John Caulfield: Hi, Dori. No, actually didn’t speak to that, so thank you for that. So, look, we are focused on flexibility. We did after quarter end, we did execute a forward starting swap for $150 million, locking in the SOFR curve at 3.45%. We still are above or have more floating rate debt than we would like. We’ve mentioned that we want a target of 90% fixed. And as we look at those maturities, and part of it is going to be whether it be fixing SOFR or ultimately, we want to be a long-term issuer in the unsecured bond market, and so if we’re able to opportunistically issue in that market, that’ll also improve that. So I will say this with regards to our fixing activity, there are refinancing or financing around fixing and other things in our guidance for ’24 already assumed.
The one clarifying piece going back to the question, I think it was from Todd, was, we do not have incremental equity issuance in our guidance, but we do have activity related to our interest in our debt, in our guidance.
Dori Kesten: Where do you think that you would price today in the unsecured market?
John Caulfield: Sure. So, we do watch that debt market very closely. The most important thing we did was manage our maturity ladder last year. We don’t have pressing maturities in ’24, and we do have meaningful liquidity to pursue the acquisition strategy we’ve been talking about. So one of our goals is to become a long-term seasoned issuer in that unsecured bond market. And so it is a little tough to specifically pinpoint because it’s going to be dependent upon where the tenure is at the time. We believe that it would be in the five and three quarters to 6% range. We think our reception will be similar to that of our peers because we believe we have a better business model lower leveraged. Ultimately, just this, in the month of January, we received a positive outlook from S&P, which is a step in the right direction, but we continue to believe we’re an underrated credit. So we will look to access that market opportunistically.
Dori Kesten: Okay. And congratulations on that outlook. One last question. If your net acquisitions did exceed $250 million this year, within your IRR expectations, would you feel comfortable issuing equity where you’re trading today?
Jeff Edison: Today? You mean like today or today in terms of generally where we’ve been trading over the last several months? Today, no, I don’t feel great about that. But generally, to me — for us, where we would look to use the ATM is when we have an acquisition volume that we know what this specific uses will be and we feel comfortable that it’s very accretive at the stock price that we’re at and at the debt costs that we’re at. So that you’re match funding those two pieces as we grow and trying to take a longer-term growth perspective to the properties and matching them while at the same time keeping — I mean, we’re certainly a market-leading balance sheet today, and we would like to continue to have a strong balance sheet and find — have the ability to grow faster if the opportunities arise. Does that answer your question, Dori?
Dori Kesten: Yes, it does. Thanks.
Jeff Edison: Okay.
Operator: Your next question is from the line of Hong Zhang with J.P Morgan. Please go ahead.
Hong Zhang: Yes, hey, I had a quick question about your Riverpark and Apache Shoppes acquisitions, I guess, are those representative of the acquisitions of a lease-up nature you were talking about? And what are your expectations on timing to lease them up to your average portfolio rate?
Jeff Edison: That’s a great question. They are examples of, I think, strong grocer centers with opportunity. And we — I mean, I believe that we will see progress in both of those over the next 12 to 18 months, but they will take — I mean, it won’t happen tomorrow. One of the beauties of our small store portfolio is that things can happen much more quickly. These two have some bigger box — two bigger box issues along with a lot of small-store opportunity. So I would say we’ll see the small-store opportunity in 12 months — within 12 months and maybe slightly longer on the box opportunity. So that’s the way we kind of look at those. But when we look at H-E-B and Trader Joe’s, the two — we performed very strongly in our centers that have them as anchors, and we anticipate doing the same with those two acquisitions. Bob, I don’t know if you have anything else that you want to add.
Rob Myers: No, I would already say that since we’ve acquired the assets, we’re already working letters of intent on Riverpark as an example. And to your point, we usually will strike on our small shop spaces within the first six months, and then the chunkier-sized boxes that are a little bit larger could take, to Jeff’s point earlier, 12 to 18 months. But when you have two of the dominant, number one, number two grocers in these markets doing the type of sales volumes they’re doing, H-E-B is doing over $1,000 a foot. Trader Joe’s is doing over $2,200 a foot. They just are significant traffic drivers to lease up the redevelopment opportunity. So I’m encouraged by the activity we’ve seen so far, and we just recently acquired these in the fourth quarter, so, good.
Hong Zhang: Got it. If I could ask a follow-up question. I guess, as you look at the potential pool of acquisitions today, how many of these — how many of those potential acquisitions are properties with sub 80% leased rate versus, I guess, more stabilized occupancies?
Jeff Edison: Yes, we wish we had more of the 80%. I would say that — I think, I would say, we’re targeting probably 90%, is probably where the market will end up. In terms of the total acquisitions, we’ll probably be closer to 90% than sort of mid-80%s. But we’d love to match what we did in the fourth quarter, and it’ll be really based upon the opportunities that arise during the year. But we love those projects, and we think our team has been able to execute on them really well. So if those opportunities arise, we’ll be there, but I would guess that it’s more likely to be in the 90% occupied range, and that’s total occupancy for the center.
Hong Zhang: Thank you.
Jeff Edison: Yes, thanks.
Operator: Your next question is from the line of Paulina Rojas with Green Street. Please go ahead.
Paulina Rojas: Hello, everyone.
Jeff Edison: Hey, Paulina.
Paulina Rojas: I have two short questions. One is about one of the assets that you acquired, Glenbrook Marketplace, I see it’s not anchored by a grocer, and it’s mostly small shop with a shadow Walgreens I think. So it’s a little bit of a departure to the traditional center that you would acquire. And I’m intrigued by how much you — I don’t know if you would do more of this and if you have a limit for how much these type of assets could represent in the context of your entire portfolio.
Jeff Edison: Yes, Paulina, great question. And one that I’m glad you asked. That particular project is directly across the street from one of the largest — one of the most productive jewels in the Chicago — in Chicagoland, and we have a strong presence in Chicago with a good concentration, and this was an opportunity we saw where we could actually use the machine that we have built across the country, but particularly in this market, to get outside returns and very strong growth. So in those opportunities, we are looking for those and will — it’ll continue to be a small part of our portfolio, but we believe that there are specific opportunities where we can take advantage of the team that we have and the boots we have on the ground, as well as having the traffic generators in the immediate vicinity that will allow these centers to be long-term successful.
But as we underwrite them, we believe we need a bigger return on those projects than we do on our traditional gross rankers. So if you would think of those, those would be 10%, 10.5% on levered IRRs versus where we are at 9% on our traditional gross-rankered center. So it’s a small part of our portfolio and will continue to be a small part of our portfolio. But we do believe that there are select opportunities where this could be a good growth area for the company.
Paulina Rojas: Thank you. And then the last one is, I’m curious to where you think asset-level financing is for the type of grocery-anchored centers that you are acquiring. And I’m asking from an industry perspective, not necessarily you, I know you have issued equity, you have free cash flow, and other sources of capital.
Jeff Edison: Yes. Paulina, we’re just not the best people to give you — to tell you that. We can give you what our banks are talking with us about, but we’re not actively borrowing in the secured market right now. So I would be — we would be inferring versus specific, but maybe, Devin, you want to talk a little bit about what we’re doing on the fund side and where we’re seeing that capital?
Devin Murphy: Sure. Paulina, the perspective we have on the secured financing is from our venture activity because those assets will be financed in that market. And what we’re hearing right now is 50% to 55% LTV at 180 over. So just inside of 6% today, Paulina, given where the treasury is.
Paulina Rojas: Thank you very much.
Jeff Edison: Yes.
Operator: This concludes our question-and-answer session. I will now turn the conference back to Jeff Edison for some closing remarks.
Jeff Edison: Great. Thank you, operator. In closing, we’re extremely proud of what the PECO team accomplished in 2023. Our differentiated and focused strategy and our talented team combined to create a market leader in the shopping center business. We’re confident that the PECO team will continue to deliver market-leading results in 2024. We still have one of the lowest-levered balance sheets in the shopping center space, and with a fortress balance sheet and ample liquidity, we remain prepared for the challenges and opportunities that may arise this year. PECO is positioned to continue to successfully grow as we look forward. We believe we will 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. Thank you all for your time today and have a great weekend.
Operator: This concludes today’s conference. You may now disconnect.
