Brian Finnegan: Yes, and that’s the annual number.
Steven Gallagher: Yes, Craig.
Craig Mailman: Okay. All right. Perfect.
Operator: Thank you. The next question comes from Haendel St. Juste with Mizuho Securities. Please proceed.
Haendel St. Juste: Hey, guys, thanks for taking the question. Best wishes to Jim. I was hoping we could talk a little bit about the redevelopment pipeline beyond this year. I think you talked about delivering about half of it this year. Yields are in that 9% plus range. So what are the prospects for backfilling? Should we expect the sizing and the yield to be relatively the same as you bring new projects on board. Just curious where that pipeline could be heading?
Brian Finnegan: So we’ve talked about it. We mentioned on our last call that we expect about $150 million to $200 million of deliveries each year. That’s effectively what we’ve been delivering. We’re going to deliver on the high side of that this year with a number of those projects that I mentioned. It’s really encouraging that we have several years of visibility to that going forward handout with projects that are soon to be in the pipeline. Remember, the projects that we’re bringing in are lower risk because they’re generally pre-leased. We have upped our leasing thresholds across the portfolio in this environment. Our underwriting has gotten a bit tighter in terms of really driving more to that kind of higher to the single digits and into the low double digits from a return standpoint.
But we feel like we have several years of that $150 million to $200 million of deliveries. And the timing a lot of this is going to be driven by leases, ultimately when we can get to those leases or when we complete a first phase and then we decide that we want to come back for Phase two. We just opened a couple of weeks ago Sprouts in Los Angeles in a former big lot space. That was a Phase two of a project a few years after we took a Kmart back and put a Burlington & Chuze Fitness in. It allowed us to be able to not only bring Sprouts in, but strike an economic deal that we were more comfortable with at that time. I think that would have been pretty challenging have we not gotten that first phase done. So as you think about the projects going forward, we do feel pretty good about that run rate, and it’s going to be a mix of ultimately when we can get to those leases to be able to execute and then second phase with the projects.
Mark Horgan: And Haendel, the one thing I would add, using one of my favorite Jim Taylor terms is we can find more coal for the fire on the acquisition side like we’ve done over the years with Plaza by the Sea, Venice or Bonita Springs that came in with some really great redevelopment opportunities. So we think we can continue to find opportunities to build that pipeline over time.
Haendel St. Juste: One more just on retention. We’ve seen retention here remain pretty sticky in this kind of upper 80%, low 90% range. Is that kind of the expectation near term with the portfolio occupancy where it is the demand you’re seeing? And then how does that — how much can that benefit your leasing-related CapEx on a go forward?
Brian Finnegan: Yes. Well, to the last point, it’s obviously a lot cheaper to keep a tenant in place than it is to backfill a tenant, right? I would say generally, though, our team across the board has done a nice job holding costs in line, negotiating work scopes that are favorable. And then on the tenant side, they’ve been more willing really coming out of the pandemic and some of the supply chain issues to take more existing conditions. So I’d say we’ve been more efficient. As efficient as we can be on the new lease front. But back to the kind of Craig’s question, we’ve been encouraged by the retention trends. And in this environment and how we’ve improved the portfolio, you would expect those to trend up but that’s not going to drive our decisions ultimately of when we take space back.
We’ve got a very low rent basis in place. Our anchor deals are less than $9. And we’ve been signing those leases at over 15%. So you look at that upside. When I say those anchor leases at under $9, that’s expiring over the next three years. So we feel pretty good about our ability to take space back and bring leases to market, and we’re going to be intentional and prudent about it. But with some of the stronger operators that we put into our centers, they do want to stay, they do want to continue to invest in their businesses with us, and you’re seeing that come through in the retention rate. So I guess I’d summarize by saying it’s a mix, and we’re not going to let that metric, though, drive our decisions. We’re going to do what’s right for the shopping center and continue to be opportunistic where we can make money.
Haendel St. Juste: And then just a follow-up on that. I guess given your willingness to take back of the space, does that suggest that a slow rent, that spread, which has remained pretty elevated in the high 300 to 400 for some time. Does that suggest that this spread will remain in that range? or can we see that actually come in over the next year?
Brian Finnegan: I think you’d expect it to tighten over time. I mean there was a lot of space that we took back last year. But I think what that spread does give you is good visibility to future growth, right? And it reached a record this quarter at $68 million. As Steve mentioned, about two-thirds of that is going to come in this year. But that’s a good thing, right? When you’re raising lease occupancy and that spread still continues to grow, it just gives good visibility on future growth. But I think over time, you’d expect that to tighten a bit.
Haendel St. Juste: Great. Thank you.
Operator: The next question comes from Dori Kesten with Wells Fargo. Please proceed.
Dori Kesten: Thanks. Good morning. Can you comment on your current level of interest in acquiring the portfolio? And are there any out there today that you’ve heard of?
Brian Finnegan: Yes. I would just start by saying it’s not something that we’ve said we have — it’s something that we’ve looked at. It doesn’t fit for us, in terms of what we’re doing and all the things that Mark had talked about. I’ll give it to Mark in a second but he and his team have done a great job in terms of one asset at a time, continuing to grow in the markets that we like to grow in. But it’s an option for us. It’s not something that we would say absolutely yes or absolutely no to and have to work for us. So Mark, do you want to expand on that a little bit?
Mark Horgan: Absolutely, there are certainly larger pools of assets that are seeking to transact in today’s environment. I think most folks are approaching the assets on a one-off basis, which makes sense. We are certainly seeing a cap rate differential as assets get larger in size, cap rates are a little wider. With that said, I totally agree with Brian. We’re going to be disciplined as we look at putting capital out. And so if there’s a deal that makes sense and works for us, we would pursue it. To the extent it doesn’t, we wouldn’t —
Dori Kesten: Thank you.
Operator: [Operator Instructions]. With that, our next question comes from Jeff Spector with Bank of America. Please proceed.
Jeff Spector: Great. Good morning. I would also like to express my best wishes for Jim and speedy recovery. Congrats on the quarter. My first question, maybe we’ve discussed a lot today, you touched on ICSC. With ICSC coming up, I guess any particular goals for the team? As you said, it sounds like you’re working mainly on maybe $25 million into $26 million.
Brian Finnegan: Jeff. Well, first, I appreciate the kind words and the thoughts for Jim. We always go into that conference with a certain number of new tenants that we want to bring out of it. We want to bring — we highlight for the team and really track who’s brought a new deal out of it that didn’t happen at the conference? And then what are some things that we’ve moved forward in terms of some of those larger projects in our pipeline, which, as I mentioned, are generally pre-leased, but we may have a space or two left. I mean those three things are kind of the biggest things that come out. We always highlight for the team, the new concepts that we’re in the booth for the first time, and we expect to see a lot of those. And we don’t really necessarily sign leases at ICSC anymore in terms of actually signing them in the booth.
Although at New York ICSC, we did have one of our national tenants came in and signed a number of consents and gave us hard copies there. So that’s always a win as well. But I’d say kind of those three things related to new tenants, deals you didn’t expect coming out of it and then ultimately moving some larger things forward on our reinvestment projects.
Jeff Spector: Okay. And then in terms of store openings and markets, can you talk a little bit more about what you’re seeing in terms of demand for particular regions or markets?
Brian Finnegan: It’s been encouraging to us, as it’s been fairly broad-based across the portfolio. Like I mentioned those three grocer deals that we did during the quarter, they were in three of our — three different regions. We’ve seen strong demand and strong occupancy growth really across the portfolio. Obviously, the Southeast remains very hot, and the tightness in supply is probably a bit tighter there, tighter in Southern California. But I would say, though, even places like in the Northeast and the Midwest, we continue to see very strong demand. So what’s been encouraging to us is it’s fairly broad-based. And it’s really because as Mark was touching on, I mean, we’ve had an intentional strategy in terms of where we’ve located our centers and where we’re operating today. So in those markets, the trends have been pretty consistent across the board.
Jeff Spector: Thank you.
Operator: Our next question comes from Greg McGinniss with Scotiabank. Please proceed.
Greg McGinniss: Hey. Good morning. Sorry if I missed this, but Jim previously communicated an expectation from the announcement of new CFO by early April. Is there an update there? Or should we expect that decision to remain on hold until he gets back.
Brian Finnegan: Well, first, I’d say, Greg, that we’re really fortunate to have Steve in the seat. He’s really stepped up. He’s built a great team down in Plymouth. And we’re fortunate to have him. I would expect that he would continue in that role until we have further announcement. We’re not putting a timetable on it, but I’d say we’re lucky to have him in the seat.
Greg McGinniss: Okay. And then in that 75 to 100 basis points of expected bad debt expense and guidance, is there anything built in that specifically maybe generally addresses the risk from big lots. And are those — any of those leases expiring in the near term? Would you potentially release any of those? Or should we expect them all to be taken back and backfilled as you can.
Brian Finnegan: Yes. I’d say just generally for the watch list and it does tie in to bed that a little bit. I mean it’s certainly names and categories that everyone on this call would expect that we’d have. As it relates to Big Lots, and since you raised them, we focus just on the real estate, and I think we talked about this on the last call. First of all, we have no more expirations this year. Our rents in those spaces are below $7 a foot. We’ve been signing them at $15. We leased a Big Lot space during the quarter that expires next year to Aldi at a 50% uptick outside of Portland, Maine. So we continue to look at opportunities really for every tenant where we might potentially want to take some space back, but not getting into particular tenant names, but we feel like we’re adequately provisioned for our watch list as we head through the balance of the year.
Mark Horgan: Yes. And I think, as I mentioned earlier, in terms of just our capacity to absorb tenant disruption, not focused on any names, we have 40 basis points of drag in our base rent. And that’s really because that’s where ultimately that would go through if we ended up getting those spaces back into bankruptcy. And then on top of that, we have the $75 million to $110 million of total revenues in the revenue schemes on collectible lines. So we still think we’re well positioned there to absorb a variety of outcomes as we move through the year.
Greg McGinniss: Okay. Thank you.
Operator: The next question comes from Floris Van Dijkum with Compass Point. Please proceed.
Floris Van Dijkum: Hey, good morning, guys. Somewhat unprecedented times, obviously, with no permanent CEO and permanent CFO. And obviously, best wishes to Jim. Hope he recovers speedily. I know you can’t really comment much, but I know it’s on everybody’s mind. But maybe could you give some insight into how the Board thinks about this and what kind of steps the board is taking to plan for eventualities and backup plans, if you will.
Brian Finnegan: Floris, like we talked about at the beginning, and first of all, I appreciate the well wishes for Jim. We look forward to having him back here soon. But we’re not saying much more outside of what’s in the release and we continue to operate business as usual here. And we don’t — until we have a further update, that’s what we’re going to continue to communicate as it relates to Jim.
Floris Van Dijkum: Okay. By the way, operations seem to be going well. You talked a little bit about medtail and there’s sort of the secular demand driver for open-air from medtail. Maybe if you could touch upon what percentage of leasing you’re seeing from that segment? And how do you think about — when you’re looking at medtail, it’s not necessarily traditional sales information that you get, particularly for some of these outpatient clinics, et cetera. How do you judge the profitability? And how do you set rents for this tenant category?
Brian Finnegan: So thinking about — just — as I mentioned, from a tenant when — from a tenant underwriting perspective on these operators because we are putting some capital and some of them are public companies that their financial information is readily available. I would say, generally, those rents have been top of market where we ultimately don’t get health ratios. We do have a sense sometimes from a traffic perspective, we can look at traffic they’re generating depending on the size of the operator. But I would say broadly, those are some of the highest rent payers in the space because they’re looking for high-profile space, generally endcaps, generally looking to be on pads and they are competing with tenants who we have a very good idea of what their occupancy costs are.
So I’d say broadly, when we’re underwriting these spaces, we have a good sense — when we’re underwriting some of these tenants and we get their financials, we have a good sense of their profitability. We have a good sense of their underlying financial wherewithal. But I would say broadly, though, they’re among the highest rent payers that we see in our centers.
Floris Van Dijkum: And in terms of potential percentage of leasing demand where it is today and where you see it going?
Brian Finnegan: Yes. So we did five new ones this quarter in terms of specific medical uses. And it’s going to be a range, right? I mean that would be, call it, 4% of what we ultimately did from account perspective during the quarter. Again, I would just point to, it is a part of the merchandising puzzle that we’re putting together in these centers where we could potentially add an urgent care work if we potentially add dentists, where we can potentially add medical service use. So I would just say it’s something that we continue to look at.
Floris Van Dijkum: Thanks.
Operator: The next question comes from Tayo Okusanya with Deutsche Bank. Please proceed.
Tayo Okusanya: Yes. Good morning. Just wanted to get your thoughts on the latest developments with the Kroger & Albertsons merger and this idea of the willingness to kind of spin off more stores, whether you generally think that’s good or bad for the shopping center REIT?
Brian Finnegan: Yes. I think just broadly, I mean, we don’t have much more to report outside of what’s been publicly disclosed. It’s with the FTC right now and with the courts in terms of if it ultimately moves forward. And what we’ve said in the past and what we really believe is that our portfolio sets up very well no matter what the outcome is. We do think a merger would be beneficial, particularly for Albertsons in terms of scale and in terms of some of the digital infrastructure that Kroger has that is a bit ahead of where Albertsons is. But ultimately, you look at the few markets where we do have overlap, it’s places like Denver, Dallas, Southern California, I mean these are some of the strongest markets that we have across the portfolio.
We have very minimal overlap with our Kroger fleet in the Midwest. We have very little overlap with our Kroger fleet in the Southeast, which is really the bulk of our overall exposure. So we feel pretty good, no matter what the outcome is. These stores are high-producing from a sales volume perspective, they’ve kept their COVID bumps and continue to grow sales, and these stores have been invested in as well. So remains to be seen. We’re watching it closely, but we feel well positioned no matter what happens.
