Good day and welcome to the SITE Centers Second Quarter 2020 Operating Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please note, this event is being recorded. And I'd now like to turn the conference over to Brandon Day of Investor Relations. Please go ahead.

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 material, differ materially from our forward-looking statements. Additional information about these risks and uncertainties may be found in our earnings press release issued this morning and in the documents that we file with the SEC, including the most recent report 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 the Investor Relations section of our website at www.sitecenters.com. At this time, it is my pleasure to introduce our Chief Executive Officer, David Lukes.

Thank you, Brandon. Good morning, and thank you for joining our second quarter earnings call. Once again, I'd like to thank my colleagues at SITE Centers for their tireless work over the course of the quarter. Our team has been dealing with a litany of unique situations with our tenants and our properties and they've certainly earned our admiration during this period of remote working. I'll start today with a brief summary of the events during the quarter, then give some thoughts on what we are seeing and hearing from our tenants, and conclude with some comments around the dividend and recent transactional activity. As I stated on our first quarter call, 100% of our properties have been open and operating in accordance with the ever-changing local and state guidelines. This is important as 84% of our centers are anchored by an essential retailer, and our responsibility as the landlord was to continue to provide access and the necessary operations. Unfortunately, many tenants were not able to be remained open. And as of April 4, our low point, only 45% of our tenants were open for business. Over the course of the quarter, we saw a gradual increase in tenant openings. And as of this past Friday, we are 92% open. For the most part, the remaining closed tenants are fitness and entertainment businesses, which have struggled to open with social distancing requirements. This significant reopening activity has allowed us an unusually high degree of communication with all of our tenants and 2 topics have emerged that are worth sharing with you today. First, payment of contract rent remains front and center in our conversations, and almost all tenants have acknowledged their obligation to pay under their lease contracts. Many, however, have asked for help in spreading those obligations over…

Thank you, David. In the second quarter, activity from national tenants picked up from pandemic Lowe's, though overall volume is still below pre pandemic levels as tenants prioritize their existing operations. We signed 4 anchor leases in the second quarter and 114,000 square feet of total space with spreads on new leases of 17% for the trailing 12-month period. Subsequent to quarter end, we signed Sprouts at Lake Brandon Village and have a number of other anchor leases near the finish line. Active sectors remain the discounters, grocery, beauty, quick service restaurants and banks. Local tenant activity has also picked up from March and April, though it remains much more submarket-specific with COVID outbreaks interrupting activity. In terms of quarterly results, the lease rate for the portfolio was down 50 basis points from the first quarter, largely due to the rejection of 2 24 Hour Fitness leases. In addition to 24 Hour Fitness, national bankruptcies this year where we have exposure include Pier 1, Gold's Gym, GNC, Tuesday Morning, Chuck E. Cheese and Ascena, which in aggregate, totaled 2.3% of base rent, including leases that have been affirmed. For leases rejected to date in bankruptcy, we expect backfill timing on average to be longer than the last few years, given the slowdown in leasing velocity. That said, our team is in active discussion with a variety of quick service restaurants and service users to backfill these locations, which have largely been shops. Moving to construction activity and tenant deliveries, 4 consolidated anchors started paying rent in the second quarter, including Total Wine at Wando Crossing, and we have another 9 consolidated anchors signed, but not yet open, with rent commencement dates expected in 2020 and 2021. Total base rent from tenants signed but not opened as of quarter end was $11 million. Construction activity on these spaces remains largely uninterrupted with no material impact to work from recent shutdowns. Lastly, led by our property management team, we continue to improve our efforts to assist our tenants with marketing, delivery and curbside pickup. A recent tenant survey we conducted indicated that over half of our tenants are interested in curbside service with 80% of our national restaurants, which is the majority of our restaurant exposure, currently utilizing or expected to roll out curbside service in the future. As David mentioned, our assets are located in affluent ZIP codes and provide excellent curbside visibility and access. We continue to work with our tenants on a one-off basis to make sure we're tailoring services to fit their needs. Conor?

Thanks, Mike. I'll comment first on quarterly earnings, discuss the Blackstone transaction and conclude with our balance sheet and liquidity. Second quarter results were primarily impacted by uncollected rent and reserves related to pandemic. We've adjusted our income statement presentation this quarter to help clearly identify the impact. In prior periods, revenue deemed at risk was reserved and labeled as bad debt. In our adjusted presentation, all billed revenue is included in base rent and recoveries with an offset or reduction for revenue deemed uncollectible, which includes bad debt and unpaid rent from cash basis tenants, among other items. This change does not impact NOI, same-store NOI or operating margins and is merely a change in presentation. Unpaid contractual revenue at site share for the quarter, including deferrals, totaled $44 million with $15 million of this amount deemed at risk or uncollectible, which was an $0.08 per share hit to OFFO. We also wrote off $3 million of pro rata straight-line rent, which was an additional $0.02 per share headwind. There were no other material onetime items that impacted second quarter OFFO. Subsequent to quarter end, $4 million of the $44 million of unpaid revenue was paid, reducing total unpaid revenue from the second quarter to $40 million at site share as of Friday. Moving forward, we are not providing an updated outlook at this time. However, there are a few items to consider for the third quarter and back half of the year. As I mentioned last quarter, as a result of pandemic, it is likely that disposition volume will be lower than our initial 2020 guidance, thereby reducing downward pressure on management fee revenue from 2019, which will help partially mitigate the impact from uncollectible revenue and reduced occupancy from bankruptcy-related closures. Interest expense is also expected to…

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

[Operator Instructions] First question today will come from Christy McElroy with Citigroup.

Connor, I know you mentioned that there was an additional $4 million. It sounded like it was paid on Friday, so it didn't impact the numbers, the collection numbers that you have in there. So this number may be different. But with regard to the 19% that remains unresolved in July, that implies that tenants are reopened but still not paying rent. Can you just talk about how you guys are dealing with this unresolved bucket, which seems to be primarily national tenants, especially as we get closer to the August 1 rent payment, how are you thinking about lawsuits? And is that refusal to pay rent driving that 8% that are still not open?

Christy, I'll turn it over to Conor in a second, this is David. If you think about the last couple of months, I think a lot of this comes down to the philosophy of a deferral program. And you can tell that the amount of rent abatement we've done has been de minimis. It's been 40 basis points of second quarter rent. But the deferrals are certainly growing as time goes on, and I would expect that to continue. The majority of the uncollected rent is from tenants that we have ongoing dialogue, but we have yet to paper a resolution. You ask about what's our thinking or how do we think about the deferrals. There's a bargain to be had between the landlords and the tenants. And I think we've gotten past the point where the ask from the tenant side is abatement. And what we've gotten into is a realistic dialogue about how we can effectively lend them space for a period of time. And in return, they can loosen some restrictions or can agree to additional terms in their leases. And I think as the initial shock of the pandemic has started to subside a little bit, calmer heads have prevailed. And I think both sides are realizing that there's a pretty good deal to be had, and there are trade-offs that make sense. So I would say that we will start to close that gap between those that are opened and those that are paying. But I don't think the gap is going to be entirely closed in the month of July.

Yes. Christy, just to clarify, the $4 million I talked about. The reason I included that as a reference point was think about same-store in our balance sheet all as of June 30. Our payment data is as of last Friday. And so my point is simply, just in the month of July, we've collected another $4 million of the second quarter contractual rent. And then just to expand on David's last point, if you recall, for first quarter, we reported April collections on April 30 at 50%. Today, we're 67%, right? So a 17% increase over the last 3 months. I don't know if we'll see as dramatic of an increase over the next 3 months for July. But I do think it's an important point on David that it's an ongoing effort, and we're, the dialogues were active by the vast majority of our tenants who haven't paid. And some are just simply folding the towel and saying, "Hey, you know what, I'll just go back to paying." Others are saying they need deferral and others are holding out. So it's a really, it's fairly dynamic and given our concentrated tenant profile, one tenant can swing the percentages fairly dramatically.

Okay. Got you. And then just on the Blackstone unwind. Can you just talk a little bit about the genesis of that transaction? How did the 2 sides think about attributing value to the assets in this environment? And how, after closing, how does the transaction impact your pro rata leverage?

Sure. I can cover the first and the third part of that, but not too much on the middle. The genesis of the dialogue was simply the fact that this joint venture has been formed, I guess, it was almost 6 years ago. And it was significantly larger at the time, as you know. And as the portfolio gets smaller and smaller, it was simply not efficient for either party. So we made it a joint goal to split up the assets, and this is months ago. So I would say it was a pre-pandemic desire to resolve the joint venture in a way that was beneficial to both sides. Going forward, the difference for us is that it's a lot simpler to have a focused effort on 9 assets that we know well. And I think that the business plans that we have for those assets most likely are different if they're wholly owned than they would be in a joint venture. So we feel really great about the resolution. And I would hope that closing would occur sometimes toward the back end of the year.

And the leverage impact?

Yes, Christy, for leverage, we'll move up about 0.25 of return, maybe modestly higher than that closing. The assets have a modestly higher growth rate than our current portfolio. So we think that there will be some natural deleveraging from those assets kind of at least occupied gap closing. And then to David's point, there are some other items from of our business plans, which will further impact leverage that we can discuss post closing. The only other thing I'd just add is it all secured debt, and obviously, it's not recourse that. So that's another point to consider.

And our next question comes from Samir Khanal with Evercore.

So Conor, when I look at the leasing spreads, I mean, they've held up here, but I would think they were negotiated sort of pre-COVID here. Can you give us an idea how negotiations are going at this point, COVID language is being implemented and just kind of maybe deals that are assigned or kind of under negotiation sort of subsequent to quarter end here?

Sure, Samir, it's David. The anchor leases, as you point out, having 4 anchor leases signed during this quarter is pretty substantial and then one post quarter. But the reality is, and as you point out correctly, those negotiations were months ago. And so they're not necessarily a reflection of anticipated leasing spreads going forward. And to be perfectly honest, I don't think there's enough current activity to give a good kind of emotional idea as to where rents are going in the future. It's just not current enough data to let us know. I think that it's probably fair to say that in a portfolio that's now as small as ours, with only 69 properties out of more than 30,000 strips in the United States. We're not a great indicator of macro trends. Having said that, on the micro basis, we are seeing demand from all types of tenants at our properties. I think only the next 6 to 9 months is really going to shake out where rents are going and how desirable our land is and what people are willing to pay for it.

Got it. And I guess my second question is on the RCDs, or the rent commencement dates, for some of the tenants that were planning there sort of open later this year. I mean is it fair to assume that the bulk of those are being pushed out into next year at this point? And how should we be thinking about that?

It's reasonable to assume that because, especially, all of us working from home, I think we assume that everyone is working from a home, but the construction industry has been surprisingly resilient. Everything is a little slower, but I think I can give, I can let Mike give some more detail behind that.

Yes. I think, Samir, one of the most important things to point out is that while a lot of tenants were prevented from operating in the month of April, our construction progress was, for the most part, with the exception of the State of New Jersey and a few other local municipalities, pretty uninterrupted. And as a result, we've been able to deliver to tenants in a timely basis. And while some of the tenants are certainly looking at pushing some rent commencement dates, for the most part, we've maintained a relatively stable time line.

Okay. Even with sort of the flare-up you've seen or we've heard about in California, Arizona or even Florida. Do you think tenants are still, the bulk of those would kind of still be on track?

None of the flare-ups have affected our construction time line.

I think what he's saying, Samir, is that what has happened is we have not had much negative impact. What he did not say is that we don't expect there to be. I think if there's flare-ups in California and the southwest, in particular, over the last couple of weeks, I think it's very reasonable to expect that a tenant is going to call up and say, thank you for delivering on time, can I please delay my opening because it's just, it's a terrible time to open. And I think from our perspective, we're going to work very hard to make sure that the openings are strong. So I would expect that some of the RCD slip.

And then Samir, just on the $11 million number we disclosed, you think about the leases we're signing today, those are going to be 2021. So don't think about, I know you're not implying this, but don't think about all $11 million coming online by the back half of the year. Clearly, the leases we're signing today are for 2021.

And our next question comes from Todd Thomas with KeyBanc Capital Markets.

First, just a follow-up on Christy's question, I think. David, you said deferrals were increasing as you move forward here, but that bucket decreased by 10% from June to July, so from 20% to 10% and the unpaid balance increased by a couple of percent. Can you just provide some detail on what's happening there with that unpaid percentage increasing and deferrals decreasing as we move forward? And then as we think about the deferral agreements that you've struck. If have you had to revisit any of those or maybe write-off any deferred rent since negotiations with tenants have begun?

Yes, Todd, I think your second part of the question, which I, if you don't mind, I'll respond to you first is really important because as we all know, when you shake hands with someone at a certain point in time, it's based on the conditions at that time, if there's a second wave or there's re-closings in certain parts of the country, there's no question that we are going to have to reopen conversations because a payment plan is based on time. And if the time's changed, I think the plans are going to change as well. So it's very hard to speculate right now. We have not had to revisit any of our deferral programs. And I'll add another point that of all of the deferral programs we've done with existing tenants with existing term, not one of them has had a reduction in base rent. So to date, I feel like it's been a very positive negotiation between a tenant that wants time and a landlord that wants control or term. and so it's been successful to date. To your point, if things change with the pandemic, then I think some of those deferrals might change as well. With respect to your first question, what I really meant when I was responding to Christy was simply that 3 or 4 months ago, I think one would assume that you're working with tenants until they open and once they open, everything is back to normal. And I think what I'm saying is that the complexity of negotiating deferral programs and leases and trying to kind of work through all of the terms that are important to both sides. It, there's a lag period. And so even though the tenants open, we're still working with them to kind of resolve and help with the extension of those programs. That's why I think that July is not going to be the end of deferral programs, we'll see them push a little bit into the fall as we work through the documents.

And then, Todd, just we have some new disclosure on Page 9 of our slides on deferral repayments. 85% of our deferrals executed today, or agreed to today, are expected to be repaid in, I'm sorry, 89% in 2021 and beyond. So I think we're well aware of the, ask our tenants to defer 2 months or 3 months, whatever it might be, and then payback to utilize seems a little unrealistic. And so we're trying to craft that as part of our programs, knowing that this is not a snapback economy.

Okay. That's helpful. And then actually, on, so on Page 9, Conor, maybe for you. If we look at the composition of the uncollected base rent in the quarter, how is that changed in July? Is that something that you're able to provide some color on?

It's, I don't have that exact data, Todd. My guess is it's probably not that dissimilar because the same tenants we're discussing with the agreements or David mentioned nearing final terms on agreement are the same ones who are discussing July with us. And so if you think about it as part of the negotiation, the tenants are looking at this on a month-by-month basis. And so I think they want to see some resolution for their second quarter before they're willing to come in on July. So my guess is it's probably the same tenants that are kind of that bucket for all 4 months that we've seen to date.

And our next question comes from Rich Hill with Morgan Stanley.

I wanted to just get a little bit more clarity on the leasing spreads. It looks like new leases and renewals both increased prior to the last quarter. But I note that net effective rents came down. So I was wondering, Conor, if you could just help me walk through that.

Yes. So Rich, if you look on Page 14 on our net effective rents, on the far right of the page, we give the percentage of GLA related to anchors, greater than 10,000 feet. As you look at our net effective rents, you're right, they're the lowest in the last year, but this is our highest percentage of anchor deals. And to kind of jive with Mike's comments that we're seeing anchors be active. We're seeing our international tenants to be active. The local tenants, which typically have small shops and have a higher net effect of rent, there's a lot more volatility there in terms of their activity. So where we've seen the biggest decline in activity over the last 4 months has been shops, which coincidentally have the highest net effect of rent. So that's what the biggest driver there is. And my guess is, Rich, you'll see that trend continue over the course of the year as long as there's flare ups.

Got it. That's very helpful. Just a quick follow-up to that. On lease terms, are you seeing any differences in 2Q for the term of the lease that's being signed? Or has it been relatively consistent?

That's been relatively consistent. We really haven't seen any changes in the lease term.

Got it. And then just one follow-up question for me. I think you addressed this, but just humor me for a little bit. Can you just walk through the difference between cash basis tenants paying 19% of 2Q '20 versus the 64% that was collected in 2Q?

So cash basis tenants, Rich, if you look on Page 11 of our slides, it represent about 10% of our income. So if you think about it, I'm sorry, our base rent, I'm sorry, for the second quarter, and so if you look at the, you can back into what they represent as a percentage of unpaid rent and not surprisingly, it's a decent chunk. I can go into more detail with you off the call. I don't know if that answers your question.

Yes. Maybe we just follow-up afterwards.

And our next question will come from Alexander Goldfarg with Piper Sandler.

So 2 questions. First, just sort of going back to Christy and Todd's question. Conor, can you, just on the accrued but not collected rents, in the supplemental, I talked about $25 million that was accrued but not collected in the second quarter. But then you talked about the net $40 million that remains to be resolved. So can you, just so I'm clear, can you reconcile those 2? And then with the write-offs that you took in the second quarter, does that mean that this $25 million of accrued but not collected, you have a high degree of confidence that, that is in the, that the negotiations will work out such that, that is all collectible rent or should we think about further write-offs coming?

Yes. It's a good question, Alex. I'll start with the last one. So on the, if we're accruing revenue and not collecting it, there is a high degree of probability required there to recognize that revenue. So our view today is that, that revenue that we're accruing, but not collecting is collectible. In terms of your question, how do we kind of bridge the gap between the $44 million of unpaid rent and the $25 million, the $25 million on Page 12 of our supplement is related to same-store NOI. The $44 million is related to the entire portfolio. If you look at Page 10 in our slide deck, it lays out for the consolidated portfolio, the JV portfolio had share and for the total company and how you can bridge from GAAP revenue, I should say, I'm sorry, build revenue to GAAP revenue on our income statement and so happy to spend more time. There's a lot of moving pieces this quarter. So happy to spend more time with you if you'd like.

Okay. No, that's helpful, Conor. So basically, from an earnings perspective, we want to think about the larger number, not the smaller same store number.

You're absolutely right.

Okay. And then the second question is, David, hopefully, your tenants have some info that will help answer this question. But clearly, curbside has been a huge success, rapid adoption. Have the tenants given any indication of how much curbside has been able to offset sales lost by traditionally customers going in, walking around the stores, picking up products and walking out. So just trying to get a sense for where tenant sales are now on a net basis, and how they think curbside has helped, if they can quantify how much they think curbside has helped offset traditional shopping patterns.

Yes. Alex, it's a great question. I wish that we had the secret algebra behind that success. I mean if you look at our tenant survey in the last month, where we reached out to thousands of tenants, I mean, the number that wanted curbside access was significant. Not surprising. I think everyone that has a family that's been shopping last couple of months is probably sort of curbside pickup themselves. So it has been very successful. The fact that SITE Centers are mostly parking lots and curb cuts make it pretty easy for a landlord to adapt the site plan to whatever the tenant wants, for the most part. We've seen anecdotal information and empirical information about tenant sales, which has been very positive on the ones that are using curbside. What we don't have is the relative impact of the curb side to the overall sales, unfortunately.

Alex, this is Mike. One other thing I could point out is that when you look at the grocery business in our centers, one of the things that we routinely do is evaluate the customer draw looking at cell phone app data. And what we've seen is that while several grocery operators have had increased sales, we've looked at the overall component of customers in the store versus in the parking field. And while the customer count in the stores may be down 30%, 40%, the sales could be up 25%, yet the amount of customers that we're seeing in the parking lots are actually increasing. So it's clearly a strong phenomenon, and we're all over it as far as working with our tenants to help them maximize that.

And our next question will come from Ki Bin Kim with SunTrust.

Can you just talk a little bit more about your philosophy when it comes down to the deferral agreement? Obviously, we're going to see varying numbers from different companies and what goes into making that thought, which could be very different. So I'm just curious about what, how did you approach it, what type of customers got it and things like that.

The one thing I will say is that as as you've seen, we really were very deliberately patient in dealing with deferral arrangements, waiting for, to see how things shook out because the initial stage of the pandemic, there was so much uncertainty. We weren't going to jump into deferral arrangements right away. So what we effectively did was to take a look at the tenant's performance as they reopened, and a lot of the deferral arrangements came from that stage of the game. The most important thing for us was that if we're going to effectively be lenders to these tenants for a few months of rent that we are going to have to have a win-win scenario. And as David mentioned in his prepared remarks, that's really what the philosophy came down to, I was looking at it from a bottom-up approach, space by space, lease by lease, looking at overall restrictive covenants that were in the leases, seeing where we could get those relaxed in exchange for a deferral. There were new options exercised and things like that. But the bottom line is there's no formula that is applicable to every tenant. Every single tenant had a very different discussion. Every single tenant had a completely different approach. And that's one of the reasons that we're at the end of July, and we're still working on a lot of these.

So I mean that's a good analogy, right? So is it correct to say or assume that the most creditworthy or, and credit in an asterisk meaning, I belief that they'll survive when come out of this. Are those the tenants that get deferrals? Or is there a decent-sized bucket of tenants that need that deferral, but are not, probably might not survive next year. Do those kind of deferrals as well? Or how did you approach that segment?

Ki Bin, if you had, it's David, if you had to put it in buckets, I would say there's 3. One are small shop businesses that need it and irrespective of their creditworthiness, it's in our best interest to keep them solvent in our portfolio, that happens to be a very small component of our rent roll, but it's there. The second group are those that it's more of a credit play than anything else, where they're a great customer of ours, a big tenant. There are some things that we need from them. And their creditworthiness is such that we feel very confident that the loan is money good. And I would say the third category has less to do with credit, more to do with control. I am willing to trade a couple of months of rent for certain loosening of restrictions on properties because the financial gain to us, whether they pay it back or not, is far superior. So it's not all credit, it's not all control, and there is some component of need. But it doesn't necessarily fit neatly. Some of them have 2 of those or 3 of those categories at once.

Right. And just last question. How should we think about same-store NOI going forward? Because you did include accrued but not paid rents, which is understandable. If I think about the pace of improvement for same-store NOI, does it really only stem from the unresolved bucket that become smaller?

Ki Bin, I think the reality is that we're not thinking about same-store NOI, it's just not that relevant for the foreseeable future.

Yes. I mean, Ki Bin, there's a bunch of things. I mean we provided some breadcrumbs on NOI. We provided them for an earnings perspective, not for same-store. Obviously, cash basis tenants, to Rich's question, matters. The $11 million of signed on [indiscernible] open. ABR is, obviously, very material to our bottom line as well. We took a number of reserves this quarter related to uncollected rent. How that occurs or the pace of that over the course of the year is going to impact same-store. But to David's point, I mean, it's not, we've never operated our business for same-store NOI. We certainly budgeted and forecasted and provide guidance for it typically, but just not how we typically run our business. I would just tell you, from my seat, I think the relevance of the metric is kind of thrown out for the next 2-plus years because of cash basis tenants, because of accruals because of deferrals, it's really all over the place, to your point on just depending on how people structure deferrals, when those are repaid, et cetera.

And our next question will come from Linda Tsai with Jefferies.

In terms of the unpaid contractual rent at $44 million, but then you got the $4 million that was paid recently, what merchandising category do those tenants fall in?

Yes. Linda, I don't know. It's all over the place. Again, just the $4 million does not, it's just a lot of people know, there's a difference between our payment data timing, i.e., as of last Friday, and the balance sheet and income statement from the second quarter. So over the course of the quarter, I'd expect that number to increase. Based off David's comments and Mike's comments about coming to agreements with more tenants, some of which we'll just see the tenant pay their full rent, but it's all over the place. I mean there's no one category that's jumping out, per se.

Got it. And then in terms of the comment about rejected leases from bankruptcies to date, taking longer to backfill than average, can you just put some parameters around that? How long would it take before versus your expectation now? And is that somewhat a function in the mixture of the boxes being backfilled or is that just the environment?

I think, Linda, it's really the environment. And if we had any information that we could share that would give you a little bit more insight, we would certainly do so. But the reality is, getting an idea as to how much leasing is going to be done over the next year or so, I think, is entirely dependent on how the reopening occurs across the country, and we just don't really have a very good window into that future.

The only thing, the ironic part is, and Mike and David alluded to this, Linda, is that we're seeing more velocity on the anchors than the shops, right? So from a box perspective, you might actually see box backfills get done quicker or at a similar pace to where they were a year ago. That said, we haven't had many boxes get rejected today, to Mike's comments. All of our bankruptcy rejections have really been concentrated in the shops.

Just one final one. In your earlier comments about broader trends, you're talking about people working from home or discuss the importance of convenience, demand coming from the mall-based retailers. How do you think merchandising might change? Or what kind of tenants are you looking to attract?

That's a good question. Let me, Go ahead, Mike.

I think what we're going to see, first of all, I think we're going to continue to see a lot of convenience and service-based tenants which has been the trend, but I think that trend will continue. Financial institutions, quick service restaurants that are focused on drive-thru and carryout. I also think that from the standpoint of anchors, we're still going to continue to see the off-price and discount category being the strongest driver.

And our next question will come from Mike Mueller with JP Morgan.

You talked about very few abatements and the lease rate only went down about 50 basis points sequentially. So if we're looking at that $15 million of at-risk or uncollectible number in the quarter, I mean, how should we, I know that's looking at Q2 collections. But I mean, how should we think about that as a rearview metric versus something that's going to be recurring over the next few quarters or so? And is that a function of stuff that tends to be, you think, you're really not getting paid, you're not going to get paid on it. It's truly at risk or it's the documentation isn't there yet? So I mean, yes, so how should we think about that bucket going forward?

It's a really good question, Mike. And it's really hard to answer without guidance. What I would just tell you is the biggest factor that's going to drive it is the payment rate, which sounds kind of silly. But if we just had a 71% payment rate over the course of the third quarter, I'm sorry, yes, the third quarter, which is what we have July to date, we'll have a lower uncollectable revenue line item versus the second quarter just because of the higher payment rate. So I mean there's a number of items that go in there. If you think about it, the 3 biggest numbers are, the 3 biggest drivers, say, excuse me, are cash basis tenants, reserves we make against individual tenants and then general industry reserves. And so our moods or feelings on certain tenants or certain industries is going to dictate that number as well as cash basis tenant payment rates. But I would just tell you, the easiest way to think about it is your view on collection rates is going to dictate the revenue deemed uncollectible, which I know is a bit of a nonanswer, but obviously, in the middle of the pandemic without guidance, it's challenging to provide visibility on that collection range.

Got it. Okay. And one other question. I think you had about $3.8 million of fee income tied not to RBI. So how much of that goes away with the Blackstone onlines?

So Blackstone fees in the second quarter, Mike, were about $500,000. And then the interest income related to those joint ventures was about $3.5 million. So that's where you'll see the biggest impact. We do have a 5% stake in those joint ventures. And so there's a little bit of NOI running through our JV NOI but it's not material. The biggest impact you'll see is fees and interest income. And obviously, that will be replaced with NOI from the properties.

And our next question comes from Floris van Dijkum with Compass Point.

And David, maybe can you try to quantify some of the benefits maybe of some of the extensions and restrictions on, or easement of restrictions in your lease discussions. Is it possible to do that at this point? Or how should we think about some of the value that's accruing to SITE Centers?

Floris, it's certainly possible. When we work on a deferral arrangement, we're effectively creating a net present value analysis for each negotiation so that we can evaluate it financially. I would hesitate to try and roll that all up and give guidance on that. But I think we're making decisions that are financially beneficial to the company. And I can, I guess, I'll leave it at that.

And, but is most of that benefit on an NAV basis or is it on a, just an earnings basis, i.e., you're extending your payments going forward? Or is it because you can now create additional space in your, at your center or something like that? How do you guys...

Most of it is on an NAV basis because most of the value is in restrictions that are eased to the point that we can then do other things with the property. In other words, there are certain situations where tenants can exercise an option or add term. But our assumptions in our August models for our assets, for the most part, have a pretty high retention rate, apps and bankruptcies, a high retention rate just because of the profitability of the tenants and knowing the submarkets that we're in. So I don't necessarily think that the extension of term is the number 1 goal. The number 1 goal is really gaining control back of the real estate and most of that control comes in the lease restrictions that a tenant has.

One other question maybe. What segment of, what tenant category had the greatest amount of deferrals? Is it apparel? Is it gyms? Or have you written off most of your gym income? Or how should we think about the various segments in your portfolio?

I think given the relative size of our tenants, we haven't commented on the percentage of deferrals out of each category. I mean I think you can assume that there's a group of them that have need and those certainly would include entertainment and fitness. Then there are those categories that, I think, are pretty public in the fact that they have a lot of control over the real estate, that would be a lot of discounters and grocer categories. And so depending on the tenant, we have exercised some thoughtfulness around the deferral programs, but we really haven't quantified it for you in terms of the tenant category.

Okay. One, maybe one last question for me. In terms of reinstating guidance, your earnings were actually, even though you have given no guidance, we're pretty much in line with expectations. Do you expect to, do you think, at the end of the fourth quarter, will you be reinstating guidance? Or do, you're still, you can't say at this point when you will do that?

Yes. Floris, I would just say, I think you appreciate this company's commitment to transparency and visibility, and we think guidance is part of that. That commitment is unwavering despite the pandemic, and we'll cross that bridge when we get there. I fully expect us to provide guidance at some point. A question of when is just unclear at this time.

And our next question will come from Christy McElroy with Citigroup.

It's Michael Bilerman here with Christy. I hope to come back on the Blackstone transaction, just a couple of quick clarifying questions. I guess what were you solving for in the exchange? The preferred had been written down to about $90 million from a face value of $200 million. And I can remember many years ago, it was almost $400 million as sales proceeds have paid that down. But as you were thinking of solving for that $89 million, the $20 million of cash, which means, I guess, you value the equity above and beyond the $200 million of mortgage debt at about $70 million. Or is there a different way to think of what you're trying to fall for?

Well, Michael, I'm going to try and thread the needle with what I can say pre closing. But for the most part, what we're trying to solve for is a simplification of our business. We're trying to solve for protection for our shareholders who had a preferred that had a value on it, and we were trying to solve for our opinion of the real estate, which was encumbered in multiple different pools of loans, which is, I think, public knowledge. And we were simply trying to find value on these business plans for each one of these properties and make a trade of our pref that was effectively secured by all the assets and concentrate now in the form of cash and a smaller group of assets.

On the debt, what is the debt yield effectively on the $200 million of outstanding mortgage debt for those assets?

Michael, we haven't provided that. There's a property table, which you can piece together, probably a pretty good guess on that, but we can't disclose that at this time.

Yes. So I get about $12 million, sorry, $18 million of NOI. And so from a debt yield perspective, it looks like it's running about 9%. I don't know if that's in the ballpark of what you're thinking because I don't know if there are some operating expenses that these assets that have been paid, but circa, let's call it, $18 million of NOI, over $200 million was 9%. Is that a fair assumption?

Michael, we just can't comment on it. I'm sorry.

Okay. How do you think about the lost income, right? And I assume you talked about the preferred income that you're generating on $200 million, right? So even though you've written down the value of the preferred to $90 million, you were still earning at least the cash interest. I know you know we're no longer earning the pick. But you still have the cash interest, which is providing that $13 million of preferred income on top of probably $2 million of fees. So as you think about cash flows, is this a net negative, net neutral or net positive relative to generating the current cash flow that you have coming off of the preferred?

That one we can answer. So we think the transaction is FFO neutral in year 1, Michael, which will help, I think, bridge the gap on your NOI question. From a cash flow perspective, it's going to be dependent on our business plan, the CapEx we spend at the properties, obviously, as you know. And that's where, to David's point, post closing, we'll provide some detail on our business plans for the properties. Q - Michael Bilerman And just last question, just on, in terms of the FFO. What would it be? I don't know if you're including marketing the debt to market because the debt, I would, I guess, would be a bit above market or any leases in that calculation. So what would it be like on an AFFO basis?

It's immaterial from a noncash perspective, there's no benefit from that.

And our next question will come from Vince Tibone with Green Street Advisors.

I have one additional follow-up on the Blackstone deal. I just want to better understand how you thought about this transaction given your current cost of capital. I mean you're positioning it as a swap, but isn't this more akin to about $250 million, $270 million acquisition that is financed with existing mortgage debt and the book value of the preferred equity. So I'm just trying to get a sense of why growing the balance sheet and acquiring is the right move now, given where your stock is trading today and your current cost of capital.

I'm not sure how you come to the conclusion that it's an asset purchase. I mean we were already on an equity position on these properties.

But it's really the, because you're acquiring, you basically had no share of the debt, and you're going to be taking on an additional roughly $200 million of debt on your balance sheet. And then you're getting swapping the preferred for the interest in the properties. And you are growing both the assets and liability side of the balance sheet. So ultimately, that's why, how I came to the conclusion that you are really a net acquirer here. I mean leverage is going to go up. So I mean, that's why I came to that conclusion.

I think the way that we have always looked at the preferred is that it's subordinate to the mortgage debt. And in many, and in certain instances, it's subordinate to the common, but it is equity. And therefore, it is absolutely a swap from a piece of paper. It's secured by numerous properties, and it's simply concentrating it on a smaller bucket.

Okay. That's fair. And then just is there any color you can provide on how the, excuse me, how the valuation was negotiated relative to pre-COVID levels, any color just on between the you and Blackstone, how you thought about what's the right mark for the 2 pools of assets and any differences in cap rates from February to now?

I think it was 2 parties at arm's length that had, both of them had a lot of history on the properties for greater than 5 years. And it was simply both parties coming to an agreement as to what each party thought was fair.

Okay. Fair enough. And then just lastly, are you able to provide the decline in second quarter same-property NOI on a true cash basis?

Yes. Vince, we give you those pieces on the same-store page, if you look at footnote, give me one second, sorry. Footnote 2, I think it's an earlier question from someone. It includes $25 million of accrued revenue on Page 12. And so if you exclude that from the total revenue, you'll get a cash basis same-store NOI. I think to our earlier comments, though, you're going to see incredible volatility in same-store NOI, just from, this third quarter will "overearn" by $4 million, as I mentioned to an earlier question, that was second quarter rent paid in the third quarter. So I would just tell you, you're going to see extreme volatility in same-store for probably the next 2 years as we work through deferrals.

And our next question will come from Haendel St. Juste with Mizuho.

I wanted to get your view on a recent call, the CEO of a large private shopping center portfolio said they could see that total portfolio NOI could trough 15% lower than pre-COVID before recovering and that the recovery could take several years. How do you feel about that? Is that 2 barrels?

How do I feel about his statement?

Not at all. The statement as it relates to the industry.

I guess I don't have an opinion. I have an opinion about our own assets, but it's a pretty small component over the overall industry.

So it's your portfolio over the next 2 to 3 years, actually, 2 questions. How long do you think it takes for us to get back to a period of stabilization, is it 2022 possible? And as we think about the cash flows for your portfolio, there's 85% 2 barrels in perspective to think of what that cash flow looks like compared to pre-COVID?

Well, I have to tell you, I wake up and think of that exact question most days. I think you can also appreciate the fact that the rolling pandemic through various communities and the lack of clarity as to when this will end, how to lend, how long tenants can last, which ones are going to be profitable, which ones aren't, is extremely unclear. And so I think my desire to guide to what I think a trough could be and when, I think, would be unwise.

And our next question will come from Chris Lucas with Capital One.

I guess just going back to the Blackstone JV, just in terms of how the assets were selected. Were you able to identify each of those assets as, in total and sort of cherry-pick them out? Or was there sort of an alternating sequence in terms of them picking an asset, you picking an asset kind of approach?

Chris, I think there was enough flexibility for us both to have a very positive and meaningful negotiation and for both parties to feel like they got what was important to them. So yes, I think there was plenty of flexibility. I mean as you noticed, we didn't have an equity position in a couple of the assets. And so I guess that's about as much of an answer as I can give. I do feel like we have enough flexibility.

Okay. And then just as it relates to either the rent obligations or deferral agreement obligations that were satisfied during the quarter. Were security deposits or a letter of credit used for, to satisfy either?

No.

Okay. And then as it relates to the deferral payback period, is there a weighted average sort of payback period we can look towards sometime in, obviously, '21, but is it middle of the year, back end of the year, how should we be thinking about that?

Yes, Chris, rather than a weighted average, we provided it by a year. So on Page 9, the purple kind of ring chart in the bottom right corner, we give the deferrals by year. And as we get more color on the unresolved balances for the second quarter in July, obviously, that chart could change. But to my, I think it was Todd's question from earlier. We, as of today, the lion's share of that repayment is really spread over the 2021.

Okay. And then last question for me, a quick one. Just on the bankruptcy process right now. Is it kind of gotten back into normal process? Or is there still some delays that we saw sort of in the first quarter and into the second quarter? Just [indiscernible]

The, yes, it's a good question. The delays have, I would say, moderated, per se, than what you saw from Pier 1 and Modell's initially. The process, I think, is probably prolonged though, versus pre-COVID just because of, obviously, the lack of in-person meetings and probably a longer liquidation process. But I would say the kind of absolute pauses you saw from March appear to have been removed from the process.

And this will conclude our question-and-answer session. I'd like to turn the conference back over to David Lukes for any closing remarks.

Thank you, all, and we look forward to talking to you next quarter.

And the conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines at this time.