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Edited Transcript of SITC earnings conference call or presentation 13-Feb-20 2:00pm GMT

·51 mins read

Q4 2019 Site Centers Corp Earnings Call Beachwood Feb 21, 2020 (Thomson StreetEvents) -- Edited Transcript of Site Centers Corp earnings conference call or presentation Thursday, February 13, 2020 at 2:00:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Brandon Day-Anderson SITE Centers Corp. - Head of IR * Conor Fennerty SITE Centers Corp. - Senior VP of Capital Markets, Executive VP, CFO & Treasurer * David R. Lukes SITE Centers Corp. - President, CEO & Director * Michael A. Makinen SITE Centers Corp. - Executive VP & COO ================================================================================ Conference Call Participants ================================================================================ * Alexander David Goldfarb Piper Sandler & Co., Research Division - MD & Senior Research Analyst * Christine Mary McElroy Tulloch Citigroup Inc, Research Division - Director & Senior Analyst * Christopher Ronald Lucas Capital One Securities, Inc., Research Division - Senior VP & Lead Equity Research Analyst * Floris Gerbrand Hendrik Van Dijkum Compass Point Research & Trading, LLC, Research Division - Analyst * Hong Liang Zhang JP Morgan Chase & Co, Research Division - Analyst * Ki Bin Kim SunTrust Robinson Humphrey, Inc., Research Division - MD * Linda Tsai Jefferies LLC, Research Division - Equity Analyst * Richard Hill Morgan Stanley, Research Division - Head of U.S. REIT Equity & Commercial Real Estate Debt Research and Head of U.S. CMBS * Samir Upadhyay Khanal Evercore ISI Institutional Equities, Research Division - MD & Equity Research Analyst * Todd Michael Thomas KeyBanc Capital Markets Inc., Research Division - MD and Senior Equity Research Analyst * Vince Tibone Green Street Advisors, Inc. - Analyst of Retail * Wesley Keith Golladay RBC Capital Markets, Research Division - VP & Equity Research Analyst ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Good morning, and welcome to the SITE Centers Reports Fourth Quarter 2019 Operating Results Conference call. (Operator Instructions) Please note, this event is being recorded. I would now like to turn the conference over to Brandon Day with Investor Relations. Please go ahead. -------------------------------------------------------------------------------- Brandon Day-Anderson, SITE Centers Corp. - Head of IR [2] -------------------------------------------------------------------------------- Good morning, and thank you for joining us. On today's call, you will hear from Chief Executive Officer, David Lukes; Chief Operating Officer, Michael Makinen; and Chief Financial Officer, Conor Fennerty. Please be aware that certain of our statements today may constitute 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 about these risks and uncertainties may be found in our earnings press release issued today and in the documents that we file 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 press release. This release, our quarterly financial supplement and the accompanying slides may be found on our Investor Relations section of our website at sitecenters.com. At this time, it is my pleasure to introduce our Chief Executive Officer, David Lukes. -------------------------------------------------------------------------------- David R. Lukes, SITE Centers Corp. - President, CEO & Director [3] -------------------------------------------------------------------------------- Good morning, and thank you for joining our fourth quarter earnings call. Our 2019 performance is a great start to the 5-year business plan we laid out at our Investor Day a little over a year ago, and I'm enthusiastic about our team's focus on execution. Fourth quarter results capped an excellent full year for SITE Centers with same-store NOI growth and OFFO significantly ahead of our expectations. Key drivers for the quarter were better-than-expected property NOI and lower G&A, which were consistent themes throughout the year as our operations team delivered on revenue and proactively managed expenses. The fourth quarter also included a number of transactions, including the announcement of our expected JV from our Teachers sale and $195 million equity offering, along with a significant repayment of our Blackstone preferred investment and 3 new acquisitions. Each of these actions are accretive to the company's long-term growth profile and position us well for 2020 and the years ahead. I'd like to put my comments on our fourth quarter and full year 2019 results into context with the 3 components of our 5-year business plan: leasing, acquisitions and redevelopment. It's these 3 activities that underpin our 2020 guidance assumptions and the steady growth within the portfolio. First, we are a leasing story. Our biggest opportunity for growth is to fill our valuable real estate with strong tenants. At the top of the list are the 60 anchor opportunities we've been highlighting over the past year. We've now executed leases or LOIs on 43 of those spaces at a blended 38% leasing spread. Our success over the past year was the primary driver of same-store NOI growth, the largest component of our business plan, which was 5.1% for the fourth quarter of 2019. The acceleration from the third quarter was boosted by early anchor openings and outperformance versus our budget, driven by a number of positive variances. Full year growth of 3.6% was also well ahead of the 5-year average we laid out at Investor Day, supporting the most important part of this plan. As anchors and shops recently signed start to open and pay rents, they'll provide a steady tailwind of growth for the next several years and are a key driver behind 2020 NOI guidance of 2.5% in the midpoint of our range, including redevelopment, and 1.5%, excluding redevelopment. I'm particularly pleased with the outlook, considering the difficult comparison to 2019 and several announced bankruptcies in the first weeks of the year. The second component of our business plan is acquisitions. As a reminder, our 5-year plan calls for $75 million of annual investments funded via capital recycling, a goal we achieved in 2019 through the acquisition of 3 properties in the fourth quarter. I discussed our Vintage Plaza deal in Austin, Texas last quarter, and I'm now excited to announce 2 other investments in Tampa and Portland. Both are consistent with Vintage where we expect vacancy and below-market leases to produce NOI and cash flow growth well in excess of our portfolio average. Additionally, despite different formats, both properties benefit from adjacent natural traffic drivers. Southtown Center in Tampa, Florida, is a collection of service-oriented shops surrounded by top-performing Sprouts and Publix grocery anchors in an affluent submarket. The Blocks in Portland, Oregon, is a bit more unique as it is a collection of urban retail condos at the base of 10 different apartment buildings in the Pearl District. This submarket at the footsteps of downtown Portland has seen significant population growth with 5,800 apartments constructed since 2011 alone. The majority of the leases in our properties, which are occupied by a mix of restaurants, banks and fitness users, were signed prior to the population growth I described, providing a significant opportunity to increase cash flow upon lease expiration. Retail properties with true rent growth are challenging to identify, but our ability to use customer data gives us a much clearer picture of the economic demand for space, and it allows us to be less concerned with the retail format and more focused on retail traffic. Both of these recent investments have very high customer traffic and a proven roll up in market rents. With a scarcity of competition and our measurable mark-to-market on renewals, we are confident that economics on these acquisitions deliver a return that's high enough to warrant our use of capital. We remain optimistic that we'll be able to source additional investments over the course of 2020, all of which will highlight our bottom-up format-agnostic approach, while at the same time, being mindful of our cost of capital. Finally, we're continuing to make progress on the third component of our business plan, redevelopment. We started the second phase at West Bay Plaza during the fourth quarter and are seeing very strong demand for the remaining space which will complete the transformation of our center. Tenants are also set to open over the course of 2020 at Van Ness and at The Collection at Brandon Boulevard, wrapping up those projects. Finally, work continues on our pipeline of large-scale entitlement projects, and we remain focused on realizing value on these sites, whether it means capturing profits early through a sale, mitigating risk through a joint venture or executing on our own. In summary, SITE ended the year with a much stronger portfolio of assets, a better balance sheet and significant embedded cash flow growth, all of which supports our 5-year plan. I expect 2020 to be another successful year as we continue to benefit from an occupancy uplift driven by strong tenant demand and flexibility to invest opportunistically. Lastly, we were very fortunate to appoint Conor Fennerty as our new Chief Financial Officer during the fourth quarter. And on behalf of all of our staff and the Board of Directors, I want to welcome him to the executive team. Conor has a proven track record as an investor and has earned tremendous respect throughout our organization over the past 3 years with his leadership of our finance and FP&A departments. I also want to thank Matt Ostrower for his incredible contributions to this company and his friendship over the past 5 years. We wish him well at his next adventure and are sure he will make a successful impact like he did here at SITE Centers. And with that, I'll hand the call over to Mike Makinen to discuss our operating results. -------------------------------------------------------------------------------- Michael A. Makinen, SITE Centers Corp. - Executive VP & COO [4] -------------------------------------------------------------------------------- Thank you, David. I'm extremely pleased with our operational results for the fourth quarter and full year 2019. Quarterly NOI was ahead of plan due to lower bad debt, bankruptcy settlement claims, higher overage and percentage rent and earlier rent commencements. Anchor and shop leasing volumes remain robust, and we are encouraged about the prospects to backfill spaces occupied by tenants that have recently filed for bankruptcy. Since the RVI spin, we have repeatedly demonstrated that when we get space back from tenants, we can re-lease at a healthy mark-to-market to a diverse group of tenants. We opened 4 consolidated anchors in the fourth quarter, the majority of them earlier than expected, and now have 25 of the 60 anchor spaces identified at our Investor Day open and rent paying. Another 13 are signed, but not yet open and 5 are in advanced lease negotiation. As David mentioned, we expect these openings, along with the backfill of 2019 and 2020 small shop bankruptcies to provide a multiyear tailwind. New lease spreads and net effective rents for the quarter were right in line with our trailing 12-month averages since the spin. Renewal spreads were softer, though, due in part to several grocery anchors that exercise flat options as well as 2 short-term renewals of anchor tenants at redevelopment properties, which were included in our renewal spreads. As I've mentioned a number of times previously, our smaller denominator will create some volatility on our operating metrics. The lease rate for the portfolio was down 40 basis points this quarter, largely due to the Dress Barn closures. Strong leasing activity partially mitigated these move-outs with our operations team completing the highest quarterly shop volume in 2 years. Demand for shop space is deep, and I feel very good about our momentum. Finally, our commenced rate was effectively unchanged and the 290 basis point leased to occupied gap provides confidence in our ability to achieve our 5-year 2.75% same-store NOI growth target, even with a 1.5% annual average NOI reserve for tenant bankruptcies. With that, I'll hand the call over to Conor. -------------------------------------------------------------------------------- Conor Fennerty, SITE Centers Corp. - Senior VP of Capital Markets, Executive VP, CFO & Treasurer [5] -------------------------------------------------------------------------------- Thanks, Mike. I'll comment first on our balance sheet, discuss fourth quarter and full year earnings and then close with thoughts on 2020 guidance. First, on the balance sheet. Our position remains very strong, with pro rata debt-to-EBITDA in the quarter at 5.5x compared to 6.5x in the third quarter of 2018, despite the mid-quarter closings of the Tampa and Portland acquisitions. Our maturities also remain in great shape with a weighted average term of 5.2 years. We have significant liquidity as of year-end, with almost full availability on our $950 million line of credit and just 3 of our 70 consolidated properties encumbered as of today. Additionally, we have 3 other sources of future capital. First is the $170 million of gross proceeds we expect to receive from the closing of the Teachers joint venture in the coming weeks. The second is the $113 million remaining preferred investment in our Blackstone joint venture. We received almost $47 million of the preferred in the fourth quarter with the sale of Eastland Center as the joint ventures continue to unwind. The third source is the capital we eventually expect to receive through the ultimate liquidation of RVI. We received the second half of the original $34 million receivable in the fourth quarter and have the $190 million preferred remaining. All of these sources, proceeds from Teachers, the Blackstone preferred and the RVI preferred, along with growing EBITDA, position the company to remain well below our stated long-term leverage maximum of 6x debt-to-EBITDA, while strategically deploying capital where we find attractive opportunities. That said, as David mentioned, we are mindful of our cost of capital and don't expect to close anything in the near term. Turning to fourth quarter and full year 2019 results. For the fourth quarter, as previously mentioned, we benefited from a number of positive variances versus our budget. First, operations were ahead of plan due to the factors outlined by Mike, which are fairly broad-based. Second, bankruptcies had a much smaller impact than anticipated, and we recognized $650,000 of revenues from Dress Barn and Forever 21, which we did not expect to occur. Lastly, G&A includes a $1.8 million onetime benefit, which positively impacted results by $0.01. The significant outperformance in the fourth quarter pushed our full year results to $1.27 per share compared to the top end of our guidance range of $1.22. Importantly, results demonstrated measurable OFFO growth from 2018 after adjusting for the impact of the spin, highlighting this company's ability to execute and drive cash flow per share. I'll turn now to our 2020 guidance. We are introducing OFFO guidance of $1.10 to $1.14 per share, driven by same-store NOI, excluding redevelopment, of 1% to 2%, and including redevelopment of 2% to 3%. The same-store NOI increase is driven in part by the anchor rent commencements David and Mike discussed, partially offset by a 60 basis point headwind from $1.8 million of bankruptcy claim settlement proceeds received in 2019 and bad debt favorability due to the adoption of the new lease accounting standard. Guidance for 2020 JV fees of $16 million to $20 million is unchanged, with the sale of our stake in the Teachers joint venture, the largest driver of the year-over-year decline. I would expect roughly 1/3 of JV fees to be recognized in the first quarter with the remaining quarters equally balanced. In terms of RVI fees, based on asset sales completed to date, RVI fees will be at most $19 million in 2020, assuming no other assets are sold. That said, we expect the company to continue to execute on this business plan to realize value. So our guidance reflects additional asset sales. Interest income will also be lower in 2020 due to a lower average balance of our Blackstone preferred and the mezzanine loan repayment in the fourth quarter. Lastly, there are a number of moving pieces from the fourth quarter of 2019 to the first quarter of 2020. First, weighted average shares will be higher at roughly 195 million due to the full quarter impact from the equity offering. Second, G&A will be higher as we won't have the onetime benefit recorded this quarter. Third, ancillary and other income is expected to be lower by $1.5 million due to nonrecurring revenue received in the fourth quarter. And fourth, in addition to typical seasonality that leads to lower NOI in the first quarter, we also will not have revenue from Dress Barn, Bar Louie and Village Inn totaling $650,000. As Mike mentioned, we are excited about the backfill prospects, but there will likely be limited revenue from these spaces in 2020. With that, I will hand the call back to David for some closing comments. -------------------------------------------------------------------------------- David R. Lukes, SITE Centers Corp. - President, CEO & Director [6] -------------------------------------------------------------------------------- Thank you, Conor. In conclusion, our first full year post spin provides evidence of this organization's ability to grow, take decisive actions and execute on transactions. We remain ahead of schedule in executing on the operational redevelopment and opportunistic investing goals that underlie our plan to produce compelling growth over the next 5 years and expect another successful year in 2020. Now operator, we are ready to take questions. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions) And the first question will come from Todd Thomas with KeyBanc Capital Markets. -------------------------------------------------------------------------------- Todd Michael Thomas, KeyBanc Capital Markets Inc., Research Division - MD and Senior Equity Research Analyst [2] -------------------------------------------------------------------------------- First question. So 2019 was clearly a less impactful year from closures and bankruptcies. And I think last quarter, you commented that, in your view, it was more timing-related and that you anticipate more transition. So to start the year, we've seen some announcements, perhaps there's more to come, but what's your updated view on the health of the retailer environment in general? Are conditions improving at the margin? Are they getting worse? What's your sense around the level of retail disruption that you're seeing? -------------------------------------------------------------------------------- David R. Lukes, SITE Centers Corp. - President, CEO & Director [3] -------------------------------------------------------------------------------- Todd, it's David. I would say that our opinion of the changes occurring in the retail landscape really hasn't changed. What has changed is the ones that we thought were risky last year turned out to be less so. And some of the ones that we did not think were risky turned out to be more so. So if you take the surprises to the positive and the surprises to the negative, I think we feel like our stance on continued changing of our tenant roster continues. -------------------------------------------------------------------------------- Conor Fennerty, SITE Centers Corp. - Senior VP of Capital Markets, Executive VP, CFO & Treasurer [4] -------------------------------------------------------------------------------- The only thing I'd add to that, Todd, is, remember, at our Investor Day, we included 150 basis points of annual reserve. So we are anticipating more closures, or we can be -- can absorb more closures over the course of our 5-year budget. And the exciting part is you'll see years like 2019, where we have very limited closures, and you can see outperformance. But in years where there are more closures, we can absorb that and our leased to occupied gap helps us for this year on that front. -------------------------------------------------------------------------------- Todd Michael Thomas, KeyBanc Capital Markets Inc., Research Division - MD and Senior Equity Research Analyst [5] -------------------------------------------------------------------------------- Got it. And then with regards to that 150 basis points, how should we think about this year? If you can maybe help break out a little bit of detail around sort of the budget for the year in terms of the property level budgeting that you've done relative to that additional cushion that might be embedded in the guidance? -------------------------------------------------------------------------------- David R. Lukes, SITE Centers Corp. - President, CEO & Director [6] -------------------------------------------------------------------------------- Sure, Todd. I'll let Conor speak specifically to the budget, but I would kind of reference you back to our Investor Day conference, which was just a little over a year ago. And what we said at that point in time was that the disruption in retail is going to give this company opportunities, but we should assume some churn. And the churn that we have been witnessing allowed us to give a 5-year plan that included 150 basis points, which was the sum of credit loss and bankruptcy reserve, but that was a blended average over 5 years. If I were to kind of tilt you towards our thinking process, I think it's fair to assume that, on average, 150 basis points a year is going to be our budget. -------------------------------------------------------------------------------- Conor Fennerty, SITE Centers Corp. - Senior VP of Capital Markets, Executive VP, CFO & Treasurer [7] -------------------------------------------------------------------------------- And just to add on that, Todd, specifically for 2020, as David mentioned, we're using assumptions consistent with the 5-year plan. So it's 150 basis points of combined bad debt and bankruptcy reserves. -------------------------------------------------------------------------------- Todd Michael Thomas, KeyBanc Capital Markets Inc., Research Division - MD and Senior Equity Research Analyst [8] -------------------------------------------------------------------------------- Okay. And you recaptured, I guess, a few restaurants. I think you mentioned Bar Louie specifically. Is that tenant specific? Or are you seeing any concerns or challenges at all in the restaurant sector? -------------------------------------------------------------------------------- Michael A. Makinen, SITE Centers Corp. - Executive VP & COO [9] -------------------------------------------------------------------------------- This is Mike. Those 2 were somewhat surprising, Village Inn and Bar Louie. Aggregately, across the portfolio, the restaurant business tends to be quite healthy. -------------------------------------------------------------------------------- Todd Michael Thomas, KeyBanc Capital Markets Inc., Research Division - MD and Senior Equity Research Analyst [10] -------------------------------------------------------------------------------- Okay, got it. And just a quick last one. The Bealls that's listed in the supplement, the last tenant on your top 50. Is that Bealls a separate entity from the Bealls that's owned by Stage Stores? Or is that the Bealls? -------------------------------------------------------------------------------- Michael A. Makinen, SITE Centers Corp. - Executive VP & COO [11] -------------------------------------------------------------------------------- The Bealls that you're referencing is separate and unrelated to Stage Stores. -------------------------------------------------------------------------------- Operator [12] -------------------------------------------------------------------------------- The next question will be from Christy McElroy with Citigroup. -------------------------------------------------------------------------------- Christine Mary McElroy Tulloch, Citigroup Inc, Research Division - Director & Senior Analyst [13] -------------------------------------------------------------------------------- Just a follow-up on Todd's question in regard to the buffer and guidance. I think we're all in tune with some of the sort of major drivers there, including the management and RVI fee income and interest income, and there was also the G&A impact. I just -- in terms of sort of reconciling and bridging the gap from that $0.33 in fourth quarter into what's a much lower $0.20 quarterly run rate next year, just wanted to try to gauge the level of conservatism here in that 150 basis points? And Mike, you've mentioned that operations were ahead of plan. Is it -- are you being extra conservative here or more realistic? I guess we're just -- I'm just trying to figure out, of that $0.33, how much of that is sort of operations and vacancy, which -- I mean, it seems like your same-store NOI growth pace seems pretty good. So just trying to reconcile those 2. -------------------------------------------------------------------------------- David R. Lukes, SITE Centers Corp. - President, CEO & Director [14] -------------------------------------------------------------------------------- Christy, it's David. One of the benefits of only having 70 wholly owned assets is that it's easy for us to do bottom-up budgeting on every single suite with a lot of frequency. So I would say that any time we come out with a budget on a portfolio of this size, you can assume that it's based on individual suites, and therefore, it's a realistic budget. If you look at last year, a couple of things happened. Number one, the construction team at the company were able to get a number of anchor tenants opened a little bit earlier than we had expected. And a lot of that comes down to permitting and asking the tenant to open in their blackout period. So I think we pulled forward some revenue that was a little bit unexpected. But from a budgeting standpoint, it really is a realistic budget for 2020. -------------------------------------------------------------------------------- Conor Fennerty, SITE Centers Corp. - Senior VP of Capital Markets, Executive VP, CFO & Treasurer [15] -------------------------------------------------------------------------------- The only thing I'd add, Christy, to your point on the moving pieces. The 3 biggest pieces for next year attributing -- or contributing to the decline are JV fees, RVI fees and interest income. And those 3 pieces alone are about $0.14 of headwinds. So that's really the biggest driver of the year-over-year change. To your point, it's February 13, we have a bottoms-up budget. We feel very comfortable with the budget today. But to David's point, there are a number of other factors and assumptions that could change our timing and estimates over the course of the year. -------------------------------------------------------------------------------- Christine Mary McElroy Tulloch, Citigroup Inc, Research Division - Director & Senior Analyst [16] -------------------------------------------------------------------------------- And Conor, you mentioned G&A next year, but I'm wondering if you could give a range of what's embedded in FFO, especially in regard to the -- how the RVI fee income is changing and sort of your expectations around being able to lower G&A with RVI coming off. -------------------------------------------------------------------------------- Conor Fennerty, SITE Centers Corp. - Senior VP of Capital Markets, Executive VP, CFO & Treasurer [17] -------------------------------------------------------------------------------- Sure. So we talked about '19 as kind of the trough year for G&A. And so we stopped providing disclosure on that because if you think about the last 3 years, we are a company in transition. There are a lot of moving pieces. And we're trying to provide the investment community with as much clarity as we could provide. For next year, we're not a company in transition anymore -- excuse me, for this year. I would expect, call it, $58 million to $50 million -- $59 million, excuse me, of G&A for the year. And again, we've kind of completed the hand-off of RVI fees and lower G&A. And so I'd expect there'd be -- that the kind of breakdown or the correlation of lower G&A and lower RVI fees to end in 2020. -------------------------------------------------------------------------------- Christine Mary McElroy Tulloch, Citigroup Inc, Research Division - Director & Senior Analyst [18] -------------------------------------------------------------------------------- Okay. And just lastly, I think you mentioned in your remarks that you do expect more dispositions this year. What -- how are you thinking about sort of the JV asset sales that will continue versus assets that you would sell on the wholly owned side? -------------------------------------------------------------------------------- David R. Lukes, SITE Centers Corp. - President, CEO & Director [19] -------------------------------------------------------------------------------- Yes, on the wholly owned side, Christy, we don't have anything budgeted to be selling. It doesn't mean that -- opportunistically, we might decide to recycle a property, but we aren't budgeting for wholly owned dispositions. On the JV side, it's a little bit out of our hands. The Blackstone joint venture continues to sell assets. But really, it's under their guidance and direction. And any of the other joint ventures that have dispositions, it really has more to do with the partner than it does to us. -------------------------------------------------------------------------------- Operator [20] -------------------------------------------------------------------------------- The next question will be from Rich Hill with Morgan Stanley. -------------------------------------------------------------------------------- Richard Hill, Morgan Stanley, Research Division - Head of U.S. REIT Equity & Commercial Real Estate Debt Research and Head of U.S. CMBS [21] -------------------------------------------------------------------------------- First of all, thank you for the transparency on same-store NOI guide with and without redevelopment. But I wanted to go back to maybe the 2.75% same-store NOI growth that you -- for your 5-year plan that you disclosed at your Investor Day. I think that excluded redevelopment. And obviously, redevelopment is a big part of your story. So would you be willing to think about your 5-year plan for NOI growth, including redevelopment, in light of the additional disclosure this morning? -------------------------------------------------------------------------------- David R. Lukes, SITE Centers Corp. - President, CEO & Director [22] -------------------------------------------------------------------------------- Rich, that's a very good comment. You are indeed correct. The Investor Day presentation that presented a 2.75% average same-store NOI growth was excluding redevelopment. The reason that we have not talked about a 5-year plan for including redevelopment is a lot of it depends on whether we're going to invest in the redevelopment assets once we achieve entitlements or whether we're going to dispose of that land and air rights and use it to invest in other properties. So far to date, when we have entitled mixed-use or multifamily property, we have selected to sell the property, sell an outparcel or ground lease it, and so those have different effects that are pretty dramatic on same store. And so that's why I don't think it's all that wise for us to look ahead over the next couple of years. Having said that, on an annual basis, when we come out with guidance, I do think it's appropriate that we give you as much clarity as we can. -------------------------------------------------------------------------------- Richard Hill, Morgan Stanley, Research Division - Head of U.S. REIT Equity & Commercial Real Estate Debt Research and Head of U.S. CMBS [23] -------------------------------------------------------------------------------- Got it. But just to clarify that and add to that. One way or another, total NOI growth should be going up though. Because you're either going to be redeveloping it, which should be a positive or you wouldn't do it or you're going to be having proceeds and you'll be able to reinvest those proceeds in other properties or pay down debt or something else. Is that sort of a fair way to think about it? -------------------------------------------------------------------------------- David R. Lukes, SITE Centers Corp. - President, CEO & Director [24] -------------------------------------------------------------------------------- Yes. -------------------------------------------------------------------------------- Richard Hill, Morgan Stanley, Research Division - Head of U.S. REIT Equity & Commercial Real Estate Debt Research and Head of U.S. CMBS [25] -------------------------------------------------------------------------------- And what I'm trying to quantify is there upside? -------------------------------------------------------------------------------- David R. Lukes, SITE Centers Corp. - President, CEO & Director [26] -------------------------------------------------------------------------------- Yes. I mean I think of it as -- if we entitle a piece of property that has real value, if we ground lease it, that's going to show up in same store. If we redevelop it, it will take CapEx, and it will show up in the redevelopment inclusive same store. And if we sell the land and reinvest it in a new property, it's not going to show up in same store because it's not in the pool. -------------------------------------------------------------------------------- Conor Fennerty, SITE Centers Corp. - Senior VP of Capital Markets, Executive VP, CFO & Treasurer [27] -------------------------------------------------------------------------------- The only thing I would add, Rich, on that last comment from David. Remember, the 2.75% was the static portfolio that we owned at the Investor Day. So one of the things David talked about, the 3 assets we bought this quarter, we're really excited about. And one of the reasons we're excited about is we think it's additive to our growth rate. So it will take time for those assets to come into the pool, et cetera, but that's another factor to consider as you think through same-store NOI and NOI growth for the whole portfolio. -------------------------------------------------------------------------------- Richard Hill, Morgan Stanley, Research Division - Head of U.S. REIT Equity & Commercial Real Estate Debt Research and Head of U.S. CMBS [28] -------------------------------------------------------------------------------- Got it. And David, going back to some of the prepared remarks and there's significant amount of cash that you're coming -- that you have coming in. Can you just talk through how you might allocate that cash right now and how you're thinking about it versus paying down debt, buying new properties or maybe other sources of uses of the cash? -------------------------------------------------------------------------------- David R. Lukes, SITE Centers Corp. - President, CEO & Director [29] -------------------------------------------------------------------------------- Yes, I'd love to. We do have an exciting tilt here where I expect us to have some capital. If you look at the last year, we paid down debt. We paid down pref. We bought assets, and we bought back stock. And I think depending on what we see in the open market, depending on our debt maturity schedule, depending on where the stock is trading, I think, we'll make prudent decisions. The reality is we've tried very hard to be good stewards of shareholder capital and the amount of shareholder capital that's coming back to this company could be significant, which means we need to think very carefully about the acquisitions and where we put money. -------------------------------------------------------------------------------- Operator [30] -------------------------------------------------------------------------------- The next question comes from Alexander Goldfarb with Piper Sandler. -------------------------------------------------------------------------------- Alexander David Goldfarb, Piper Sandler & Co., Research Division - MD & Senior Research Analyst [31] -------------------------------------------------------------------------------- So just a few questions here. First, just going to the guidance and the $150 million of cushion that's for BKs and closings. Is Pier 1 on top of that? Or is Pier 1 in that $150 million? -------------------------------------------------------------------------------- Conor Fennerty, SITE Centers Corp. - Senior VP of Capital Markets, Executive VP, CFO & Treasurer [32] -------------------------------------------------------------------------------- So Alex, Pier 1, nothing has been announced to date. There was a publicly disclosed list where we had 4 wholly owned properties. But as of today, they're paying rent, and we have leases with them. So it's kind of the status quo for Pier 1 today. -------------------------------------------------------------------------------- Alexander David Goldfarb, Piper Sandler & Co., Research Division - MD & Senior Research Analyst [33] -------------------------------------------------------------------------------- Okay. But presumably, Conor, I mean, you guys budgeted something in your numbers, I'm assuming that those 4 closed, just to be on the safe side, correct? -------------------------------------------------------------------------------- Conor Fennerty, SITE Centers Corp. - Senior VP of Capital Markets, Executive VP, CFO & Treasurer [34] -------------------------------------------------------------------------------- Presumably, we're aware of all the announcements, to your point, Alex. And we've done this before, and we're anticipating the worst or can anticipate the worst. -------------------------------------------------------------------------------- Alexander David Goldfarb, Piper Sandler & Co., Research Division - MD & Senior Research Analyst [35] -------------------------------------------------------------------------------- Okay, great. And then on the RVI, it seems like the U.S. is fine on the liquidation side. Just curious, the update on Puerto Rico. It sounds like it's still a pretty tough retail disposition market. But maybe as you guys look at RVI dispositions for this year, there's -- you don't need to sell anything from there to continue at a healthy pace liquidation. So maybe if you can just give us some framework around pace of liquidation. And how much of that depends on being able to target the Puerto Rican market for asset sales? -------------------------------------------------------------------------------- David R. Lukes, SITE Centers Corp. - President, CEO & Director [36] -------------------------------------------------------------------------------- Alex, it's David. I really don't feel comfortable commenting on RVI's business strategy or execution. It has a separate Board, as you know. They do press release and in the press releases, I think, you can look at the pace of asset sales and whether they've in Puerto Rico or U.S. And I think you can make a reasonable judgment about the pace of dispositions in 2020, which is what we do when we look at our internal budgeting. -------------------------------------------------------------------------------- Alexander David Goldfarb, Piper Sandler & Co., Research Division - MD & Senior Research Analyst [37] -------------------------------------------------------------------------------- Okay. And then just finally, I appreciate your comments on -- that you're not really looking for any wholly owned asset sales, continue to focus on JVs, but you've been acquiring assets that have either all-small tenant or predominantly small tenant to help NOI growth. So David, as you look at what you're thinking about targeting for acquisition, whether it's this year or next year, how do you think about these smaller-tenanted assets as improving the overall NOI growth profile of the company? Do you expect that through these acquisitions you'll grow 20 or 50 basis points of extra NOI that you'll be able to get in the run rate? Or how should we be thinking about that and what you're looking at? -------------------------------------------------------------------------------- David R. Lukes, SITE Centers Corp. - President, CEO & Director [38] -------------------------------------------------------------------------------- Yes, Alex, it's a really good question. As you imagine, with the amount of capital we might have to invest, we spend a lot of time thinking about how we want to deploy capital. And I've mentioned several times, the fact that retail landlords have a lot more data than we all used to have even 2 years ago, and if I look at the markets today, I see low construction deliveries, high development costs, high occupancy levels and scarcity of good space in wealthy submarkets. As this company, SITE Centers, starts to get through our occupancy build in the next 2 years, as you can imagine, we're going to become a renewal story. And when you're buying properties in high income submarkets that are highly occupied, the renewal is really what you're depending on for NOI and rent growth. And that's why we're using a lot of our customer data to really look carefully at what each tenant is paying, compare that to other tenants that are similar in the market and figure out where we can build an NOI growth that's arguably a lot higher than our internal core. We're not specifically avoiding anchor spaces. It's just that as we look to the market and say where can we get real growth, the rent growth is really coming from smaller shops in wealthy submarkets. -------------------------------------------------------------------------------- Conor Fennerty, SITE Centers Corp. - Senior VP of Capital Markets, Executive VP, CFO & Treasurer [39] -------------------------------------------------------------------------------- The only thing I would just highlight, Alex, is, as David mentioned in his prepared remarks, we are format agnostic, right? You'll see us buy a wide range of properties. You're absolutely right. This past quarter, we bought 3 assets that were a majority shops. But you're likely to see us buy kind of across the retail spectrum in terms of format, we are bottoms-up format-agnostic. -------------------------------------------------------------------------------- Operator [40] -------------------------------------------------------------------------------- The next question will be from Ki Bin Kim with SunTrust. -------------------------------------------------------------------------------- Ki Bin Kim, SunTrust Robinson Humphrey, Inc., Research Division - MD [41] -------------------------------------------------------------------------------- Just to go back to your same-store NOI guidance. You guys mentioned in your opening remarks that Village Inn and Bar Louie accounted for about $650,000 of rent. Is that in your budget and the 150 basis points is on top of that? Or would that... -------------------------------------------------------------------------------- Conor Fennerty, SITE Centers Corp. - Senior VP of Capital Markets, Executive VP, CFO & Treasurer [42] -------------------------------------------------------------------------------- I missed the first part of your question. You said the $650,000. -------------------------------------------------------------------------------- Ki Bin Kim, SunTrust Robinson Humphrey, Inc., Research Division - MD [43] -------------------------------------------------------------------------------- Yes. Is that on top of the 150 basis points reserve? Or would that be eating into that reserve? -------------------------------------------------------------------------------- Conor Fennerty, SITE Centers Corp. - Senior VP of Capital Markets, Executive VP, CFO & Treasurer [44] -------------------------------------------------------------------------------- Got it. No. So the Bar Louie, the Dress Barn and the Village Inn, that's income we are no longer receiving. That's in our budget. That's not part of the reserve. The reserve are for future bankruptcies that haven't been announced to date. So again, just to repeat the point, Bar Louie, Dress Barn, Village Inn are in our budget, in our 1% to 2% same-store and are not part of our future reserve. -------------------------------------------------------------------------------- Ki Bin Kim, SunTrust Robinson Humphrey, Inc., Research Division - MD [45] -------------------------------------------------------------------------------- Got it. And can you just comment on any kind of CapEx trends you're seeing as it comes to tenant negotiations? And if there's anything noticeable? -------------------------------------------------------------------------------- David R. Lukes, SITE Centers Corp. - President, CEO & Director [46] -------------------------------------------------------------------------------- Ki, I think, a portfolio of this size, it's hard to make any broad comparisons. But I'll let Mike answer that. -------------------------------------------------------------------------------- Michael A. Makinen, SITE Centers Corp. - Executive VP & COO [47] -------------------------------------------------------------------------------- Yes. I mean as you can see by our reported net effective rents, I mean, the CapEx has remained fairly consistent. The anchor tenants are still expecting similar packages that they were expecting over the last several years. And on our shop CapEx, that remains relatively modest. -------------------------------------------------------------------------------- Ki Bin Kim, SunTrust Robinson Humphrey, Inc., Research Division - MD [48] -------------------------------------------------------------------------------- Okay. But when I looked at the CapEx, at least the tenant allowance part, as a percent of the new rent value, it does seem like it's kind of creeping higher. I know it's just 1 quarter, but... -------------------------------------------------------------------------------- Michael A. Makinen, SITE Centers Corp. - Executive VP & COO [49] -------------------------------------------------------------------------------- Yes, I think you just -- and the answer is it's just 1 quarter, and I think you're going to see a little bit of bumpiness quarter-to-quarter with a portfolio of this size. But aggregately speaking, we're not seeing any substantial trends or changes. -------------------------------------------------------------------------------- David R. Lukes, SITE Centers Corp. - President, CEO & Director [50] -------------------------------------------------------------------------------- I mean, Ki, one of the things that we always like to remind our people is that as long as we're in a lease-up scenario, especially lease-up of larger spaces, CapEx is going to maintain a fairly elevated state. Once that starts to wear thin and the leased to occupied gap closes, the company becomes more of a renewal story and on renewals, and in high income areas, I think you can imagine, you're renewing with very little TI, which is why our assumption is that our NOI growth is also going to flow through the AFFO growth. -------------------------------------------------------------------------------- Operator [51] -------------------------------------------------------------------------------- The next question comes from Vince Tibone with Green Street Advisors. -------------------------------------------------------------------------------- Vince Tibone, Green Street Advisors, Inc. - Analyst of Retail [52] -------------------------------------------------------------------------------- Could you discuss how the Pier 1 closures are being negotiated? Are you expecting to get any lease term fees from this? Or are they using, maybe similar to Dress Bran, the threat of bankruptcy to get out of its leases early without paying anything to landlords? -------------------------------------------------------------------------------- David R. Lukes, SITE Centers Corp. - President, CEO & Director [53] -------------------------------------------------------------------------------- Vince, I would love to speculate, but I think I'll withhold simply because we're not under any knowledge that would help us shed any light on it. -------------------------------------------------------------------------------- Vince Tibone, Green Street Advisors, Inc. - Analyst of Retail [54] -------------------------------------------------------------------------------- Fair enough. And then maybe just shifting gears, are you able to share the cap rates on the acquisitions? Or can you just talk maybe a little bit more broadly as well about what you're seeing in the private transaction market today? -------------------------------------------------------------------------------- David R. Lukes, SITE Centers Corp. - President, CEO & Director [55] -------------------------------------------------------------------------------- Yes, sure. Well, as a reminder, the investments that we made last year were made possible by recycling capital when we did a joint venture with a Chinese institution about a year ago. The proceeds from that transaction were used to pay down debt, buy back stock and make some acquisitions. So the blended return of all those activities was far in excess of what we think the return is on our stock. Having said that, the acquisitions on their own blended to a 6% cap rate. -------------------------------------------------------------------------------- Vince Tibone, Green Street Advisors, Inc. - Analyst of Retail [56] -------------------------------------------------------------------------------- Okay, great. And then just, broadly, are you seeing any big shifts in the private transaction market, changes in debt availability or capital interest? Or pretty similar to the last, let's say, 6 months or so? -------------------------------------------------------------------------------- David R. Lukes, SITE Centers Corp. - President, CEO & Director [57] -------------------------------------------------------------------------------- And I -- certainly, in the last 6 months, I haven't seen anything that's been noteworthy. The ability to secure debt seems readily available, and we've sold a lot of properties out of joint ventures. And so I think we've got a pretty good window on the disposition outlook. On the acquisition side, it seems like the larger properties are pretty actively pursued by larger institutions and the smaller properties, it's a little bit more of a mixed crowd with some private and some public. But the demand for acquisitions is still pretty steep. -------------------------------------------------------------------------------- Vince Tibone, Green Street Advisors, Inc. - Analyst of Retail [58] -------------------------------------------------------------------------------- Okay, interesting. One last one for me. Could you just share a little bit more additional detail on the redevelopment projects? They are expected to contribute this 100 basis points to same-store this year? And just to clarify, I want to make sure I understand. All of the major redevelopments are excluded from same-store still. Is that correct? -------------------------------------------------------------------------------- Conor Fennerty, SITE Centers Corp. - Senior VP of Capital Markets, Executive VP, CFO & Treasurer [59] -------------------------------------------------------------------------------- So Vince, the major redevelopments will be included in the same store with redevelopment. -------------------------------------------------------------------------------- Vince Tibone, Green Street Advisors, Inc. - Analyst of Retail [60] -------------------------------------------------------------------------------- Got it. Okay. -------------------------------------------------------------------------------- Conor Fennerty, SITE Centers Corp. - Senior VP of Capital Markets, Executive VP, CFO & Treasurer [61] -------------------------------------------------------------------------------- And so the assets contributing this year are The Collection at Brandon, Van Ness and then the first phase, excuse me, of West Bay. -------------------------------------------------------------------------------- Operator [62] -------------------------------------------------------------------------------- The next question is from Wes Golladay with RBC Capital Markets. -------------------------------------------------------------------------------- Wesley Keith Golladay, RBC Capital Markets, Research Division - VP & Equity Research Analyst [63] -------------------------------------------------------------------------------- Looking at the reserve on the preferred equity investment. Is that driven by a cap rate assumption change or NOI at the property? -------------------------------------------------------------------------------- Conor Fennerty, SITE Centers Corp. - Senior VP of Capital Markets, Executive VP, CFO & Treasurer [64] -------------------------------------------------------------------------------- So Wes, as you know, each quarter, we mark-to-market that valuation reserve -- excuse me, the preferred balance, and we go property by property, working with our transactions and our funds team. I can't recall specifically what drove the $3 million change this quarter. If you recall last quarter, we mentioned it was really just an anchor and not renewing. Just given the size of that portfolio and the size of our preferred, it's really sensitive to input. So it's a long way of saying, I can't recall what drove it this quarter, but it's usually 1 or 2 items that move in. To David's point, it's really not a cap rate question. We haven't seen cap rates move. It's typically an operation change. -------------------------------------------------------------------------------- Wesley Keith Golladay, RBC Capital Markets, Research Division - VP & Equity Research Analyst [65] -------------------------------------------------------------------------------- Okay, that makes sense. And then looking at the 17 anchors of the 60 that you're still working on, are you actively marketing all of that space? And then since the Investor Day, have you gotten any more anchors back? -------------------------------------------------------------------------------- David R. Lukes, SITE Centers Corp. - President, CEO & Director [66] -------------------------------------------------------------------------------- Those are good questions. The answer to, are we marketing all of that space, the answer is no. If you look at Page 17 of our supplement, you'll see some of the major redevelopments have a TBD next to them. In those cases, we're sitting on boxes, and we're holding them from being leased, but they're part of that 60 that we mentioned at Investor Day because we're working on entitlements. -------------------------------------------------------------------------------- Conor Fennerty, SITE Centers Corp. - Senior VP of Capital Markets, Executive VP, CFO & Treasurer [67] -------------------------------------------------------------------------------- And then in terms of, have we got anchors back? Absolutely, Wes. And we -- there's -- a normal amount comes back every single year. It's a point that's not lost on us, and it highlights the relevance of the 6 anchors. We're excited about the tailwind for the next couple of years, but they're diminishing in terms of importance, and there's other kind of more material anchors that we have that are either in lease-up or vacant today. So it's a long way of saying, absolutely, yes, there are other anchors that have come back to us in the last 18 months since our Investor Day. And that's kind of part of our normal day-to-day business. -------------------------------------------------------------------------------- Wesley Keith Golladay, RBC Capital Markets, Research Division - VP & Equity Research Analyst [68] -------------------------------------------------------------------------------- And I guess a follow-up to that would be, for those anchors, I expect you would continue to get some back. Is the new rent lease kind of be comparable to what you're doing with the 60? -------------------------------------------------------------------------------- Conor Fennerty, SITE Centers Corp. - Senior VP of Capital Markets, Executive VP, CFO & Treasurer [69] -------------------------------------------------------------------------------- Yes, they'll be part of our same-store pool and our comp pool for our spreads, right? And you've seen our new lease spreads is kind of hovering that low double-digit area, so they'd be included in that pool, Wes. -------------------------------------------------------------------------------- Wesley Keith Golladay, RBC Capital Markets, Research Division - VP & Equity Research Analyst [70] -------------------------------------------------------------------------------- Not included, but the comparable level? Like you're getting from the 60, you highlighted a big pop (inaudible)? -------------------------------------------------------------------------------- Conor Fennerty, SITE Centers Corp. - Senior VP of Capital Markets, Executive VP, CFO & Treasurer [71] -------------------------------------------------------------------------------- Yes, we have -- a certain number of boxes come back every single year. -------------------------------------------------------------------------------- Operator [72] -------------------------------------------------------------------------------- The next question comes from Hong Zhang with JPMorgan. -------------------------------------------------------------------------------- Hong Liang Zhang, JP Morgan Chase & Co, Research Division - Analyst [73] -------------------------------------------------------------------------------- Just a quick question for me. Just looking at your footnote -- footnotes you give, same-store excluding lost rent related to lease terminations, is that basically like a same-store excluding bankruptcy number? -------------------------------------------------------------------------------- Conor Fennerty, SITE Centers Corp. - Senior VP of Capital Markets, Executive VP, CFO & Treasurer [74] -------------------------------------------------------------------------------- So Hong, the reference there is starting in the third quarter of '19, we provided same-store NOI with and without the impact of lost rent from termination fees. Starting in 2020, to be comparable to our peer group, we are excluding any impact from termination fees, whether that's lost rent or the term fee itself. And so that footnote was simply a call out to let the investment community know that starting in 2020, again, we will have no impact from term fees, whether it's lost rent or the term fee itself going forward. If you look in 2019, the impact of the lost rent from term fee was fairly immaterial. I think it was about 15 basis points. But again, just to improve our comparability to the peer group, we exclude all lease term impact for 2020 and onwards. -------------------------------------------------------------------------------- Operator [75] -------------------------------------------------------------------------------- The next question will be from Floris Van Dijkum with Compass Point. -------------------------------------------------------------------------------- Floris Gerbrand Hendrik Van Dijkum, Compass Point Research & Trading, LLC, Research Division - Analyst [76] -------------------------------------------------------------------------------- Just a question, on the 150 basis points of reserves that you have, have you guys -- what's the breakdown between rents -- lost rents as well as CAM reconciliations? And how is that compared to historic levels? -------------------------------------------------------------------------------- Conor Fennerty, SITE Centers Corp. - Senior VP of Capital Markets, Executive VP, CFO & Treasurer [77] -------------------------------------------------------------------------------- Floris, we haven't provided that level of detail. What I would just say is we are focused on lost revenue. So whether that's base rent, whether that's percentage right, overage rent, CAM, it's all the same to us. It's lost revenue. The other piece that David and I both mentioned is there's a bad debt component, right? And so in our bad debt, we have a separate bad debt assumption. That is related to income -- or revenue, excuse me, which is CAM plus base rent as well. So again, I don't -- we're not going to provide that level of detail. What I would just tell you is we are focused on lost revenue, which includes all the factors you identified. -------------------------------------------------------------------------------- Operator [78] -------------------------------------------------------------------------------- Next up is Linda Tsai with Jefferies. -------------------------------------------------------------------------------- Linda Tsai, Jefferies LLC, Research Division - Equity Analyst [79] -------------------------------------------------------------------------------- What are your occupancy goals for 2020? And it seems like the leased to occupied narrowed this quarter versus third quarter. Would you expect this trend to continue? -------------------------------------------------------------------------------- David R. Lukes, SITE Centers Corp. - President, CEO & Director [80] -------------------------------------------------------------------------------- Linda, it's David. We're very happy with the amount of leasing production out of the team. We had a fantastic year last year. I will say that our goals have more to do with leasing space to the right tenants. And we don't have occupancy goals for the leasing team or for the company, which is why we really don't mention occupancy goals in the guidance. -------------------------------------------------------------------------------- Linda Tsai, Jefferies LLC, Research Division - Equity Analyst [81] -------------------------------------------------------------------------------- And then on the renewal spreads, understanding there were a couple of onetime items and you're more focused on leasing up right now. What level would you expect to generate renewals overall in 2020, understanding it's pretty volatile. -------------------------------------------------------------------------------- Michael A. Makinen, SITE Centers Corp. - Executive VP & COO [82] -------------------------------------------------------------------------------- I would expect the overall renewal rate to be similar to what we've seen in the past several quarters. We did have some onetime events this quarter that tended to soften it a little bit. -------------------------------------------------------------------------------- Conor Fennerty, SITE Centers Corp. - Senior VP of Capital Markets, Executive VP, CFO & Treasurer [83] -------------------------------------------------------------------------------- And Linda if you remember from our Investor Day, we talked about a blended spread of 7.5% and a range of 5% to 10%. So we're kind of consistent with that range on a trailing 12-month basis. -------------------------------------------------------------------------------- Linda Tsai, Jefferies LLC, Research Division - Equity Analyst [84] -------------------------------------------------------------------------------- And then just one final one. Sorry, if this is an obvious question. But for your separate bad debt assumption, does that include spaces where you don't expect the tenant to renew and it might be hard to fill that space right away? -------------------------------------------------------------------------------- Conor Fennerty, SITE Centers Corp. - Senior VP of Capital Markets, Executive VP, CFO & Treasurer [85] -------------------------------------------------------------------------------- No. So bad debt is really just about revenue recognition, right? So it's tenants that are in place today that either, to Floris's point, don't pay CAM or don't pay base rent. So it's really a function of existing tenants. You'll see it on the income statement for rent-paying tenants. The bankruptcy reserve is a function of tenants that go bankrupt and just stop paying rent. I'm happy to -- if you want, I'm happy to talk about that offline as well. -------------------------------------------------------------------------------- Operator [86] -------------------------------------------------------------------------------- The next question will come from Chris Lucas with Capital One Securities. -------------------------------------------------------------------------------- Christopher Ronald Lucas, Capital One Securities, Inc., Research Division - Senior VP & Lead Equity Research Analyst [87] -------------------------------------------------------------------------------- Maybe a little color on -- so you've got 25 of the anchors that have begun paying rent. What's your expectation for this year in terms of openings and the cadence of those anchor openings for 2020? -------------------------------------------------------------------------------- Conor Fennerty, SITE Centers Corp. - Senior VP of Capital Markets, Executive VP, CFO & Treasurer [88] -------------------------------------------------------------------------------- Chris, typically, as you know, anchors like to open around the holidays. So you'll see those back-half weighted or back-end weighted, I should say, in the fourth quarter. That's consistent with the trends we saw in '19 and '18. Absolutely, you could have some folks open midyear, but the majority will be kind of a back half or fourth quarter weighting. -------------------------------------------------------------------------------- Christopher Ronald Lucas, Capital One Securities, Inc., Research Division - Senior VP & Lead Equity Research Analyst [89] -------------------------------------------------------------------------------- Any sense as to the number of anchors that will open this year? -------------------------------------------------------------------------------- Conor Fennerty, SITE Centers Corp. - Senior VP of Capital Markets, Executive VP, CFO & Treasurer [90] -------------------------------------------------------------------------------- No. I mean if we have a lease signed, typically, it'd open up in the same year, but there's always folks that have larger buildouts, more complicated buildouts or permitting issues that could push it to '21. So -- the other thing I'd say is, we're providing the anchors by count. Within that count, there's a wide range of rents, right? So you could have anchors that pay a much higher rent in a higher income area that can be more material than one that pays lower income -- or lower rent, excuse me. So again, I think you could see the impact likely in the fourth quarter, but you could see some other ones slip as well, but count is not what's going to drive growth. -------------------------------------------------------------------------------- Christopher Ronald Lucas, Capital One Securities, Inc., Research Division - Senior VP & Lead Equity Research Analyst [91] -------------------------------------------------------------------------------- Okay. And then, David, I don't know if I heard the answer. Did you provide the cap rate for the 2 assets you described in the investor presentation? -------------------------------------------------------------------------------- David R. Lukes, SITE Centers Corp. - President, CEO & Director [92] -------------------------------------------------------------------------------- I did, but I had a long soliloquy before I mentioned it. But yes, the acquisitions last year, all, in aggregate, blended to a 6% cap. -------------------------------------------------------------------------------- Christopher Ronald Lucas, Capital One Securities, Inc., Research Division - Senior VP & Lead Equity Research Analyst [93] -------------------------------------------------------------------------------- Okay. And then the investment thesis behind the 2 assets that, again, you described here? Is it mostly below market rent related? Or is it remerchandising opportunity? What's sort of the driver there? -------------------------------------------------------------------------------- David R. Lukes, SITE Centers Corp. - President, CEO & Director [94] -------------------------------------------------------------------------------- For these 2, in particular, the opportunity is renewal spreads. -------------------------------------------------------------------------------- Christopher Ronald Lucas, Capital One Securities, Inc., Research Division - Senior VP & Lead Equity Research Analyst [95] -------------------------------------------------------------------------------- Okay. And then last question for me. Just -- last time you guys bought stock back was, I think, stock was around $11.75. How do you think about the relative value today given the portfolio is significantly de-risked, the balance sheet is in a much better shape, et cetera, et cetera? -------------------------------------------------------------------------------- David R. Lukes, SITE Centers Corp. - President, CEO & Director [96] -------------------------------------------------------------------------------- Well, I agree, the balance sheet is in better shape. And I think the company has been de-risked. I do think we do have some complexity still. When Conor goes through the sources of capital this year, there's a number of them. And that complexity, I think, can sometimes show up in the discount. So I think we'll see what happens over the course of the next couple of quarters, but we feel pretty good about the business plan. -------------------------------------------------------------------------------- Operator [97] -------------------------------------------------------------------------------- The next question is from Samir Khanal with Evercore. -------------------------------------------------------------------------------- Samir Upadhyay Khanal, Evercore ISI Institutional Equities, Research Division - MD & Equity Research Analyst [98] -------------------------------------------------------------------------------- Conor, I'm sorry if I missed this, but I know there's a lot of focus on same-store NOI growth. But when I look at your FFO, I mean, I know there's a lot of variability with fee income, RVI fees. I'm just trying to figure out at what point can we start to see a bottom from an FFO standpoint? Just any color around that would be helpful. -------------------------------------------------------------------------------- Conor Fennerty, SITE Centers Corp. - Senior VP of Capital Markets, Executive VP, CFO & Treasurer [99] -------------------------------------------------------------------------------- Sure. So let me walk you through some of the big moving pieces for 2020 versus 2019. And I think that provides some color on the kind of future growth rate of the company. So as I mentioned to, I think it was Christy, JV fees, RVI fees and interest income are about $0.14 of headwinds. On top of that, we've got the G&A -- or higher G&A and a higher share count, which are roughly $0.02 to $0.03 as well. And then lower other income and term fees year-over-year is another, call it, $0.02. That takes you from $1.27 to, call it, $1.09 round numbers. And then from there, we have NOI growth. What you're seeing in 2020 -- and this is something we've tried to highlight over the last couple of years since our Investor Day, Samir, is the kind of handoff from lower RVI fees to the reinvestment of capital that both David and I have talked about. So it's really going to be a function of when and how we reinvest that capital in the back half of this year and into 2021, Samir. What I would just tell you is we feel really good about our 5-year business plan and the 5% OFFO growth that we outlined. And so as you see us reinvest that capital in the course of 2020, I think you'll start to see a lot more visibility on 2021 and future growth. -------------------------------------------------------------------------------- Samir Upadhyay Khanal, Evercore ISI Institutional Equities, Research Division - MD & Equity Research Analyst [100] -------------------------------------------------------------------------------- So it's fair to assume that sort of 2020 is the bottom? And then that sort of is -- you'll start to see the inflection at this point? -------------------------------------------------------------------------------- Conor Fennerty, SITE Centers Corp. - Senior VP of Capital Markets, Executive VP, CFO & Treasurer [101] -------------------------------------------------------------------------------- I think you'll start to see that growth profile develop over the course of the year, Samir, correct. -------------------------------------------------------------------------------- Operator [102] -------------------------------------------------------------------------------- Ladies and gentlemen, this concludes our question-and-answer session. I would like to turn the conference back over to David Lukes for any closing remarks. -------------------------------------------------------------------------------- David R. Lukes, SITE Centers Corp. - President, CEO & Director [103] -------------------------------------------------------------------------------- Thank you all for joining our call, and we will see you either next quarter or at a conference. -------------------------------------------------------------------------------- Operator [104] -------------------------------------------------------------------------------- The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.