SITE Centers Corp. Q2 FY2023 earnings call

• Strong second quarter results ahead of budget with uptick in leasing volume and demand across unit sizes.
• Leasing activity driven by population movement to suburbs and hybrid work trends, with rent growth supported by limited new construction.
• Tenant retention high due to construction costs making relocation expensive for current tenants.
• Progress with Bed Bath & Beyond leases, with leasing team working on replacements and inbound activity elevated.
• Redevelopment projects ongoing, including West Bay in Cleveland and tactical redevelopments in multiple states.
• Acquisition of convenience properties in Atlanta and Houston with favorable demographics and lease rates.

In the second quarter, leasing activity was strong with over 1 million square feet of leases signed, including 170,000 square feet of new deals. Leased rate was 95.5% despite rejections of Bed Bath & Beyond leases. Redevelopment was ramping up, with projects like West Bay in Cleveland and tactical redevelopments in New Jersey, Florida, and Virginia. Convenience properties were acquired for $49 million, with assets in Atlanta and Houston having average household incomes over $125,000 and lease rates over 98%.

• Revised 2023 FFO guidance to a range of $1.13 to $1.17 per share, driven by first-half outperformance and higher full-year occupancy outlook.
• Raised same-store NOI guidance to a midpoint of 1.5%, with rent commencements, transaction activity, and tenant bankruptcies as key swing factors.
• Acknowledged impact of prior period reversals and included bad debt reserves and bankruptcy assumptions.

• Limited exposure to Cineworld, Party City, and Bed Bath & Beyond, with Bed Bath's bankruptcy process drawn out.
• Capital markets volatility affecting transaction volume.
• Potential issues with shop tenants accessing capital or being able to afford increased rents, though demand for space remains strong in high-income suburbs.

Q: Where do you think you have built in the most conservatism in new guidance?

A: Conor said it's prudent budgeting given macro and capital markets uncertainty, with occupancy, transaction activity, and rent commencements as key swing factors.

Q: Where could same-store NOI growth from convenience assets stabilize?

A: David said the existing portfolio has higher same-store numbers due to occupancy uplift, and convenience assets are higher on average once stabilized.

Q: How much in annualized G&A expense savings is the voluntary retirement program expected to yield?

A: Conor said over $3 million, with vast majority in G&A, and back-half run rate closer to 2024 run rate.

Q: How does construction cost increases impact return on capital?

A: David said leasing existing vacant spaces has good returns, and new construction is challenging unless shop rents are north of $60 per foot.

Q: What's your takeaway from Bed Bath auction process?

A: Conor said not surprised, but marginally surprised to get more bought leases than expected, with anticipation of limited large portfolio transactions due to lease duration.