Jeff Edison: The answer is, yes. I don’t think Blackstone has sort of said that they’re going to do anything of significance on the retail side, but there is significant private equity interest out there. Some of it’s mispriced. So probably not really a threat in the business or opportunity to be a buyer in this market. But there is – we’re seeing some – a number of firms that are – they’re circling, and they’re seeing that these underlying fundamentals are going to create long-term growth. And it can be bumpy for a little while. But when they look out three to five years, they’re saying, look, I can get those mid-teen levered returns, maybe not 20, but I can get mid-teens in an environment like this, and that will – they will pull the trigger on that.
So, I – our belief is that they are going to become more and more a part of the retail market that they’ve been out of pretty significantly for a significant period of time. And it’s all – my read is it’s all based on the fundamentals. They’re looking at the lack of new demand. There are some costs in refitting some of the big boxes of some of our peers that are some of our peers facing. And that is a cost. But when you get through that period of time, there’s some pretty significant opportunity, and you can see it in our rent spreads. I mean, those are not – I mean, those are not normal rent spreads. Those are rent spreads of a really strong operating environment. And so I think you’re going to – I think you’ll see them entering where and how it will be interesting.
We’ll see how that plays out.
Tayo Okusanya: Thank you for that color.
Jeff Edison: Yes.
Operator: Your next question is from Todd Thomas with KeyBanc Capital.
Todd Thomas: Yes, hi. Thanks. I just wanted to go back to investment activity a little bit, and the comments about the current pipeline, they sound encouraging in terms of what you’re underwriting, what’s in the pipeline. And, John, you mentioned that there are some properties tied up. Does what’s under contract get you to the $200 million to $300 million range in guidance such that you have the range sort of accounted for at this point in the year and the volumes slow down a bit more in the second half?
Jeff Edison: Hi, Todd, thanks for the call. We do not have – I mean, we have a – this year would, if we were to guess, will be a more stabilized year than last year in terms of more gradual increases. We don’t have a full commitment on the – on our guidance yet, but we do – we anticipate that happening over the year. I don’t think it will be like last year that was very fourth-quarter oriented. I think we got a more consistent flow this year. But again, it’s early in the year and stuff can happen and we’ll see how that plays out. But we would assume it will be pretty consistent with the – on a quarter-by-quarter basis at this point.
Todd Thomas: Okay.
Jeff Edison: Does that make sense, Todd?
Todd Thomas: That’s helpful. Yes, sure. Absolutely.
Jeff Edison: Okay.
Todd Thomas: And then can you talk a little bit about the quality of the product that you’re underwriting, how that looks compared to what you’ve seen more recently? And is everything that you’re buying predominantly smaller format, grocery-anchored product, similar product to what you own today?
Jeff Edison: Yes, so I would say the quality is pretty consistent. When you look at that sort of targeted 5,800 centers we’ve got, it’s a pretty consistent group of projects. The – I do think there are some select opportunities that don’t fit perfectly in the box but are really great opportunities that we will – that we’re willing to take advantage of. Some shadow-anchored stuff where we can get really strong growth and returns, some stuff that has a small amount of TJ Maxx exposure, that kind of thing we might – we would look at. But as a whole, it’s going to be that. I mean, it’s going to be what you expect from us. 115,000 square foot, number one or two groceries, and we are seeing enough of that to where we see, obviously, we feel good with our guidance and no drop-off.
I wouldn’t see any drop-off or anything in terms of quality that we’re seeing. It’s pretty consistent with what we have seen on an ongoing basis. Just there’s more volume and that makes us feel a little bit better.
Todd Thomas: Okay. And then just one more, if I could here. I think you said previously that you have capacity to acquire about $200 million on a leverage neutral basis with free cash flow with, I guess, amounts above that being on the line. Sounds like from your comments that you’re comfortable taking up leverage a little bit here and utilizing the line in the near term. And it’s been a fairly volatile capital markets environment and sort of interest rate outlook, which has continued to change. John, you mentioned you expect rates to come down, but just curious if that’s sort of the right strategy and what gives you confidence that that’s the right strategy?
Jeff Edison: So, we are not projecting any kind of significant change in our leverage so that we’ve – we will be in the – somewhere between five and 5.25 if we execute our strategy as we anticipated this year. So we don’t – I don’t think there will be any real movement in that part of it. And – but the opportunity is going to – one of the reasons we hate giving guidance on acquisitions is that we’re not – we’re really disciplined in terms of what we buy. And so if it’s not there, it’s not there. But we’re – if it’s there and it’s going to get sold and we can get it at our kind of pricing, we’re going to be a buyer for it because we know what we can do there and what that can generate growth-wise in the business over not over just six months, but over a sustained five to seven-year period of time that we’re doing our underwriting in.
And that – that’s, we think that’s the right strategy and we don’t – but again, we’re not – this is not a lever-up model that we’re trying. I mean, we are committed to keeping a very strong balance sheet and not getting out over our skis on that in that regard.
John Caulfield: Hi, I’ll just add to that. I mean, as Jeff said, our long-term leverage target is in the five-and-a-quarter, five-and-a-half range. And when we talk about being leverage neutral and the growth that we have, leverage neutral and acquisitions does mean that you are adding debt, you’re just maintaining your debt to EBITDA as that cash flow grows. And with regards to the comment that I made about interest rates, I mean, we – because of the growth that Jeff just spoke to in the assets that we’re buying, I will say this, our acquisitions are not being made on a basis dependent for rates to go down. I don’t mean to imply that at all. I think what we’re saying is that we are floating temporarily as we look to execute that long-term match strategy. And so we’ve got positive leverage today and going forward. And so we’re – it is something that we are going to be opportunistic about, but managing our leverage cautiously.
Jeff Edison: Yes. Todd, I think on that. I mean, I think the way we look at it is, if – I wouldn’t say that we’re anticipating a decline in rates, but I would say that we think that there’s more downs. Like if you’re looking at it from a pure risk standpoint, we think that it is more likely that they would go down over the next couple of years, than they would go up. They’re probably pretty range-bound, which we’re really waiting to see if they stay range-bound. And we’re really talking about the ten year because that’s really what our focus is on, is that getting that longer duration capital? But we are not economists. But because of we’re in this business, we are making bets on where we think interest rates are going to go in terms of what we – how you lay out your interest rate exposure. And that’s what we are doing, and we’ll continue to manage it that way.
Operator: This concludes the question-and-answer session. I will now turn the conference back over to Jeff Edison for some closing remarks.
Jeff Edison: Great. Well, thanks, everybody, for being on the call. And thank you, operator. In closing, we’re proud of what the PECO accomplished in the first quarter. Our differentiated and focused strategy and our talented team combined to create a market leader in the shopping center business. We continue to enjoy a strong operating environment as we talked about, our neighbors remain healthy, and we don’t see any cracks. We’re confident that the PECO team will continue to deliver market-leading results. We have one of the lowest-leveraged balance sheets in the shopping center space. And with our fortress balance sheet and ample liquidity, we do remain prepared for opportunities as they arise. PECO is well positioned to continue to successfully grow as we look forward.
We believe we provide our investors with more alpha and less beta. On behalf of the management team, I’d like to thank our shareholders, PECO associates, and our neighbors for their continued support. Thanks for your time today, and everyone, have a great weekend.
Operator: This concludes today’s conference. You may now disconnect.
