SITE Centers Corp. Q1 2023 Earnings Call

Speaker 2: Good morning and welcome to the Site Center's report's first quarter 2023 operating results conference call.

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Speaker 2: Please note this event is being recorded. I would now like to turn the conference over to Stephanie Ruster-Perez, Vice President of Capital Markets. Please go ahead. Thank you, operator. Good morning and welcome to Cite Center's first quarter of 2023 earnings conference call. Joining me today are Chief Executive Officer David Luks and Chief Financial Officer,

Speaker 2: 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 material from our forward-looking statements.

Speaker 2: Additional information may be found in our earnings press release and in our filings of the SEC including our most recent report on Form 10-K and 10-Q.

Speaker 2: 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.

Speaker 3: Thank you, Stephanie. Good morning and thank you for joining our first quarter earnings call. We had a strong start to the year with results ahead of budget, another productive leasing quarter, which pushed our lease rate to an all-time high of 95.9%, and continued progress on the lease-up, construction, and delivery of our tactical redevelopment pipeline.

Speaker 3: with delivery set to ramp into year-act.

Speaker 3: The net result of all this activity is a $19 million signed not open pipeline with commencement sent to accelerate over the next few quarters into 2024, which provides a significant tailwind for the next several years.

Speaker 3: I'll start with some comments on leasing and tenant activity, including bankruptcies, in light of recent macro and capital markets volatility, and then move to transactions before handing it over to Connor to give more details around the quarter and revised 2023 guidance.

Speaker 3: In terms of leasing, the trends that allowed us to achieve the leasing volume and economics over the last three years remain in place despite significantly more macroeconomic concerns.

Speaker 3: Supply in our sub-markets is extremely low and demand remains strong this quarter from national retailers looking to expand their footprints in the wealthiest suburban markets where we operate.

Speaker 3: Recent mobile phone data supports the fact that suburban customers are visiting our properties more frequently and more evenly spread through the week than pre-pandemic levels. And we were correct in our belief that this would ignite demand for store locations offering convenient access to goods and services.

Speaker 3: Beginning in 2020, we made a number of changes to position our organization to capture this demand and maximize leasing velocity, and it feels like those changes continue to bear fruit.

Speaker 3: Leasing demand can be highly cyclical and correlated with the overall economy, but to date we just haven't seen anything material of note that would indicate a slowdown.

Speaker 3: The one change that we have seen this year, as I noted in February , is the return of chain bankruptcies including Party City and the widely anticipated filing of Bed Bath & Beyond this past weekend, among others.

Speaker 3: I'll provide an update on these two identified tenants, as we don't have any real exposure to the other tenants that have filed a date.

Speaker 3: For Party City, SIPE had 17 locations at Quarter End, with total exposure of about 90 basis points of base rep.

Speaker 3: At this time, we do not expect any of these locations to be rejected or stores to close with no material impact to full year NOI.

Speaker 3: This result is a function of the high sales productivity within our portfolio, our asset quality with properties located in the tops of urban markets in the U.S. and demand from other credit tenants per space which provided us with significant leverage as we engaged with Party City.

Speaker 3: The final outcome is dependent on the company's emergence from bankruptcy, but we are really pleased with the results to date and the implicit stamp of approval on our real estate.

Speaker 3: Shifting to Bed Bath and Beyond, we have 17 locations including four buy buy baby stores which represent 1.8% of Bay's rent.

Speaker 3: Now that we finally have clarity on timing and control, we feel extremely well prepared for a focused marketing cycle and are confident that number one, there are single user backfill options for 16 of those locations, given the amount of inbound activity we've seen over the last several months.

Speaker 3: and two, that the majority of our stores will have executed leases over the next 12 months, with rent commencements by year-end of 2024.

Speaker 3: Part of our confidence in demand for these spaces is the fact that our portfolio of assets to contain a bed bath or a bi-by baby has a currently straight of 99 percent.

Speaker 3: This portfolio has zero junior anchor space available, so the opportunity to access these properties is very attractive to growing national retailers.

Speaker 3: As you can imagine, we would very much like to recapture space from weak tenants while demand for that space is strong.

Speaker 3: So our leasing team has been highly focused on replacement tenants in preparation for the chance to upgrade our tenant roster at Materially Better Economics.

Speaker 3: One such tenant upgraded executed in the first quarter was a new lease for a specialty grocer at our Tanninsborne property in Portland that will replace two legacy junior anchors that we terminated last year.

Speaker 3: That leads brings the tactical pipeline to over 88% least with deliveries expected to ramp into year end.

Speaker 3: We made additional progress on a few other key locations in the first few months of 2023 and expect to add projects and details to the supplement in the coming quarters.

Speaker 3: These deals, while smaller scale in terms of total dollars, are expected to boost the company's NOI growth going forward, given their returns, and importantly, are expected to be immediately credible to earnings.

Speaker 3: Moving to overall portfolio leasing for the quarter, as noted, activity remained high with almost 500,000 square feet signed.

Speaker 3: In terms of new leasing, we signed 133,000 square feet of new deals with the lead drape for both anchors and shops up 50 basis points sequentially.

Speaker 3: Putting that lease rate into context, at 95.9%, our lease rate is now 210 basis points higher versus year-end 2019, and 160 basis points higher than the company's all-time high watermark, which was 94.3% back in 2017.

Speaker 3: Looking forward, we have another 300,000 score feed-at share of currently's negotiations with blended spreads above our trailing 12-month average.

Speaker 3: We expect this pipeline to be completed over the next two quarters, concentrated in a mix of national, publicly traded credit tenants.

Speaker 3: That said, the absolute level of quarterly activity will remain volatile as we simply have less space to lease until we take possession of square footage from bankruptcy.

Speaker 3: And lastly, with respect to transactions, we had less activity in the first quarter as compared to year-end, but did successfully reinvest the remaining proceeds from the sale of $158 million of assets in the fourth quarter. Specifically, we repurchased $20 million of stock and acquired three convenience properties for $42 million.

Speaker 3: In terms of overall transaction activity, macro and capital markets volatility is having an impact on deal volume.

Speaker 3: And I would expect overall transaction volume to remain low until we have some stabilization in benchmark rates and therefore visibility on cap rates.

Speaker 3: There is capital available and deals are getting done. They are just taking longer, with more moving pieces and a higher risk of fallout.

Speaker 3: That said, volume for smaller properties, including convenience assets, is still running higher than other retail formats.

Speaker 3: In summary, we are pleased with our portfolio positioning, balance sheets and investments to date, which we believe prepare the company for a wide range of economic outcomes.

Speaker 3: A special thank you to the entire Site Center team for another great start to the year. And with that, I'll turn it over to Connor.

Speaker 4: Thanks David. I'll comment first on quarterly results. Discuss our revised 2020-23 guidance, excuse me, and then conclude with the balance sheet and capital plans for the year. First quarter results were ahead of plan, as David mentioned, due to a number of operational factors.

Speaker 4: including higher than forecast, occupancy and answer income.

Speaker 4: earlier rent commensments and lower than expected GNA. The operational factors totaled about two cents per share relative to budget.

Speaker 4: In terms of operating metrics, trailing 12-month new leasing spreads accelerated it from the fourth quarter with blended spreads roughly unchanged at just under 9%.

Speaker 4: We continue to see strong leasing economics to the pipeline, though quarter over quarter volumes and spreads will remain volatile given our denominator.

Speaker 4: The S&O pipeline was up modestly sequentially to $19 million as new leases offset the impact of commencements. These signed leases represent just under 5% of annualized first quarter base rent.

Speaker 4: and over 5% if you also include leases and negotiation in our pipeline providing a tailwind to cash flow.

Speaker 4: We provided an updated schedule on the expected timing of the pipeline on page 6 of our earning slides. Same story on OI grew 4.2% in the first quarter with young collectible revenue line item a 130 basis point headwind to year over year growth.

Speaker 4: Same store base rent growth also accelerated to 3.6%, which was up 80 basis points from the fourth quarter.

Speaker 4: Moving on to our outlook. We're revising 2023 OFFO guidance up to a range of $1.11 to $1.17 per share driven primarily by first quarter-out performance, including better than expected same-store NLI, and a higher outlook for full-year occupancy.

Speaker 4: Rent commencements, investment activity, and potential tenet bankruptcies remained the largest swing factors expected impact where we end up in the full-year range.

Speaker 4: We are also raising our same Serenoligines to a midpoint of 1.25%.

Speaker 4: Prior period reversals of $3.4 million in 2022 remain a roughly 100 basis point headwind to growth and we continue to include an annual bad debt reserve along with specific bankruptcy assumptions related to tenants that have filed for bankruptcy along with others with well-publicized liquidity concerns.

Speaker 4: Through the first quarter, we have not used any of the credit loss reserves.

Speaker 4: We have three notable national tenants in bankruptcy as of today.

Speaker 4: that includes Cineworld, Hardy City, and Bed Bath & Beyond.

Speaker 4: For CenterWorld, we now have the executed agreements at all three of our locations.

Speaker 4: Though the leases have not been affirmed by the court, and remain subject to change until the company exits bankruptcy.

Speaker 4: That said, the net result of a $1.3 million impact from 2022 remains unchanged from our fourth quarter call, and first quarter earnings reflected the expected amended terms.

Speaker 4: For Party City, as David mentioned, we do not expect any rejections or store closures as part of the company's restructuring.

Speaker 4: Similar to the center world though, this outcome is subject to party cities' bankruptcy exit.

Speaker 4: And lastly, for bed bath, prior to their filing, we did receive April rent for the majority of our locations.

Speaker 4: And lastly for Bed Bath, prior to their filing we did receive April rent for the majority of our locations with $300,000 unpaid as of last week.

Speaker 4: The midpoint of guidance for both SAMHSTOR and OFFO continues to assume that we recapture all of their bedbath flag stores in the second quarter that we don't know the ultimate outcome of store rejections, potential lease acquisitions, or subsidiary sales at this time.

Speaker 4: Moving to the second quarter of 2023, there are a few moving pieces to consider from the first quarter. First, G&A is expected to be approximately $1 million higher sequentially with a full year run rate of approximately $46 million.

Speaker 4: Second, interest expense is also expected to be higher as you repay the $87 million on secured stuff on in May.

Speaker 4: And third, we are budgeting an increase in untautable revenue as a result of bankruptcy activity, including bedbath in the second quarter, as compared to the first quarter, which had no material headwinds. A summary of these factors is on page 9 of our earning slides.

Speaker 4: Finally, ending with the balance sheet and capital activity, a quarter end leverage was 5.3 times, fixed charge remained over 4 times, and our unsecured debt yield was over 20%. We have the aforementioned stub bond maturing next month, which we expect to repay at maturity with cash on hand and availability on the line of credit.

Speaker 4: Recall, we recently recast our $950 million line of credit less than a year ago, which provides significant liquidity and availability through 2022.

Speaker 4: To put this on context, at the midpoint of the guidance range, we expect death to even to remain below six times.

Speaker 4: to generate almost 50 million dollars of retained cash flow with an AFO AFO pair ratio of roughly 70 percent.

Speaker 4: and have no unsecured maturities until August of 2024.

Speaker 4: This leveraged profile and liquidity provides substantial capacity and optionality to fund the company's business plan. Without it, I'll turn it back to David. Thank you, Connor. Operator, we're now ready to take questions.

Speaker 5: We will now begin the question and intercession. To ask a question you may pre-star the one your touchdowns roll.

Speaker 5: If using a speakerphone, please pick up your handset before pressing the keys. To withdraw from the question cube, please press star then two. At this time, we will pause momentarily to sum our roster.

Speaker 5: Our first question will come from Todd Thomas with Keybank. You may now go ahead.

Speaker 6: Hi, thanks. Good morning. First question, I guess, you know, look, there's been a lot of uncertainty around bedbath and the outcome now that they filed is still uncertain, but you mentioned 16 single user backfills and it seems like demand for their space may be solid. You know, any thoughts whether there might be a lot of leases, you know, sort of assumed or auctioned off.

Speaker 3: on the portfolio of bed vats and buy-by babies is somewhere in the 25 to 30% range, but it varies depending on properties. So number one, we feel really good about the backfill prospects. As I mentioned in our prepared remarks, if you take that portfolio where we have these properties, they're 99% least, there's not a single other...

Speaker 3: anchor space available. So they are very much attractive to a lot of growing retailers. There is some risk or opportunity depending on how you wanted to find it that a couple of of these leases get bought through the bankruptcy process, but I honestly have no idea one way what the outcome will be.

Speaker 6: Okay, and then Connor, you mentioned in your comments around the updated guidance that the midpoint assumes that you get all the bedbath boxes back during the second quarter. So you didn't, you know, 300,000 of April revenue was unpaid, but going forward now until store.

Speaker 4: Holy Only Leases rejected last night. So obviously we won't get rent on those three going forward for the rest of the year. But to David's point in your question, I mean, this could be dragged out a little bit for a number of leases as they get auctioned and potentially as folks acquire them. But you're right, we've assumed a lost month for the month of April or May, depending on which...

Speaker 6: And this is just last question, I guess, also around bedbath, but more around investment activity. Does the filing and I guess plan wind down to their operations improve asset liquidity a little bit. There's been so much uncertainty around bedbath. I'm just curious whether that does improve liquidity for

Speaker 3: It's a really good question. The fact of matters is what we've been selling are stabilized assets.

Speaker 3: And we've gotten the best proceeds, you know, historically from core buyers that are looking at stabilized properties.

Speaker 3: We haven't really been a seller of vacancy. So for us in particular, I think as we continue to recycle a little bit, you'll see a self-stable assets and buy growth assets. For the overall market liquidity, I completely agree with you that if there is a vacancy and there's a weaker tenant that's now gone.

Speaker 6: Okay, great. All right. Thank you. Thanks, Todd.

Speaker 5: Our next question will come from Craig, mailman with city.

Speaker 5: Our next question will come from Craig, mailman with city. You may now go ahead.

Speaker 7: Good morning, guys. Connor, I just want to kind of clarify. Are you, I think you guys are 250 basis points of bad debt at the midpoint for same store with initial guides? That's still the assumption.

Speaker 4: Hey Craig, good morning. It's come down modestly for a couple of reasons. One, I made a comment that we are expecting higher occupancy over the course of the year. So visibility on some renewals is obviously higher today than it was three months ago. So that'd be 0.1. And then 0.2, just the calendar, you know, bed bath filing, they are going for a historically quick.

Speaker 4: liquidation right two months. Now obviously they've had quite a bit of time to prepare. So there is a chance to be able to pull that off, but as we just get later in the year, some files it's going to take three to five months or longer for them to wind down operations. And so that just puts less pressure on potential bankruptcy risk for the year.

Speaker 4: So the short answer is it's come down modestly, it's closer to 225 basis points today than 250, but that's the function of our our expectation for higher occupancy over the course of the year and just as we get later in the calendar.

Speaker 4: So as you think about the uptick in in San Circula like 25 base points for bad debt and 25 base points from occupancy is how we should think about it. Yeah, I mean, I think that's fair. I mean, you could go, you could swing at a couple bases points either way. I mean, I would just say Craig, it's April 25th. David mentioned a number of kind of macro uncertainties we're seeing.

Speaker 7: You know, we're not trying to push things too hard here. There's a lot of time left and we'll see how things go. But yeah, I think it's fair to assume it's a little bit of both. Okay, then on the recent front sounds like things are still going well. There's a lot of demand. I'm just kind of curious on two fronts. One in the first quarter, was there any kind of change in cadence as we got into March? Okay.

Speaker 7: the banking issues kind of came to a head and how they could be looking the first quarter. Then secondly, I mean, is there enough space coming back from bedbath and party cities and these other retailers that would kind of be that outlet for the man going forward that can kind of sap some of the additional leasing you guys made otherwise.

Speaker 7: issues kind of came to a head and you know how that could be looked in the first quarter. Then secondly, I mean, is there enough space coming back from bed bath and party cities and these other retailers that would kind of be that outlet for the man going forward that could kind of sap some of the additional leasing you guys may have otherwise seen? Craig basis. excited forward.

Speaker 3: As far as sentiment changes due to the mid-tier bank, drama in the last month, we really didn't see any change in the pace or the volume of lease negotiations. It just didn't seem to infect those conversations. I think if anything, the biggest challenge we're having is just not that much space left to lease.

Speaker 3: So, to your second question, I'll pivot to that. Getting back 17 locations in a portfolio that had zero available is really a great opportunity to upgrade credit. And right now I would say there's more than 17-10's that want to take those spaces. So, it certainly will take a little bit of pressure off of the valve.

Speaker 3: of the demand for space because it will satisfy some of those retailers. But at 17 of 35, end up getting the space, there's still a leftover of those tenets that didn't get the space. And whether that's true across the country or whether that's just true in our hundred assets and you know...

Speaker 3: Wealthier suburbs. I don't know, but I think for our portfolio in particular I do feel like the demand right now is definitely higher than the supply. Yeah, I would say Craig one thing We've been really encouraged about in the last two years is the breadth of demand. I think we have a stat like the 75 anchor science Since the start of the pandemic with 46 different operators

Speaker 4: And so what we're encouraged by is for that 17 spaces, there's the usual discounters and fitness operators, but there's also some a wider spread, I would say, of folks that we don't normally do business with, which is really encouraging. Again, that could change to your question around macro sensitivity, but we just haven't seen that yet today. Then just last one, I guess, to circle back to that debt.

Speaker 7: Aside from the bigger chain bankruptcies, what does the shop credit look like? Are you? I know that that debt was better than expected in the first quarter, but is there any change in that credit profile so they're smaller tenants? What do you see on that front?

Speaker 4: Yeah, it's a good question, especially as we grow our convenience portfolio. Remember, we're still 8812 national local from a credit mix. So we don't necessarily have the exposures, kind of the mom and pops. All that said, that story has changed dramatically since the GSE, and there's just less kind of traditional mom and pop policing, regardless of your property type. We haven't seen any pressure yet, but I mean...

Speaker 4: Typically, you see a general lag, a six-month lag, between GDP growth and shop occupancy. And so if GDP growth starts to turn negative, you're going to see some pressure on shop occupancy three, six, nine months from now. We haven't seen that yet, Craig, but it's a good question because it is a potential aheadwind in the future. Thank you.

Speaker 8: Our next question will come from Handel St. Just with Mizzouho. Hey there, good morning. What you guys discussed, what you're seeing out there in the market in terms of cap rates for the types of assets you're looking at in both the convenience of maybe open-air categories. I'm curious what you're seeing out there as well as where you're willing to execute to perhaps and how you describe seller sentiment today. Thanks.

Speaker 3: Sure, and now, good morning. I guess it's hard to speak to the overall shopping center sector just because, number one, we're not looking at every format type. And secondly, they're just have not been that many transactions. From the convenience standpoint, there do seem to be, there's more inventory.

Speaker 3: five and a half caps were fair a year ago. It seems like those are six and a half caps today. So I think the ask has probably gone up 100 basis points. And the question, I think the second question we ask is, where would we transact? And I think that really depends on the source of the funds to purchase that.

Speaker 3: We are doing some minimal recycling, but it kind of depends of what we're selling at and what we think the growth profile is of the acquisition target. But I guess there's some rise that feels like 100 basis points is probably fair from the ask some.

Speaker 1: Okay.

Speaker 9: not call anything. Amen.

Speaker 8: question on the foot traffic. So some data, place or data that suggests that foot traffic was down a year of year in the first quarter. If you're seeing any of that, it's perhaps just a function of Tupper-Comp or any comments maybe on the consumer, any concerns with any potential concerns there with that trend in the first quarter. Thanks.

Speaker 8: question on the foot traffic. So some data, place or data that suggests that foot traffic was down a year of year in the first quarter. If you're seeing any of that, it's perhaps just a function of tougher comps or any comments maybe on the consumer, any concerns with any potential concerns there with that trend in the first quarter. Thanks. Yeah, me when we look at...

Speaker 3: For traffic data, cell phone data, I think we're parsing it in several different ways. One is the trailing 12, like you're talking about, but that can be a little lumpy if a year ago there was something unique. A year ago there was an excess amount of traffic coming out of the pandemic. So I think a little bit of slowdown doesn't really warrant a whole lot of concern. If you look at the traffic versus 2019.

Speaker 3: which is the final year before COVID, it's still very healthily positive. I think what's even more interesting though is that you're getting a lot more frequency of trips. And part of that is because the hybrid work culture and most of our suburban locations is just allowing people to take more numerous, but shorter trips. And sometimes the cell data that you're reading about nationally doesn't capture the really short trips.

Speaker 5: Our next question will come from Alexander Goldflab with Piper Sandler. You may not go ahead.

Speaker 10: Hey, good morning. So two questions. Maybe David following up on Handel's question on the shop or trends. So if customers are shopping more evenly throughout the week.

Speaker 10: Does this change either the tenant who are interested in your centers or the way they merchandise and thus maybe a tenant who was satisfied with one sort of format or space and configuration suddenly wants to shift or do something basically?

Speaker 10: Does this change in shopping allow you guys to drive more rents because of the way people are changing their shopping more evenly? Or you would say, hey, this all just wraps up and increased tenant demands per space. It really doesn't matter how the customer shop, the bigger overriding theme is just tenant demand. I'm trying to understand.

Speaker 10: If there's a difference on the shopping trends versus overall tenant demand.

Speaker 3: Well, it seems out in the morning that there's two different categories. One are the more regional tenants, you know, the junior anchors that are drawing from three five or ten miles away. A lot of these have gotten very sophisticated with their in-store pickup or their delivery from store, they're using the store as part of their supply chain. I think that those tenants are simply looking at the increase in population in the suburbs.

Speaker 3: and the convenience of having something delivered from the store, and that's kind of what's driving a lot of demand. The cell phone data that I was talking about, I think, is more applicable to the smaller shop tenants, and particularly in the convenience assets, because with customers around more frequently during the week, and making more kind of quick in and out trips.

Speaker 3: That is definitely sponsoring demand from tenants that just want to get as close as they can to the households recognizing that they're probably going to get multiple trips per week as opposed to once per week. The simplest example is QSR change. I mean QSR change are looking to get very close to the wealthy customers and they really want to drive through. I think those are both societal shifts that seem like they're pretty sticky because an awful lot of tenants want that type of performance.

Speaker 10: or this is just a reflection of either the legacy leases that are rolling. I'm just trying to understand, is it more a function of where the rents work historically or are you seeing rent acceleration as you price deals? I think it's a little bit of both, but I'll give you some details behind that. I mean, when you're looking at a company,

Speaker 3: one lease. Having said that, I do think that there is significantly more pricing power today than I've seen in my career. I mean, you know, as I mentioned twice now, you know, having 17 bedbats go away in a portfolio that has literally zero anchor space left, that defines pricing power. And when you add on to that, the fact that

Speaker 3: In many cases, our enterprise value right now is about half of a replacement cost. I just don't think that you're going to see a lot of supply come online when the rents to justify new construction shopping centers would have to be 50 percent higher than the rents are today. That's another reason why I think there's pricing power.

Speaker 3: And in the larger locations, you know, the larger units, we might choose credit. We do. We choose credit over, you know, total economics in many cases. But when you get down to the mid-size and the smaller shops, there are high quality tenants that are definitely pushing rent much higher than I would have expected a couple years ago. You know, can you see this play out? I think the best in our renewal spreads.

Speaker 4: We have quite a bit of tennis with options, right? Negotiate options that are zero, five, or ten percent. And you seem slow, kind of steady pressure upward on a renewal rate, which are now approaching close to ten percent, which implies that for the five ten percent options, there's quite a few leases on top of that that we're getting better than that.

Speaker 4: And so that for us is the most encouraging. Where our renewal rates have effectively gone from, call it mid-single digits closer to high single digits. That's a big, big change. And so again, it's a reflection of one pricing power, to your point, is kind of acceleration rents, but also the mix of what we've got. Okay, thank you. You're welcome. Our next question will come from...

Speaker 10: of maybe how many proposals they have. For example, if they want to open 10 stores, has that incrementally shifted at all to 8 and if deals are taking longer to get done? Hey, keep it in good morning, Connor. Given our footprint, I don't think we're a great proxy for overall national tenants to open the buys.

Speaker 4: I would just point you to our leasing pipeline, our new lease pipeline, which again, we don't have a lot of availability. It's running about 300,000 square feet today. That's up modestly from where it was last quarter at 250,000 square feet. So again, to David's prior answers, we haven't seen a change in tone or sentiment. We are very macro aware. It just hasn't flown through in our conversations.

Speaker 10: All that said, we're not a proxy for the national retail environment. We're a proxy for a pretty small subset of assets located in an affluent community. So I don't know how we can expand further from that point. Okay. And on your couple of exhibitions is quarter of Fox Hills and Parker Keystone. It looks like they're pretty well located convenience centers. But it looks like they're pretty fully occupied. I'm just curious.

Speaker 3: what the upside looks like for you guys. And the cap rate, if you can disclose it. Yes, a nice transition from Connors Point about renewal spreads. And when you see us buy 100% occupied property in a wealthy suburb, there's a reason for that. And it's because it's a renewal's business.

Speaker 3: You know, that the shop renewals in the in place versus the market is extremely high in some of these high-income suburbs. And the two that we bought this quarter, that's the story. It's a shorter walled and it's a higher market. So our belief is that the NOI Kager is going to be higher than our overall portfolio at the same time with less cost to get there, less cab bags because it's really a renewal business.

Speaker 3: And what is the year one yield? Well, the year one yield for these two is somewhere in the mid-sixes. I will say remember that I don't really think year one yield is all that exemplary of an investment in convenience when the business is a renewal business. And what is the year one yield?

Speaker 3: So when you take the year one yield, then you factor in a shorter wallet in a higher market. I think the unleavored IRR is probably a better way to analyze a property like this.

Speaker 5: Okay, thank you.

Speaker 11: You may now go ahead. Thanks. Morning guys. Couple questions. Obviously look, you've done a really nice job, Connor, with the balance sheets, you know, de-risked the you know, the the company. You talk about the fact that you've got interest rate caps on all of your...

Speaker 4: I'm going to meet you a dog. Yeah, that's you're talking the right person about concerns. Look, I mean, there's quite a bit at your point. We are worried about a rising rate environment. I know the Ford curve shows a lower benchmark rate environment, three, six, nine months from now. I just think we generally operate the business assuming rates are being higher. It is not our job to predict interest rates and as a result.

Speaker 4: We generally have looked to hedge 100% of our capital structure or debt structure. So for us, as I mentioned, my prepared remarks, we do have the May on secured maturity to stub on coming up. Our plan is to pay that off with cash on hand in line. And as a result of that higher line balance, we entered into an interest rate cap in the first quarter to cap so for at 5% for the next year.

Speaker 4: That gives us the optionality and ability to wait for a window to term out that debt. To your point, to mitigate some of that future interest rate risk. So whether that's an unsecured offering, a secured offering, we don't know. We have the flexibility to go either direction, but you're right. We are intently focused and acutely focused on making sure we have minimal interest rate risk.

Speaker 4: and as much duration as possible. The good news is just given a company of our size, one offering whether it's secured or unsecured has a dramatic impact on our duration. So as you know, for the first couple of years we are here, we focused one on reducing leverage, but two, we are even more focused on pushing out our duration. So again, it's an acute focus of ours. One or two transactions can have a dramatic impact.

Speaker 11: The cap rate might not be the right way to look at the latest transactions. You got 3% fixed rent bumps. Presumably there's a 20 to 30% increase on renewals as well on top of that. Does that get you into the low double digit total returns? Is that how you guys think about that?

Speaker 3: Yeah, I think, well, the factors you just mentioned, I mean, you certainly have fixed 3% bumps, but you've also got, you know, when we're buying properties, we're looking for tenants that have had long-term and aging properties, but they're running out of options. So they're naked renewals as opposed to, you know, fixed rent bumps, and so that's what drives a lot higher. Yeah, I would say that on the unlevered IRR perspective, you know, we like to see it be double digits.

Speaker 4: But it's difficult to be competitive if you expect it to be mid-teens simply because there's lots of other people that also see that same growth. Yeah, and then for the full-group piece is the cat-bex component. I mean, that's what is most intriguing to us where we are very aware of the cap-rate initial yield, what intrigues us on the economics of the business and why David's alluding to the fact that the cap-rate is not telling the whole story is the lack of cat-bex. So...

Speaker 4: convenience thesis because would they get would your convenience portfolio get get impacted disproportionately in such a scenario? I don't think it'd be disproportionately impacted but of course it would be impacted I mean these are small shop tenants where we feel like there's mitigants from a risk perspective is the sub markets we're operating in.

Speaker 4: the availability in those markets where there is limited optionality. And the second piece is our national credit roster. This is not, there are cases where we buy 100% local assets, but the majority is still national to 70, 30 national local mix. And so yes, it has exposure to all those factors we mentioned.

Speaker 4: Everything we own is economically sensitive. But there are quite a few mitigants that make us feel very confident in the investments we've made today and the investments we'll make in the future.

Speaker 11: Yeah that's useful. And how does that 70-30 mix you know national, local compared to your other centers that you have? Is it similar or is it a little bit higher national? We're 88-12. We disclose it I think it's on page two floors for the entire portfolio.

Speaker 4: implicitly probably the rest of the portfolio the non-committees is 90-10 low 90s, you know high single digits something like that And that's for the small shop as well or that's just that's the whole portfolio That's the whole portfolio. I bet you small shops is probably a similar I mean for a larger regional center, you're just not going to get a lot local mom-and-pops

Speaker 4: for our grocery anchor portfolio, we've got to make sure of national locals, but again, it's not that different of a number between the two.

Speaker 5: Okay, thanks guys. You're welcome. Thanks for it. Our next question will come from Samarq Canal with Evercore ISI.

Speaker 5: You're welcome. Thanks, Lord. Our next question will come from Samarq Canal with Evercore ISI. You may now go ahead.

Speaker 10: Yeah good morning everyone. I'm sorry Connor just want to make sure on the GNA front did you say that it was going to be the thought it was going to be 46 million for the year? Yeah.

Speaker 4: Yeah, sorry to cut it's cut out there Samaric. Yeah, so I think the last quarter we said it's closed for 48 This is closer for 40 so I mean we're trending modestly ahead there will be a sequential Increase in gene A from this from the first quarter to the second quarter But we're running a little bit ahead of plan again. It's it's able 25th You know, we feel a little bit better about the number but but nothing material

Speaker 10: change was. And then looking at net effective rent, it was not a lot in the quarter. Was that just sort of a mix thing or like chop versus anchors or was there something else going on there? Yeah, so on that page, Samira, I always point people to the percentage of the LA from shops and anchors and you're exactly right. We have more shops.

Speaker 10: They're positively impacting that effector-vend growth, but for this quarter in particular, it really is just a mixed issue. Got it. And then I guess my final question, I guess, upon David, you talked about through the 17 locations.

Speaker 10: positively impacting that effect of rent growth, but for this quarter in particular, it really is just a mix issue. Got it. And then I guess my final question, I guess, upon David, you talked about sort of the 17 locations for that, that maybe 16 sort of single users.

Speaker 10: Can you provide a little bit more color on economics or rent upside you can see in these locations based on the interest? Now I'm not asking for specifics, but generally what sort of upside do you think based on the negotiation power you have here? Based on what we know today, we think the blended mark-to-market is somewhere to 25 to 30 percent. To complete your absorb your return

Speaker 5: Got it. Okay. Thanks, guys. Thanks, Mayor. Our next question will come from Ronald Camden with Morgan Stanley . You may not go ahead.

Speaker 12: Hey guys, good morning. This is Adam Kramer on Pharan. I appreciate all the color. I think everything is really helpful on the retail front, the bankruptcy front. We just want to ask about the bed bath and that market market that you decided with those locations. Assuming that's not in your sign, but banana opens a number of commencement schedule on slide six. Really just wondering.

Speaker 4: you know, when we think out, you know, whether it's 24 or 25, you're kind of further outsides of the law, right, further outsides from that SNO, from that SNO schedule and how interested bedbat locations can factor into that. Hey Adam, good morning, it's Connor. Let me know if I'm answering your question, but as of the first quarter, the $19 million SNL excludes any of the bedbat locations. We don't have any executable leases. Outside of the one, we mentioned last quarter that bedbat 30 vacated in Princeton. So...

Speaker 4: an occupancy before you start to see the SNO pipeline start to ramp. But let me know if I'm answering that question directly or not.

Speaker 12: reach, you know, these structurally higher occupancy levels. So, but if I know that, that was super helpful. Just a second one, you know, a little bit separately, right? Just think of your capital allocation, recognizing of one QA Pro will transact activity, you know, roughly, you know.

Speaker 12: roughly kind of match, met me, trades on the acquisition. Dispositions, is that kind of strategy going forward, kind of roughly kind of netting out acquisition? Is this position, then how do you think about the buyback and recognizing that maturity coming up? How do you think about the buyback given that you, you know, were a little bit active on it in the first quarter? Well, I just a day with the answer, your first question is yes. And our goal generally in the near term is to be match funding just to the

Speaker 5: Our next question will come from Paulina Rojas with Dream Street. He may now go ahead.

Speaker 13: Good morning. If I heard well, I think you quickly mentioned before that you see the value of your company as I think you set half of its replacement cost. So, I think you can see the value of your company as I think you set half of its replacement cost.

Speaker 13: Can you elaborate a little bit on the ideal for placement costs? Is there a ballpark number? You can provide for development costs per square foot, for shopping centers like the ones you have today.

Speaker 3: And how you have seen that change over time. Sure. Good morning, Paulina. Good early morning for you. Well, as far as our value, you're probably at least people is not better than us to look at that. But in terms of comparing it to new construction, we've done some construction over the past year, especially, you know,

Speaker 3: shopping center that had more anchor space. I think those costs would be a little bit lower on a per-square-foot basis. But even down at, you know, four to four fifty a square foot X land, that's kind of where I'm getting back to the ballpark of some where, you know, enterprise value somewhere around half of replacement.

Speaker 13: Very helpful. Thank you. You put every purchase shares again this quarter. So indirectly related to that, I know it's hard to say in this environment. But in.

Speaker 4: Where do you see your stock trading today of elected to NAV? I hate Paul and a good morning, it's Connor. Just on the Sherry purchase, as we've said, our prepared remarks. Effectively, we're reinvesting the proceeds from the fourth quarter, from the asset sales. I think it was $158 million. We sold those that I think was a 6.7 blended cap rate. And so we took those proceeds and reinvested those in the stock and some assets and debt pay down. So...

Speaker 4: For us, I just want to tell you our visibility and confidence on selling at 6.7 and buying a higher number is really high. In the last six years, I think we've only bought back stock on four occasions. All four of those occasions have been related to disposition where we sold at X and bought at Y. So I would just tell you, we feel comfortable with that spread that we engaged at in the fourth quarter and as we wrapped up that program in the first quarter, but otherwise we really have no additional comment. Thank you.

Speaker 10: Okay, thank you. You're welcome. Our next question will come from Mike Mueller with JP Morgan. You may now go ahead. Thanks. Hi. Just two, I think, quick ones here. So first, just on the bed bath, so Connor, it sounds like by the end of June we should assume roughly 7 million rents go away.

Speaker 10: and then guidance has those coming on with any year or so. Is that correct? And should we be thinking of back and loaded by the end of 2024 and just not a whole heck of a lot in Tillman? That's the first question. And the second one is it looks like you have about eight redevelopment expansions that come online over the next year or so as well.

Speaker 4: Is there a shadow pipeline that you see kind of backfilling that pipeline? I am Mike Good morning. On your bedbath question, it's our assumption that we'll lose that $7 million or rent as of the end of the second quarter. But the day of the answer, you know, to some of the first question, we just don't know. Like some of those leases could get assumed. We don't know. I mean, the bank's due process, again, they're trying to wrap it up as quickly as possible.

Speaker 4: That would be a historically quick process though. So could it go beyond the second quarter? Of course, at certain locations, our assumption is that you're right. It just all goes away. There could be some ancillary upside in the back half of the year, but if we're trying to move as quickly as possible and get these released, we probably wouldn't go down that path. So then you're right.

Speaker 4: you would have downtime. I mean, there's nothing that we think we get back filled this year. And then you're exactly right. Traditionally, you would have a fall opening at the end of next year. So you would have lost rent from the third, fourth quarter this year, and the first and second, and maybe the third quarter of next year. But obviously, we'll see how it plays out. But it's our assumption that they're gone in the second quarter. On your redevelopment question, the short answer is yes. We'll see how it plays out.

Speaker 4: Now, these are smaller projects, they've called it one to $10 million, but we like them, we think they're incredibly creative, they're 100% pre-lease generally, and we feel really good about the risk of war in the economics. So there is a shadow pipeline, we talked about an asset we bought in Boka last year that there's a project we're working on, there's a couple other longer dated projects or longer timeline projects we've been working on for some time. Again, I want to caution, these are one to 10 million other projects, these aren't large scale, taking space offline, mixed use developments, but we're excited about them, we're doing them because we think the economics makes sense. So we're hopeful to add more, but it's a process, it's a swag, we've got a great team on it, but you'll probably see a couple more get added over the course of the year.

Speaker 14: You may now go ahead. Hi, I think you said earlier for the bed baths and beyond sensors, there's no inline space available. And then you have four 17 anchor boxes and more than 17 tenants looking for spaces. Could you talk about some of those tenants? I think you also said that there were some that aren't ones that you typically see.

Speaker 3: more interested in those. Good morning, Linda. David, Conner did a pretty good job with it, I guess, summarizing it before. There's a long history of discounters taking locations, very large national chain discounters. Ross Burlington, T.J.X. concepts.

Speaker 3: But in the last couple of years, what we've also seen is new concepts, many of which are sponsored by those investment-grade companies. TJX certainly has sponsored a couple of new concepts, same with the exporting goods, same with dollar general. So we've seen new concepts that are IG-rated, that have started to become very active in the space. And then on top of that, we've seen more regional chains, that have really good balance sheets, that are anything from home furnishings to furniture to entertainment.

Speaker 3: So the variety is pretty wide. I mean, if you think about the number of anchor leases we've done in the last couple of years, and the percentage of those that are new concepts or individual concepts is pretty high.

Speaker 3: Thanks, and then would you expect to split those boxes and would that require more catbacks? At this point I don't believe so. I mean the size of the bed baths that we're getting back, it looks to us like the demand is a single tenant backfill and that's why I think in our prepared remarks we mentioned out of those 17 locations, 16 of them appear to be single tenant backfills and we feel pretty strongly about that at this point.

Speaker 3: The last one that makes up the 17 is really a redevelopment project in DC Metro where we expect to be using entitlements to get more densification and will likely split that land and sell off a piece. Thanks. Thanks Linda. Our next question will be a follow-up from Handel.

Speaker 8: with Mizzouho. Give me now go ahead. I understand the timing of the bad dead is one of the factors you have highlighted as a swing factor. Can you talk a bit about the expected cadence for the same Toronto wide growth this year, the low 2% at the midpoint. And as we look ahead, given your...

Speaker 8: snow related occupancy visibility to the band you're seeing. I'm curious what type of ballpark, San Francisco and I go to the bottom plaque for next year. I think many of us have thought about this as a long term. Two to two and a half percent San Francisco and I business. I'm curious if you guys think you can top that long term average next year. Thanks. Hey, Handel, can you repeat the first half of the question? Sorry, I just missed out that piece.

Speaker 4: Sure, sure. We're hoping to get some color on the cadence for the same so one of my guide that you laid out this year. I'm just standing again that bad dead was one of the factors you got lined up swing factor but just wanted to get a sense of the cadence. Sure, so there's two major factors and you hit one of them on the head in terms of the SNO pipeline and the commencement dates and so page six on our slides has that laid out by quarter and you can see it's a cumulative chart. The fourth quarter is the most impactful as I talked about I think is on Mike's question, you know, typically you just have for a lot of.

Speaker 4: year's future growth. Look, we'll save that for 2024. I would just say as an industry in general, you have a setup just given what's going on with rent growth and the occupancy upside given these historically high SNOP pipelines for an above trend, same-stri-n-a-y outlook. Now let's see what happens to the economy, obviously a hard landing soft landing we don't know. But you do have the ingredients between a lack of supply and I would call outsized S-

Speaker 4: the outsized same for a 4-D sector for a couple of years now and we'll see what happens to the economy.

Speaker 5: Appreciate the color. Thank you. You're welcome. This concludes our question and answer session. I would like to turn the conference back over to David Luke's for any closing remarks. Thank you all for joining. We'll talk to you next quarter. The conference is now concluded.