Jeff Edison: I would stay at the 6.5, there were specific stories on these two acquisitions where we got pretty favorable pricing, but we haven’t really come off of that guidance of 6.3 to 6.7 kind of a range. So that’s how we’re thinking about the year. And again, we’ll see how it progresses. Two marks don’t make the year, but I would – we don’t think there’s that much movement from the 6.5 kind of midpoint at this point.
Ravi Vaidya: Got it. Thanks so much, guys.
Jeff Edison: Yes.
Operator: Your next question is from the line of Michael Mueller with JPMorgan.
Michael Mueller: Yes, hi. Just a quick occupancy question. Where do you see anchor and overall economic or fiscal occupancy ending up the year?
Jeff Edison: Bob, do you want to take that? Bob, we’re missing you.
Bob Myers: Sorry, Jeff. Looking at our anchor pipeline and the demand we’re seeing, I definitely believe that our in-line and our anchor occupancy will be elevated. And it’s hard to exactly know what that is, but I would certainly think that we would be at the higher range of the 98.8 or 98.9 on the anchor and in the in-line. I certainly think that we’ll be north of the 94.8 that we’re seeing today, given the demand. So at this point, I’d say, it’ll certainly be elevated, but it’s really hard for me to pinpoint exactly what it will be.
Michael Mueller: Got it. Okay. That was it. Thank you.
Bob Myers: Thanks, Michael.
Operator: Your next question is from the line of Juan Sanabria with BMO Capital Markets.
Juan Sanabria: Hi. Good afternoon. Just hoping you could give a little bit more color on the bad debt. It sounds like it’s not driven by national tenants, is it? Is it being driven more by some of the smaller mom-and-pop in-lines? And just curious, if you could break it out, how much of the bad debt was related to just tenant closures or bankruptcies versus you guys being proactive and trying to get hired leases upon renewal or releasing in that space?
Jeff Edison: John, do you want to take that one?
John Caulfield: Sure. Good afternoon, Juan. So as we look at the bad debt, it is not, when I say it’s not related to national, I would say it could be disputes as well, though. So I was saying it’s not national bankruptcy. So when you’re looking at those names that are going, that’s not impacting. There was contribution to the bad debt from national, from regional, and from local neighbors. As we look at it, I would say the majority of it was just kind of a few neighbors that might have had larger balances, but I would say the portion that we influenced was probably close to half, maybe a little bit less than that in terms of that. But when we take those actions, it takes us to a more conservative place, which is why it becomes outsized.
And the leasing momentum that we’ve got is enough that we are taking action more quickly, which does kind of trigger our internal processes to take them to full reserve more. So it’s specific instances, which is why we’re not seeing anything trend-wise or saying that we’ve got any concerns on a broad basis. And as we look ahead, we’re quite opportunistic or else we would have made other adjustments. But I think it’s complemented by the rent growth that you’re seeing, the leasing activity, and the spreads that we’re seeing. And so we continue to be bullish.
Juan Sanabria: And then maybe if I could just push back, I guess what changed to where you felt that you needed to take reserves around those disparate group of tenants with demand still strong and you guys feeling good about the neighbors in general?
Jeff Edison: Juan, in terms of why we took those things, I mean, I think that when you change, when you move your sort of strategy thinking to look, we want to get the spaces back as quickly as we can and mark them to market. That is in this environment where you have the level of demand from the retailers, we’re taking a – that is a natural sort of strategic movement. It’s not like we haven’t always done that. It’s just that we’re – there’s an increased impetus to do that when you’re getting 40% rent spreads. And that is going to – that will accelerate the process of putting someone who is on the – right on the edge of how you’re going to do it. You’re going to want to go. You’re going to want to be more aggressive about that, and you’re going to be more aggressive in terms of the retention on those rents.
And that’s – I mean, that is I think you’re going to see among a number of our peers as they get closer to a high level of occupancy, like what, where we are at. And for us, we see it as a huge opportunity for us and we’re going to pursue it aggressively. And it will have – I think you will see some bumps up and down in bad debt, but with the opportunity we have, we’re going to do that. And we think we’ll see outsize growth on the top line, not in this line, but that we will weigh more than off-weighs any negative sort of accounting impacts you have from reserves. Does that answer?
Juan Sanabria: It does, Yes. I’m not sure if John wanted to add anything. If not, just on the – sorry, John.
John Caulfield: No, I was going to say you’re good. Go ahead. Sorry.
Juan Sanabria: And then just on the acquisition side, I’m a little bit surprised that you guys are as bullish but with similar cap rates given changes in the cost of capital, not so much on the debt side with the push and pull of rates and spreads, but just on the equity side, how do you think about weighing your implied cap rate that’s gone up as the equity markets have broadly sold off and the need to maybe require a higher return on the cap rate or IRR and just, you guys have been very acquisitive, but your cost of capital changes every day and is deteriorating a little bit. So how do you guys just broadly think about that?
Jeff Edison: So, as you recall, when we first came out with the IPO, our targeted unlevered IRR was an eight. And as the market has moved, we moved that to a nine. And the product that we are seeing is underwriting north of a nine and some of it well north of a nine. To us, those are accretive opportunities at the – where things are today. And they’re – one of the advantages of being in the market on a regular basis is you will take advantages and there will be times where you won’t hit the cycle perfectly. But you will – I mean, you look at what we bought last year. I mean, that underwrote to north – well north of a 9.5, and we feel good on a long-term basis, that will more than be – that will be significantly accretive to the company.
So that’s how we think about it. And we get more aggressive and less aggressive based upon that spread between where we can invest the money and where – what our cost of capital is. And that – you’ll see that throughout sort of the history of the company, that’s been a very successful strategy for us. And so are we going to be as aggressive this year if we don’t get the kind of pricing? Well, our cost of capital is more. So the answer is no. But we will be in the market, and we will – I mean, I’m comfortable we’ll find opportunities will be highly accretive for what we do. Does that was that answer your question?
Juan Sanabria: Yes. Thanks, Jeff. I appreciate it.
Jeff Edison: Yes.
Operator: Your next question is from the line of Dori Kesten with Wells Fargo.
Dori Kesten: Thanks. Good morning. Can you comment on your intentions with the swaps maturing later this year, and then just generally, what floating rate exposure are you most comfortable with over the next few years?
Jeff Edison: Dori, thanks for the question. John, do you want to sort of walk through that?
John Caulfield: Sure. So we are 24% floating today. We do have swaps that mature later this year. We did opportunistically execute a swap agreement for $150 million in the first quarter. At that point in time, we believed it was going to be higher for longer, and it was ultimately, there were six rate cuts at the time. So we moved opportunistically, but on a long-term basis, our plan to get to our long-term fixed rate target of 90%, we would like to do that through incremental financing with fixed rate instruments, primarily in the unsecured bond market. So as we move forward, we are at an elevated rate with regards to our floating rate debt exposure. But as we look at it also, I mean, even though it is hard for longer, there is stability there, and we view that there’s more likelihood that that rates will come down than go up from here.
And so we are choosing to maintain that flexibility. And as we look at swaps, swaps are useful as you have the floating rate debt instrument underneath it. And so as we are moving towards and choosing to exercise in the unsecured bond market, which we would certainly hope to do in the next six to 12 months, that will help move us up. And in the near term, we are having a higher rate percentage – higher percentage floating. But we are also positive because our overall earnings growth is allowing us to deliver positive FFO growth. And so as we’re just waiting for that right opportunity to lock in rates and begin extending our durations.
Dori Kesten: Okay.
Jeff Edison: One of our – Dori, I just was going to say – it’s Jeff. One of our strategies as we’ve talked about is make sure we’re match funding when we can. And our view is that a six-month or one-year swap is not match funding. And that’s why we’re being patient and waiting till we have where we can get duration at rates that we find favorable. And we’ll continue to do that. I mean, we set our balance sheet up to be able to do that. And it’s one of the advantages of having one of the better balance sheets in the space is that we can be opportunistic and enter these markets. But our strategy over time will be to actually match fund on a longer-term basis, not doing two-year swaps or 18-month swaps. Those will be part of the thing. But they’re very – I mean, in my mind, they have a very minimal impact on the true sort of risk of the company, where our longer-term debt is where we’re focused on getting the balance sheet.
Dori Kesten: Okay. And then what category of retailers have you found has been easier to push escalators higher for? And which do you continue to have more difficult conversations with?
Jeff Edison: Bob, you want to cover that?
Bob Myers: Yes, sure. Great question. So where we continue to see a lot of the demand is still in our restaurants and our quick service restaurants, health and beauty, Medtail, a little bit from some entertainment like fitness uses as an example. As we mentioned earlier, over 70% of our rent is from necessity-based goods and services. So from a merchandising standpoint, that’s where we continue to see the positive leasing spreads of the 29% and the renewal spreads you saw at 16.9%. And then, we’ve had a lot of success with escalators with our local neighbors. So 27% of our in-line are local neighbors. And even when I believe the number was 19% on renewal spreads for the first quarter with our local neighbors And you’ll find typically with that type of merchandising play that You can generate higher escalators.
And we are seeing between 2.5% and 3% renewal escalators in addition to the year one, 16.9% overall or our in lines at 19%. So we continue to see opportunities in these segments that are service-based, necessity-based. So I’m not seeing any cracks in terms of – I’m seeing consistency across the portfolio in terms of retention and then our merchandising strategy. So it’s working.
Dori Kesten: Okay. Thank you.
Operator: Your next question is from the line of Tayo Okusanya with Deutsche Bank.
Tayo Okusanya: Yes, good afternoon. Most of my questions have been asked, but I just have a quick one, and it’s not PECO specific, but just shopping centers in general. Everyone’s kind of talking about really strong demand at this point, and everyone has very good snow. The environment feels very strong. The stocks in general, I think, again, are having a bit of a rough ride this year just because of everyone’s general 2024 FFO per share growth profile. So the question is, if fundamentals are so strong, stocks themselves, cost of capital is somewhat challenging. Is there a viewpoint that maybe we start to see private equity get more involved in this space again?
