Ronald Kamdem: Great. That’s it for me. Congrats, Devin and the rest of the team. Pleasure working together.
Devin Murphy: I appreciate it, Ron. Thanks.
Operator: And we’ll go next to Dori Kesten at Wells Fargo.
Dori Kesten: Thanks, and congratulations on all the management changes. What percentage of your small shop leases have contractual bumps over 3% today? And where do you think that you can push that to over the next year?
Jeff Edison: Dev, do you want to take it, or John?
Devin Murphy: Dori, I don’t know, off top of my head, what percentages have bumps above 3%. We will come back to you on that. Our average in the third quarter was 2.5%. So we’ll have to come back to you on what percentage have above 3%, and we will do that.
John Caulfield: Dori, I was going to say — so, really, when we look at it, the overall contribution to NOI growth is up to 80 basis points of our NOI growth is coming from overall escalators. And we believe that that number is going to continue to rise. And Devin, given the pieces on the escalators, I mean, we just think that that’s an area that we can continue to grow to 100 basis points or better.
Dori Kesten: Okay. Thanks. And then, when you look at assets you’ve sold this year and last, what has the realized unlevered IRR has been?
Jeff Edison: So Dori, are you asking what — for our hold period what were the unlevered IRRs?
Dori Kesten: Yes.
Jeff Edison: Is that what — yes. I don’t have the specifics. It’s actually — I mean, we actually do a full analysis of each property as we sell it. They have — I know that across the board they have been well above our targeted 9% unlevered IRR. But I don’t have the — what exactly the number is for across that board, but I can certainly get that to you.
John Caulfield: Hey Jeff, I’ll just jump in there. The answer is that when we look at there’s — over assets that we sold in the years, the actual underwriting would’ve been — because at the time in a lower interest rate environment, the underwriting was certainly lower, we outperformed by over a 100 basis points, and the actual under — realized was over a 9. But we — relative to what we anticipated, we actually exceeded that underwritten unlevered IRR by a 100 basis points on assets that we’ve taken full cycle from acquisition through management, through disposition.
Operator: And we’ll go next to Paulina Rojas at Green Street.
Paulina Rojas: My question is about the Kroger Albertsons merger, and excuse me if you mentioned this at the beginning and I missed it. But my question is — so C&S experience seems to be more in the wholesale world. What gives you confidence that they would be good operators of grocery stores, at a large scale?
Jeff Edison: Well, thanks for the question. The answer is — that’s a big question mark out there. I mean, they do — they’ve been a wholesaler for a 100 years. They have — they do operate stores specifically. I don’t think they’re of the quality of store that we would like. But they have — they do have a history of actually operating stores in addition. The thing from our perspective is relative to a propco where you have basically a separate company stepped up, we think they clearly are better than that. The question is how good of an operator are they? And honestly, we won’t know until they get in and operate. We do want to emphasize, I mean, the market is still saying there’s not a great chance this merger’s going to go through.
I mean, they’re — I think they’re still a mid- to high-teens discount between Albertsons stock price and where they would exchange in the Kroger merger. So the market’s still I think skeptical about whether it’s going to happen or not. I think, the — and there’s still a big question about what — how good these guys are going to be as a true grocery operator.
Paulina Rojas: My other question is, of course, you raised money, probably you’re not the best company to ask, but what are you seeing in the lending environment? Have you seen more distress from owners? It seems so far that it’s more a matter of rate, but that financing is available. So, anything you can share in terms of what you’re seeing especially from…
Jeff Edison: Yes. I would say that we are not seeing a lot of owners on the market with projects that — where they can’t get financing. So, that hasn’t happened yet. It probably is a little early for that to happen, if that’s going to happen at all. But we haven’t seen that happening. We do hear that there is some pressure, particularly in the regional banks, which were a source of a lot of family office financing and some of that — when loans come due, it’s a more complicated negotiation. And there are certainly some of those assets that will come on the market. We haven’t seen a big splurge of that yet. But it is certainly something that is I think a pretty good possibility. But again, as you know, I mean, we’re — our business on the grocery-anchored shopping center business, it’s a really fragmented ownership.
So, you would expect that we will see when you have a kind of change in interest rates that we’ve had, that there will be some disruption in terms of ownership. I would say that if you look at the deals that we have done in — or have under contract now in the second half of this year, it hasn’t been family offices in distress. It’s been other types of sellers as a whole. So, the answer is we anticipate that but we have not seen that.
Operator: And this concludes our question-and-answer session. I would like to turn the call back to Jeff Edison. Jeff?
Jeff Edison: Thank you, operator, and thanks everybody for being on the call today. In closing, we remain focused and committed to successfully executing our growth strategy, both internal and external. We believe that we continue to generate more alpha and less beta in the markets we’re in and the properties and given our very specific strategy. In addition, we still have one of the lowest levered balance sheets in the shopping center business. This gives us the financial capacity to successfully meet our acquisition objectives. We look forward to providing additional information about our outlook and business plans during our upcoming investor day. On behalf of the management team, I’d like to thank our shareholders, PECO associates, and our neighbors for their continued support. Thanks again for being on the call today, and have a great day.
Operator: And this concludes today’s conference call. Thank you for your participation. You may now disconnect.
