John Caulfield: Yes. So, hey Floris, I would say that as we look at the fourth quarter, as I mentioned with the bad debt, that’s really more related to 2022 activity than anything we see in ‘23. I mean, when we look at the end of the quarter at kind of our reserves relative to our AR, those reserve as a percentage of the AR just continues to come down. But ultimately, when you’re at 57 basis points, and I put that up against anyone else in terms of performance there, you do see that change. And so, I would say that when you look at the full year, we’re going to be over 4%. And then, as we look to next year, and again, quick plug for our Investment Community Day in December, we’re going to highlight that we believe that this portfolio organically can continue to deliver 3% to 4% same store growth.
And we’ve provided the pieces before. But I think there’s a concern around occupancy, but occupancy is a sign of strength, and we’re actually turning that into pricing power with renewal spreads and even new leasing spreads and using that to push embedded rent bumps. And so, we’ll get into the components at our Investment Community Day, but we feel very strongly that we will be able to continue to deliver 3% to 4% growth for the foreseeable future.
Floris van Dijkum: Thanks. If I can maybe follow up. I noticed that — and I think, Devin, or I think — might have mentioned this or maybe Jeff did as well, I can’t remember. Your spreads on your local tenants — or local neighbors, excuse me, are higher than on your national ones. Now, I wonder, does that mean that their rents were initially lower? And are the new rents in line with the national tenants, or are they actually paying a premium rent to be in your centers?
Jeff Edison: Dev, you want to take that one?
Devin Murphy: On the local neighbors, their spread is slightly higher than the non-locals. So, in the third quarter, the renewal spread on locals was 19.8%, and on our total portfolio it was 19.6%. So, it’s fundamentally the same number. The reason we like the local neighbors and the reason we believe that they’re a strength of our portfolio is, number one, they’ve been in our centers for an average of nine years. So, they’re successful retailers that are sticky. Number two, the average cost per square foot that we have to spend on TIs for the local neighbor versus the nationals to achieve the same rent is about 50% of the TI that we have to spend on the national tenant. So, we’re getting comparable rents, comparable spreads, they’re sticky, and we’re spending a lot less.
That’s economic side of the equation. And then, on the non-economic side, they are much less difficult in terms of leasing terms such as non-competes, et cetera. And so, our view of the local neighbor is that we’re getting a meaningfully better economic deal, a better non-economic deal, and these tenants are meaningfully more resilient in our portfolio than a lot of investors believe.
Operator: We’ll move next to Ron Kamdem at Morgan Stanley.
Ron Kamdem: Just a couple of quick ones. So going back to the interest cost question, I think last quarter we sort of talked about, I think it was like a $10 million headwind year-over-year in ‘24. So, obviously rates have moved, but just wondering, is that still sort of the right ZIP code we should be thinking about or has anything changed there? Thanks.
Jeff Edison: John, do you want to take that?
John Caulfield: So, as we look to ‘24, that is something that we will talk about at our Investor Community Day. You’re right, the curve has moved but it’s still moving. And I think that what you’re hearing from us is it’s important that we think the low leverage that we have is really the best strength we have as we balance the different options we have available to us. And so, in terms of the dollar amount of interest expense, I mean, we do plan — and I believe we said this, we do plan to provide initial guidance for ‘24 at that Investment Community Day. And I think, as you’re looking at models and things, that interest number is highly dependent upon what your acquisition assumptions are for both the balance of this year and next year.
So, it’s a little bit harder for us to talk specifically about like a dollar amount, but it is a headwind this year that we quantified at about $0.10 on our earnings in ’23. I would say, based on what we see, it’s at least at [4] into ’24. But I do want to take a moment to say that based on the operating performance and the strength of our centers that we have all been talking to, we do anticipate we will have positive FFO growth in ’24. So, I am not exactly answering your question, because there are more variables and inputs to it, but we hope to provide more clarity in December.
Ronald Kamdem: Great. That’s helpful. And then, I want to go back to something else that was brought up, which is the record occupancy target. We’ve talked about sort of new tenant verticals, right? I think medtail was one that that you guys had mentioned. Just maybe can you remind us on when you are thinking about that new occupancy, record occupancy target, how much of that is from the sort of new tenant verticals pushing occupancy up versus just being smarter about sort of how you use space in the portfolio?
Jeff Edison: Dev, you want to take that one?
Devin Murphy: Sure. Ron, thanks for the question. Again, we believe that we have upside in our inline occupancy of circa of 100 basis points and that will be realized over the next five quarters type of timing. The type of tenant use that we are seeing, the strongest demand firm is, again, medtail as we’ve discussed on a number of recent quarterly calls. So medtail today is 6% of our ABR, and it is 20% of our leasing pipeline. So, the demand from medtail tenants continues to be extremely strong. Again, health and beauty is another category where we are seeing strong leasing demand, that’s 11% of our current leasing pipeline. We like medical for a lot of reasons. Most importantly, they are very sticky. The medtail tenants that are in our portfolio have been in the centers for on average 10 years.
Health and beauty tenants are also very sticky. The health and beauty tenants in our portfolio have been in place for an average over 11 years. So, those are the uses where we are seeing continued strong demand. Those are uses that we like a lot. We think they add to the merchandising mix. We think they drive consistent traffic to our centers, and then they stay in our centers for a meaningful amount of time.
