SITE Centers (SITC) - 2023 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported a same-store NOI growth of 1.7% in the second quarter, with uncollectible revenue impacting growth by 190 basis points [110] - The company revised its 2023 OFFO guidance to a range of $1.13 to $1.17 per share, driven by first-half outperformance and a higher outlook for full-year occupancy [111] - The bad debt reserve was noted at 125 basis points year-to-date, with a significant portion attributed to Bed Bath & Beyond [113] Business Line Data and Key Metrics Changes - The company signed over 1 million square feet of leases in the second quarter, including 170,000 square feet of new deals, although the leased rate decreased by 40 basis points to 95.5% due to the rejection of Bed Bath & Beyond leases [98] - The Signed Not Opened (SNO) pipeline was reported at $18.3 million, down from $19 million, with rent commencements accelerating [108] Market Data and Key Metrics Changes - The company noted strong demand for shop spaces, particularly in high-income suburbs, with rents for new constructions needing to exceed $60 per square foot to be viable [7] - The average household incomes for recent acquisitions were over $125,000, indicating a focus on high-quality markets [102] Company Strategy and Development Direction - The company is focusing on growing its convenience portfolio and has been actively acquiring properties that require low recurring CapEx and are located in high-traffic areas [102] - The company is ramping up redevelopment projects in New Jersey, Florida, and Virginia, with a focus on multi-tenant buildings and drive-throughs [100][68] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the demand for retail space, stating that the current demand is robust despite potential economic headwinds [58] - The company anticipates that the SNO pipeline will provide a tailwind for growth, offsetting the impact of store closures from bankruptcies [51][30] Other Important Information - The company has limited exposure to bankruptcies, primarily with Cineworld, Party City, and Bed Bath & Beyond, and expects to recover most of the Bed Bath locations within the next 12 months [96][97] - The company has maintained high tenant retention rates, which are above historical averages, due to the challenges of new construction and rising costs [95] Q&A Session Summary Question: How are rent increases affecting returns on new leases? - Management indicated that net effective rents have remained consistent, with rent growth keeping pace with tenant improvement costs, making leasing existing spaces the highest return on capital [6] Question: Are there any tenant segments pushing back on rent increases? - Management acknowledged that some junior anchors are struggling to meet higher rent demands, but strong demand in high-income areas allows for successful negotiations with tenants who can afford the rents [8] Question: What is the current status of bad debt and bankruptcy reserves? - The company reported that bad debt is currently at 125 basis points, with a significant portion related to Bed Bath & Beyond, and they have a reserve for potential future bankruptcies [11][73] Question: What is the outlook for occupancy and leasing activity? - Management expects occupancy to remain flat from Q2 to Q3, with potential increases in Q4 depending on the bankruptcy situation and lease commencements from the SNO pipeline [62][63] Question: What are the expectations for the convenience centers market? - Management noted that competition remains strong, primarily from local investors, and they are targeting high single-digit unlevered IRRs for convenience properties [76][78]