease rate for the portfolio was up 60 basis points sequentially and 270 basis points year-over-year, with our lease rate now at 95%, which is well above the company's pre-COVID high watermark of 94.3% back in 2017. Highlighting our leasing volume and backlog, we had over 250,000 square feet of new leases commenced in the third quarter, representing over $5 million of annualized base rent. Despite that, the SNO pipeline was effectively unchanged at $22 million as new leases were added and offset the impact of commencements. These signed leases continue to represent over 5% of annualized third quarter base rent or over 6% if you also include leases in negotiation in our pipeline. We provided an updated schedule on the expected ramp up of the pipeline on Page 6 of our earnings slides. Same-store NOI grew 1.1% in the third quarter, with the uncollectible revenue line item a 160 basis point headwind to year-over-year growth. Included in uncollectible revenue this quarter were $510,000 of reserves related to unpaid revenue from Cineworld as a result of its recent bankruptcy filing. Moving on to our outlook, we are raising our 2022 OFFO guidance to a range of $1.16 to $1.17 per share. Rent commencements, uncollectible revenue and G&A are the largest swing factors expected to impact fourth quarter results, and where we end up in the revised full-year range. We are also raising expectations for fee income to the top end of the prior range and leaving same-store NOI guidance unchanged, which we believe is prudent considering the macro environment despite third quarter outperformance versus budget. To date, outside of the Cineworld bankruptcy, we've had no unbudgeted fallout or other bad debt headwinds. Details on same-store NOI are in our press release and earning slides. For the fourth quarter of 2022, there are a few moving pieces to consider from the third quarter. First, as I previously mentioned, we had $300,000 of non-recurring uncollectible revenue and $200,000 of non-recurring straight-line rent in the third quarter. Second, the Madison assets sold in July generated almost $200,000 of NOI at share and almost $750,000 in JV fees in the third quarter, which implies total JV fees of about $1.8 million for the fourth quarter. Lastly, the third quarter included $1.3 million of lease termination income, which is about $1 million higher than our trailing two-year quarterly average. A summary of these factors is on Page 9 of our earning slides. Moving to 2023, we are not providing guidance at this time, but wanted to provide clarity on a few line items heading into the New Year. First on fees, we expect JV and RBI fees to total about $5 million with minimal contribution from RBI. This assumption reflects activity to date along with additional expected JV asset sales. Second, we would expect G&A to be about $50 million. Third, 2022 year-to-date results include $2.8 million of non-recurring reserve reversals, and based on remaining AR on the balance sheet, we expect reversals to be relatively muted in 2023. Lastly, we have three Cineworld or Regal Cinema locations with total annualized base rent of $2.9 million as of September 30. None of the leases have been rejected to date, but it is likely that we will recapture at least one location based on our initial conversations. The three leases are generally evenly split in terms of rent and recoveries across our total exposure. Finally, ending with our balance sheet. At quarter end, leverage was 5.3x, fixed charge remained over 4x, and our unsecured debt yield was over 20%. In the third quarter, we repaid the debt associated with the Madison Pool A portfolio as part of that sale, and swapped the $200 million term loan to a fixed rate for the remainder of the loans termed at an all-in rate of 3.8%. Pro forma for these transactions, the company has just $87 million of unsecured debt maturing through year-end 2023, $870 million of availability on a recently recast line of credit and floating rate exposure is just 6% of total debt. This leverage profile and significant capacity provides substantial liquidity and allows us to take advantage of potential future opportunities as they arise and to drive sustainable growth. With that, I'll turn it back to David.

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

Thank you. We'll now begin the question-and-answer session. Our first question comes from Craig Mailman from Citi. Please go ahead.

Thanks. Good morning, everybody. David, I just want to touch on the leasing. You seem to detail there in the pace of velocity actually did improve quarter-to-quarter kind of led by renewals. There seems to be still some confirmation in the market about the headlines you're seeing and among the retailers and the kind of the STEM fundamentals we're seeing among the landlords. And I'm just kind of curious if you could give kind of some updated color what you're seeing quarter-to-date. And also just curious how much if any, do you think demand is being pulled forward this year with a higher pace of renewals?

Craig, it's a little hard to hear you, so I'll try and answer that and then you can let us know if we miss any pieces of it. But the leasing activity just remains to be very strong. I think we've had a number of people speculate when that's going to slow down some of the macro concerns about the consumer or inflation or pending recession is going to kind of put an abrupt halt to leasing. But at this point, we're just not seeing a slowdown in demand. I would say that we're seeing a slowdown in supply. I mean our properties at this point at 95% and like we mentioned in the prepared remarks, the additional square footage in center negotiations now feels like it's continuing to move higher through the remainder of the year. I guess the only color I can give you on that is that it feels like in the wealthier suburban communities where we operate, there's two things that have come out of the pandemic that remain very clear in the retailers' minds. One is that convenience matters. And that's either from in-store personal trips that are kind of short duration and quick trips from your local community. And the second is that the larger retailers are using their store fleet for fulfillment. And so they're trying to get as much square footage out into these wealthy suburbs as they can, and there's just not that much space left. So I think part of that is prompting them to action where they see rents rising and they want to secure space in 10-year leases. And that's why most of our leasing activity is with national credit tenants and we just haven't seen that much demand and we haven't executed many leases with local small shops. It's mostly the national chains.

That makes sense. And just one quick follow-up on that. Conor went through the Cineworld impact and you had mentioned that there could be some room for lease rates going forward, absent any bankruptcies. Could you guys just give a sense of how you feel about some of the tenants in your portfolio that have kind of been in the news, whether it's the Bath & Beyond or others, and what type of reserves you may have embedded right now or how we should think about maybe for 2023 with bad debt?

Hey Craig, it's Conor again. You're hard to hear. So let me know if I miss any pieces of your response. On Cineworld, I said in my remarks, we expect to recapture one of the three and the revenue is fairly equally split between the three locations. The reserves taken in the third quarter were entirely related to the unpaid rent from the third quarter, was unpaid revenue, I should say, excuse me. We had the tenant on cash basis previously, so there is no additional AR hit or bad debt hit from that specific tenant. As for the other tenants you named and some other names that are on folks' watch list, we can't speak to individual tenants. I would just tell you we feel really good about the quality of our portfolio, the level of demand we have. And we've had periods before we've had bankruptcies, and I think if you look back in the last five years at this portfolio and our track record, we've been able to successfully backfill those locations at higher rents with better tenants. So if there is an uptick in bankruptcy, obviously it's outside of our control, but we feel really good about the backfill prospects and the portfolio in general. And so comment on 2023, happy to address that as we get closer to the next year and provide guidance.

Thanks. Appreciate it. And this is Nick Joseph here with Craig. Just one more. As you think about deploying capital, how have your return hurdles adjusted given the change in your cost of capital? And then how do you think about that in terms of either share buybacks or acquisitions from here?

Well, there certainly, our return thresholds have gone up. I mean, they've gone up commensurately with the borrowing costs. I think that there's not a ton of deal flow out there, so it's hard to say where cap rates are settling in and things have moved so fast. But we have been buying at higher cap rates this past quarter than we were two quarters ago. With respect to the allocation decision of capital as to whether we're buying assets or stock or paying down debt, it really depends on the source. And to date, we've really been using proceeds from asset sales and we've done a little bit of everything, and that is a strategy that will likely continue.

Thanks, guys.

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

Hey, good morning, everybody. David, you mentioned the 250,000 square feet of activity that's under negotiation. Maybe walk us through kind of any changes you're seeing in those leases versus maybe what you've both signed over the last six months. Any pushbacks you're getting from those potential retailers, whether it's higher TIs just trying to see what given all sort of the higher costs and potential slowdown out there. I mean, what are the concerns that they've come forward in those leases in terms of negotiations?

Samir, if you look on Page 13 of our stuff, which has got the particularly the net effective rent category, you'll see that one of the changes over the past year is that we've kind of shifted from more box leases to more shop leases. And I think that's the trend that's going to kind of drive us through the remainder of the year because we've really leased all of our larger square footage locations. There's very few left. And so the demand right now is coming from national shops. Those leases are less of a negotiation than the larger anchor leases. And so I don't think the terms have changed very much. Certainly, the cost of building out a space has gone up in the past year. But rents have also gone up. So I think if anything, we're just starting to see the speed at which some of these retailers want to get into local shops has improved. And that's kind of the only trend I can come up with. I really haven't seen a lot of change in terms even the request for TI dollars hasn't gone up as much even though I think the spaces are a little bit more expensive.

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

Hi, thanks. Good morning. David, just following up on the topic around capital deployment. I'm just wondering if the market for dispositions is still there to raise capital for reinvestment in new properties or buybacks. And if you could just talk a little bit more about the appetite for stock buybacks in the current environment with the share price below the level at which you repurchase shares at in September?

Well, on the disposition side, it is kind of interesting. You remember there's one important piece of the transactions world in this country and that's 1031. And there have been a couple of situations where a 1031 positioned buyer has called us and talked to us about other things that we might want to sell. And so I do feel like there's one-off activity with smaller or midsize properties. Even in the brokerage world, you haven't seen a lot of large portfolios marketed right now. But I do think there's still a lot of activity kind of under the covers where you're getting 1031 money that has to be redeployed quarter-to-quarter. And in certain cases, that's an opportunity for us to recognize, if you would say, yesterday's prices with today's transaction. And even if it's just a little bit, Todd, it gives us an opportunity to have some recycling. The decision as to whether we're buying assets or paying down debt or buying stock, I think has everything to do with the sourcing of those funds. And so the way we thought about last quarter notwithstanding the fact that the price at which we bought back stock was higher than today's price. But the cap rate at which we sold the asset and then repurchased stock was awfully accretive. And so I think we feel comfortable with that trade because the cost of that capital is a mark on the asset you're selling and not necessarily where the stock is trading that day.

And Todd, the only thing I'll just add to that is we don't need to sell assets to buy assets. We think it's prudent at this point in time. We still have $40 million to $50 million retained cash flow and other sources of liquidity. So to David's point, we think it makes sense right now to match funds, but it's not a requirement given the balance sheet position we're in.

Okay. And then you did mention, though I mean it seems like you're still very much focused on acquiring convenience-oriented centers like you've been acquiring over the last several quarters here. I would think that that market is a little bit more fragmented in general and might lend itself well to this environment. Maybe not a lot of distress at the asset level, but do you expect to see some financial distress perhaps begin to surface, the longer this environment persists and is this an opportunity for you to be a little bit more aggressive, maybe a catalyst for a joint venture arrangement or a partnership or do you think that you pause and sort of await more visibility and slow down a bit here?

Well, to your first point, I certainly agree that it is a fragmented sub asset class. The dollar value of the transactions tends to be smaller. And I think we've seen that the movement in cap rates up and down happens a little bit faster simply because the dollar values are smaller. Our hope is that we're going to find even more better inventory than we've seen to-date when people's mortgages mature and the cost of refinancing is high and therefore a sale is more likely to happen. I know John sitting next to me here and he's still reviewing an awful lot of deals on a weekly basis. And so I think we can be very selective. But the pricing of those seems to have been moving in our benefit. To your second question on joint ventures, I think at this point, given our capital position, we feel pretty confident that we're finding deals that we like and we can decide at that time whether we want to buy and continue to grow. We're open-minded about joint ventures, but if you look at the reduction in JVs at this company in the last five years, the quality of our earnings is just much higher than it was five years ago. And a lot of that is because its wholly-owned assets that we've bought as opposed to legacy joint ventures where some of that income is coming from fees.

Okay. Got it. And just lastly, Conor, you gave a little bit of color on 2023, which was helpful, but any thoughts about the May 2023 maturity $87 million about 3.5%. How should we expect that to be repaid or funded or refinanced, I guess?

Yes. It's a good question, Todd. I mean thankfully, we still have seven, eight months until that maturity. And to your point, thankfully, it's a stub bond. It's not a full-size bond. So look, there are a number of options to date. We just recast our line of credit. So in a worst-case scenario, we've got five years of term there and we could put on the line. That's obviously not a sustainable long-term solution. But other solutions are we approach the IG market if we see a little more stability or our secured debt ratio is 2%, so we could go down the secured debt route if we need be. So there are a lot of options to your points. It's quite a bit of ways and it's a stub bond. It's not significant relative to the enterprise, but we've got a lot of options. And then the last one is just retained cash flow and paying that down over the course of the year. So TBD until we get closer to that date. The good news is we have quite a bit of time and we will address it as we see fit at that time.

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

Hey, good morning. So two questions. David, you mentioned upfront that you were surprised how strong leasing has been and at the same breath said, hey, look, at some point expect, overall leasing volumes to just moderate given running out of space. So two parts to that, one, small shop is still sort of in the mid-80s, so it seemed like there's still plenty of runway there. But even still presumably as you run with less leasing just because you're running out of space, presumably we'll see accelerating rents or something of the sort that would sort of signify more pricing power. So I'm curious, are you suggesting that we should be bracing for slower leasing and slower rent growth? Or is it just a heads-up to us to be aware of the composition of the leasing stats and maybe focus more on rent growth rather than overall leasing volumes?

Good morning, Alex. Well, certainly I would focus less on overall leasing volume, total square footage of new leases, and that's simply because the amount of inventory left is getting pretty skinny. I do feel like the market rents are still increasing and in certain locations, it's surprisingly high in terms of how much more rent we're getting than we had maybe two or three years ago. A lot of that is simply because the locations that someone wants, particularly end caps and drive-throughs, are in such high demand that those rents are escalating far more than inline space. With respect to my comment about being surprised, I think I'm only surprised because like all of us, we hear the negative news every day, skepticism about the economy, nervousness about a flow down, rising inflation, there’s a lot of macro conversations that are scary. And sometimes sales, any sales environment, including leasing is sentiment-driven and retailers can change their sentiment, get nervous and pull back. It just hasn't happened. And I think part of that confidence from the retailers is when they look at high-income suburbs. Remember our average household income is $115,000. These high-income suburbs don't have that much space that’s available, that is convenient, that has the parking lot, it has curb cuts, it has visibility. So the demand is there. And it feels like even if demand slows down, there's enough tenants that are all going after the same space that it just feels like we've got a little bit more room to run.

Okay. And then the second question is, and if you already sold it then my bad for forgetting, but I believe you guys still have a Chinese JV that David you arranged a number of years ago, just given changes, we've seen other Chinese real estate entities pull back, whether it's because of debt or political pressures from Beijing. Is there anything with your Chinese JV that could result in that potentially unwinding or some transaction occurring or that seems feels pretty safe and comfortable to you guys?

We haven't seen any change to date. We were just on the phone with them for their quarterly distribution call last week. Our partner there is an awfully large institution. They're happy with the dividends and the collection rate through COVID. I think if you look worldwide at real estate, a company that can deliver a 7-plus percent dividend through COVID is seen as a pretty secure investment. So I don't see any change in the structure of that joint venture in the near-term.

The next question comes from Ronald Kamdem from Morgan Stanley. Please go ahead.

Hey, two quick ones from me. Just staying on the JVs, you just touched on the Chinese institution investor one, but just on Madison and Prudential, just maybe any updates on the plan there. Is there a long-term thinking of doing more selling? Just how should we think about those?

I think it's status quo Ron right now. I think that the larger institutions are very aware of what's happening in the credit markets right now. They're heavily engaged in looking at the quarterly reports that we give them from the operations. I think like most people, they're very happy with the operations, and there's a question mark around valuation. And so because of that, I think status quo is probably more likely going forward on those smaller joint ventures we have. Madison has been selling assets for the past couple of years. And so I think as we mentioned in our prepared remarks that, that is likely that we continue to see some asset sales coming out of that joint venture.

Got it. Helpful. And then going back to the question on sort of the maturity next year. I know, Conor, you mentioned there's a lot of options. But just can you just remind us like where could you issue sort of longer 10-year paper today? Or just give us a sense where the market is today and so forth?

Yes. It's a good question, Ron, and it really depends to your point on the day. I would say the range we've gotten quoted from working with our DCM desk kind of across our banks we work with has been anywhere in the last six months between 5% and 7%. And so kind of my early response, it depends on the day. So thankfully, we've got, I would say, extreme flexibility or optionality when it comes to secured debt, the IG market, the term loan market, whatever it might be. We've shown kind of proven access to all three of those markets over the last five-plus years. And so again, we're talking about a stub maturity that's $87 million relative to a $5-plus billion enterprise value. Again, we will address it as it comes due in May of next year. But when we think about kind of risk to the system or risk of the company, I put down the low end of the risk spectrum.

Our next question comes from Mike Mueller from JPMorgan. Please go ahead.

Yes. Hi. So I know it's not a lot of volume, but can you give us a sense as to what the cap rates were on the third quarter acquisitions? And then second question, the commenced rate on same-store is about 91.5%. If we look at your signed but not open schedule, where would that take your commenced level, do you think by the end of 2023?

Hey Mike, it's Conor. I think last quarter, we talked about the blended cap rate on acquisitions over the course of the year was, I think, just under 5.5%. And I think it's fair to assume with the third quarter acquisitions, it's modestly higher than that. I mean, it's a small only $31 million and the $336 million we bought to date. To David's point, though, we are seeing some upward movement there. So I think it's fair to assume our going in cap rate if we were to buy something going forward, it would be higher than that and obviously more conducive to our cost of capital, more in line with our cost of capital to kind of Craig and Nick's question. And I missed the second question. I think it's related to 2023. So I'll think of a dodge, but I can't recall the second part of the question was.

I was looking at your commenced rate of 91.5%, and if we follow that signed but not open schedule, where would that put your economic occupancy by 2023?

Yes. If you look on Page 6 of our slides, Mike, we've got the commencement schedule for the SNO pipeline by year. We obviously will break that out by quarter in February as we provide more disclosure on the ramp of 2023. The hard part is the SNO pipeline is in dollars and your question around the lease rate and the commenced rate is in square footage. So it's a little bit of a mismatch. But I would point you to Page 6 and think of that as your guide over the course of 2023 and 2024 and the SNO commencement deliveries.

Got it. Going back to the cap rate question, even though volumes are lower and not all data points are visible, when considering your observation on higher cap rates, would you say that cap rates have been increasing in line with the rate movements, or do you think they have risen less than what you've observed in rates?

Mike, I'll answer that but warn you that we're talking about a pretty small volume of transactions. Maybe of $10 million, $20 million; $30 million is not going to really be a great indicator. But I think it's fairly easy to answer that rates have moved up much faster than cap rates have. And I don't think that's going to surprise anybody because the rates have moved up the fastest in 40 years. So I think it just takes a little while for cap rates to reset. The thing to remember is when we're buying convenience assets, about a third of the rent roll matures with no options in the next five years. So even though the cap rates are moving up marginally, the market rents are also moving up faster than anticipated. So I think the unlevered IRRs are the ones that are growing a little bit faster than going in cap rate.

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

Hey everyone, good morning. I’d like to hear your thoughts on the Kroger and Albertsons merger and what you believe it could mean for the shopping center sector and the listed sector as well.

Good morning, Floris. I will suddenly dodge that a little bit. It feels to us like many times when there's retailer mergers and you end up getting in a study of overlap. We've only got one property that I think even has an overlap with multiple brands. So I think our data points are pretty small on deciding what that means to the overall sector. But I could kind of sum it up by saying that any time there's a merger of two large entities like that, you do have to wonder whether store closings are a part of that or the outcome. And I think it remains to be seen.

Yes, I understand that you're less affected than some of your competitors. I was interested in your perspective on what this could indicate for the grocery sector and, to be honest, for tenant exposures as well.

I will learn with you over time. We'll see.

Yes. Floris, I would say, from our perspective, we're excited that the majority of our exposure is to Kroger. I mean, they've obviously done a great job investing in their stores in the last couple of years or the last couple of decades, excuse me. So to David's point, we think the impact to us is fairly insignificant. And again, to David's point, if the overlap and you're thinking about overlapping stores, we feel better about owning the stores that have been recently invested in than the ones that haven't.

Great. I noticed that your operating margin dropped slightly despite higher occupancy. Is this mainly due to the increase in operating expenses without being able to offset that in your recoveries? How has this affected your approach to negotiating new leases with your tenants?

Hey Floris, it's Conor. It's a great question, and I had the exact same question when I saw the first draft of our operating metrics for the quarter, it related to some non-recoverable expenses that I would call, the majority of which were one-time in nature related to some ancillary income that's just a mismatch between the income and the expense. So I would expect that kind of operating margin to continue to trend higher as it has in the last two years especially when you think about commencements and obviously, tenants paying recoveries as their leases commence. So I think the majority of that was kind of a third quarter blip and would point you towards kind of the longer-term last couple of years and trailing 12-month metrics as a better kind of indicator of where we're going from a margin and a recovery percentage perspective.

Thanks, Conor. I believe the last question is about Perimeter Pointe. I know you sold part of it for $35 million. Your redevelopment pipeline only includes a $1.3 million project currently. The redevelopment of the rest of that asset could be very appealing since it’s in a prime location and will be larger. Can you provide any updates on your thoughts and developments regarding that?

Perimeter Pointe, it's been an asset that we have kept liquid for the last couple of years, Floris. We've had a couple of tenants move out. We've not renewed several tenants, and we've tried to get the site in a liquid state, but we have not sold any of that piece of land. I think in our opinion, that's a piece of property that is likely to be split up and sold to mixed-use developers, but we have not consummated any transaction there.

There are no more questions in the queue. 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 for joining our call, and we will talk to you next quarter.

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