Tayo Okusanya: And then if I could just sneak in one more, speaking with this kind of M&A team, but as it pertains to the shopping centers REIT. Again, and if you point and if you kind of see more public to public deals as you’ve seen in the past few years, again, the stocks themselves are not really moving that much on a year-to-date basis, valuations will be very cheap relative to historical levels and you have pretty much the entire success of our fundamentals or the best we’ve ever been.
Brian Finnegan: I’ll have Mark take that one.
Mark Horgan: Yes, look, we’ve certainly seen some strong consolidation trends in the open-air space. We think that’s been a trend — it’s been a trend, frankly, people have been talking about in open-air retail for many years. And really, this is kind of the first large wave we’ve seen in some time. From our perspective, we’re going to continue to drive forward our business plan, which we think is delivering top of sector results, and that’s what we’re focused on currently.
Tayo Okusanya: Thank you.
Operator: The next question comes from Caitlin Burrows with Goldman Sachs. Please proceed.
Caitlin Burrows: Hi. Good morning, everyone. I know we’ve talked about it in a few different ways, the leasing strength, but wondering if you could give some additional details on kind of who’s most active these days with leasing on the small shop side and the big box side and maybe over the past year? Could you share some detail on who’s gotten more active versus pulled back at all?
Brian Finnegan: Yes. I think it’s a great question, Caitlin. I think first of all, from an anchor perspective, we continue to see great trends in specialty grocery whether that’s from Sprouts, whether that’s from Aldi, whether that’s from Whole Foods, it is really picking up there store opening plans as well. So that’s been encouraging across. We’ve also seen some great local grocers. We signed one outside of Minneapolis this year, some good ethnic grocers in markets. El Rancho part of the Heritage Grocers Group, we signed them in Houston this quarter. We continue to see really good strength in value apparel from both from Burlington, Ross and TJ. Ross is pushing into the Northeast. They’ve done very well in some of their initial rollouts in the Midwest, but this is kind of a new white space for them as well.
And then in that kind of 10,000 square-foot box range is incredibly competitive, the likes of Buy-Below, Ulta, Sephora, Skechers, J.D. Sports coming out of the mall. So from a junior box perspective, those all remain incredibly active. And then on the small shop space, the QSR restaurants and very well-capitalized QSR restaurants are driving a lot of that expansion. And what’s interesting there is just as I talked about earlier, some of the depth and quality of those operators that maybe historically were closer to central business districts which — with some of the trends they’ve been seeing in suburban retail are positioning more of their store opening plans for the suburbs. So that’s been really encouraging.
Caitlin Burrows: Got it. Makes sense. And then just a quick follow-up on the Long Island acquisition in the quarter. You guys mentioned the low 7% cap rate and that there were some good mark-to-market opportunities among other benefits. That 7% cap rate, is that on the in-place NOI or some near-term benefits you’re expecting?
Mark Horgan: Yes, that 7% cap rate, what I’m quoting you is in place NOI. I know that includes a 3% management fee. That’s noncash from our perspective, but that’s the cap rate I’m quoting to you.
Caitlin Burrows: Got it. Okay, thanks.
Operator: Next question comes from Anthony Powell with Barclays. Please proceed.
Anthony Powell: Hi. Good morning.
Brian Finnegan: Good morning.
Anthony Powell: Just one for me. So ancillary and other rental income and percentage rents contributed nicely to same-store NOI growth in the quarter, I think, 0.6% total. What should we expect from those through line items going forward?
Brian Finnegan: Yes. I think when you just think about same-property NOI in total, right, the trajectory of that will mainly be driven by base rent throughout the year. As you know, base rent contributed 3.8% to same-property NOI growth in Q1, and that was mainly due to the higher occupancy and rent spreads, and we expect that to accelerate throughout the year. As I mentioned in my prepared remarks of 425 to 475 contribution to same-property NOI. Those lineups, as you go down, are sort of seasonality, right? So they change quarter-to-quarter as you move throughout the year and then there’s some volatility in there. So as I’m thinking about same property NOI, I would focus probably more on that base rent line. Because I think, ultimately, that’s going to be what drives that performance.
Mark Horgan: Yes. I think just — I would just highlight though, a percentage rent. We continue to see some nice trends. I mentioned grocers holding that kind of post pandemic bump, and our specialty leasing team does a great job of finding different ways to drive income from our portfolio. As you can imagine, as our team is filling up boxes, we have less opportunity for some of those short-term deals, but they’re doing a great job by things like solar and EV charging stations and really utilizing our parking lots, too.
Anthony Powell: Okay. Thanks, Mark.
Mark Horgan: Thank you.
Operator: The next question comes from Mike Mueller with JPMorgan. Please proceed.
Mike Mueller: Yes. Hi. It looks like — I mean, your option leases always tend to produce the lowest rent spreads. Are those generally tied to anchor leases? And do you ever have the ability to use fair market resets just given the strong demand backdrop?
Brian Finnegan: Yes. It’s a great question. Just first, as it relates to kind of the option productivity, the count was in line with where we’ve been the last few quarters. The reason that you’re seeing the GLA uptick we had three spaces, two Home Depots and a Kroger all over 100,000 square feet that took their options during the quarter. I think the removing options or reducing options is something our team has been laser-focused on. We’ve almost been able to get rid of those with local tenants. I think they were just over 10% during the quarter. What we’ve also been able to do with some anchor tenants is maybe where they were getting four options in the past, they are now getting two. And to your point about fair market value, five years ago, that was really more of a West Coast type concept and where we’ve had to give those with national tenants, we’ve been introducing that really across the country and setting those rates with growth.
So we don’t like options. They’re totally in the tenant’s favor. We’ve been focused on removing them. If you sit in leasing committee on a Friday, you’d hear, Hey, do you have to give that tenant the option? Or can you give that tenant a fair market value option. So it is something that we are continue to be laser-focused on, but the activity during the quarter is just in relation to the pool.
Mike Mueller: Got it. Okay, that was it. Thank you.
Brian Finnegan: Thanks, Mike.
Operator: The next question comes from Paulina Rojas with Green Street. Please proceed with your question.
Paulina Rojas: Good morning. You mentioned there are always 10 categories that you’re watching closely. So what are those categories today?
Brian Finnegan: Yes. I think they are — if you look at some in the home category, there’s been some — a bit of challenges there after a big pop coming out of COVID. There are some level of entertainment uses. Entertainment is a very small piece of what we do. We only have about 1% of our rent come from movie theaters. But I’d say that — that entertainment category, and there are some discounters that are on there certainly as well. That watch list has gone down, certainly. And again, you look at the underlying credit base of the portfolio, and you can see that coming through from a move-out perspective, from a retention perspective as well as just our collection rates from small shop tenants continue to remain very strong. But those are some of the categories I’d say we’re keeping our eye on.
Paulina Rojas: And then I have a very like big picture general question. Do you think it makes a big difference for tenants today to be in a REIT-owned property or in another privately owned center. I assume, of course, tenants, they prefer owners with better balance sheet, committed to reinvest in the center, et cetera. But I’m trying to have a sense of how of the quality of private operators in the industry and whether tenants perceived a big benefit in being in a REIT-owned center?
Brian Finnegan: They definitely do. And I think it’s a matter of how you perform right? Have you been able to execute on delivering their space? Have you been able to execute on bringing other tenants that are going to help them drive traffic. This is the one asset class where it really matters who your neighbor is, right? And have you been able to put that tenant mix together to ensure that they are successful at the property. Have you continued to invest in the center as we have? So I think that’s certainly looking at how your track record historically. And then even from a negotiation standpoint, right? How quickly does it take you to get through the lease? How quickly can they count on you to be able to get a consent from a tenant to be able to ultimately do their use?
And I think our team has done a great job historically of being able to perform on that. So certainly, I don’t think it just matters if it’s public versus private. I also think it matters who it is in the public space. And I’d put our team up with anybody in terms of our ability to execute and our ability to deliver with our national retail partners.
Mark Horgan: Yes. I would add that there are certainly some excellent privately held retail owners in the United States, no question about it. One of the things that we really benefit from is the scale that we’re able to invest in our platform to have those tenant relationships to understand where tenants want to be — have great relationships on the operating side. That’s a real benefit from us. As we think about our external growth program, certainly, we talk to all the privately held folks about assets they might sell. But we’re also focused on a lot of the assets that are held in small partnerships for families, and that’s the vast majority of the market for a lot of assets we chase. We think about some of the great acquisitions we’ve made over the years.
They’ve come from smaller family operators that didn’t have the wherewithal that some of the operators like we have to drive value at the centers. So we’re excited about continued — continued optionality as we think about external growth here.
Paulina Rojas: Makes sense. Thank you.
Brian Finnegan: Nice, Paulina. Thank you.
Operator: The next question comes from Linda Tsai with Jefferies. Please proceed.
Linda Tsai: Just one quick one. Given higher demand or payback periods on building out for new tenants going down at all?
Brian Finnegan: They are, Linda, I’d say they are. And it goes back to just generally both tenants’ willingness to take more existing conditions and yes, competition for space, allowing us to drive better terms in those work scopes. But we’re seeing them go down for sure.
Linda Tsai: Any quantification around how much it’s going down?
Brian Finnegan: I don’t have the exact number, but I just say from a trend perspective, it is something that we have been ahead of and looking at and generally something that we look at, I think, anecdotally, when it’s coming in through committee in terms of what the payback is. And because of the fact that we have seen tenants take more — whether it’s as is deals or be more efficient in terms of in-place bathrooms and facade and loading docks that we’re seeing some positive trends. I mean we can circle back with the exact number for you.
