And as Lisa has alluded to, we have a very strong track record of doing that given that history.
Juan Sanabria: And one more follow-up, if you don’t mind, anything unusual in the fourth quarter on the OpEx side, flowing through the same store, that kind of impacted the growth rate for the quarter that we should be aware of thinking forward?
Mike Mas: Yes and no. So on a full-year basis in ’23, I think our growth rate was about 7% on OpEx. You know insurance is a big part of the story, Juan. And I think you’re pretty well versed in what the property insurance market feel like today, and we are not immune from that impact. Inflation has been an impact as well, as you know we’re largely triple net, so we’re able to pass through successfully the vast majority of any increases including those in insurance to our tenant base. And you can see that in our recovery rate, which has held its own. We did have a unique item in the fourth quarter on real estate taxes where we had kind of a burn-off of a brownfield credit in a real estate tax line item. I don’t know if you’re picking that up in your analysis. But that was one unique item in the fourth quarter, that won’t — so that credit won’t recur going forward.
Juan Sanabria: Thank you.
Operator: Our next question is from Anthony Powell with Barclays. Please proceed with your question.
Anthony Powell: Hi, good morning. I guess a clarification question on the junior anchor comments. The ones that moved out at least aspiration, were these all Manhattan and other in a watch list tenants or are there other groups of tenants in that bucket? And if so, why did they move or why did they, I guess vacate?
Alan Roth: Anthony, this is Alan. I appreciate the questions. So it was, Manhattan and bankruptcies, but on top of that, there was many intentional move-outs. As part of our intense asset management approach, and so I would give a few examples. I know a number of you live in or around Connecticut and Norwalk by way of example, we’ve got a retailer that’s going to stop paying rent here next month, and we’re going to be down the entire year. And we are bringing target into that project, it’s not going to open until likely Q2, Q3 of 2025, phenomenal merchandiser great and highly accretive transaction and something that was absolutely the right long-term decision for us yet impacting 2024. I would also take a couple of office supply examples.
We have three of them in fact that we intentionally made the decision to replace them. One was Sprouts, one with Homesense, one with a Baptist Health medical facility that I think Nick had mentioned in his remarks. And again, this is just an opportunity to enhance merchandising, provide durable occupancy with enhanced tenant credit and get really significant rent growth. And so that is our proactive way of really thinking through this and just from the sort of that uneven climb comment, it’s coming offline here in ’24 from a rent-paying perspective and filtering its way back in year end and into ’25.
Anthony Powell: Okay. If I get to my next question. So you look at ’25 and ’26, you have like 7% of your anchors, I guess, lease operations in those two years. Are you going to keep doing this and maybe pushing tenants out for higher rent, or is this kind of the peak of this activity in ’24?
Mike Mas: I mean, look, I would just say from a practical perspective, we are constantly looking at our entire portfolio for opportunities to appropriately remerchandise, drive accretive returns, focus on redevelopment opportunities. That’s always been part of our mantra. And we’re going to certainly continue to do that.
Alan Roth: And I would just — I’d just add that over the long-term, we’d come back to our components of same-property NOI growth, and would still expect to be in that 2.5% to 3% range.
Anthony Powell: Okay, thank you.
Operator: Our next question is from Ki Bin Kim with Truist Securities. Please proceed with your question.
Ki Bin Kim: Thanks. Just wanted to go back to Juan’s question about OpEx expenses. I guess, just high-level, I know you explained some of the causes of it, but I guess how concerning is the increase in expenses as it pertains to your business and ability to push rent. And does that actually start to impact the way you think about where you want to own properties, whether that be local politics or how these local governments are run?
Mike Mas: I appreciate the question Ki Bin. Listen from on a go-forward basis, the directionality of our OpEx and the growth rate in that line item hasn’t changed our capital allocation thoughts at all. We continue to want to grow our portfolio across the entirety of our regions, in fact, in particularly Phoenix, we’d like to dive into and add to the extent we can find some opportunities in that region, and add that to the Regency portfolio. But kind of no change from a capital allocation perspective as a result of the increases. I’ll let Alan comment on the pressure that may or may not exist on rent growth.
Alan Roth: Yeah, I would say, Ki Bin, generally speaking, we’re not seeing the pressure to rent growth. Does it play a small part? Sure. I mean at the end of the day our retailers certainly look at their overall occupancy costs. And so, when you kind of layer all of that in, again on the margin, I think that could certainly have a small little impact. But it’s just not material enough at this point to really change I think the realities of where we are.
Ki Bin Kim: Okay. And then, quick follow-up here. The 50 basis points drag from the commenced occupancy, is that roughly equivalent to the NOI drag?
Mike Mas: Let me break down the NOI drag a little differently, which I think will help you out. So same-property NOI growth, let me go through the puts and takes to everyone’s benefit, 2% to 2.5% again base rent is going to be the largest positive contributor to that growth rate, in, in fact about the same range. And that’s rent steps, lease spreads, and the commencement of shop occupancy helping support that growth. Redevelopment contributions are going to be 50 basis points to 75 basis points to the positive. And then here’s your question on the offsets. It’s really coming from two primary areas, bankruptcies. It’s about 50 basis points of drag in that area. And that’s both actual announced, known bankruptcies, as well as the potential for bankruptcies in 2024.
And then the Manhattan assets that we’ve spoken about today at length is dragging us by about 30 basis points. So that 80 bps Ki Bin that I just summarized for you, that’s essentially tied to that commenced occupancy drag in the first quarter.
Ki Bin Kim: Okay. Thank you.
Operator: Our next question is from Linda Tsai with Jefferies. Please proceed with your question.
Linda Tsai: Thanks. Not sure if you’ve answered this with the previous line of questioning, but you said 2025 is setting up based on lease timing to be disproportionate year of growth in NOI. So does that mean ’24 should be disproportionately above your long-term 3% target?
Lisa Palmer: I think you meant to say 2025 in your question, not 2024.
Mike Mas: Yeah, we’re not meeting our objectives in 2024 that we articulate on a long-term basis. And that we — frankly, hold us — we’re pretty serious about holding ourselves accountable to. And in ’25, yes, to the extent, and again, we’re not giving ’25 guidance, Linda. But to the extent we — the portfolio delivers what we see it delivering at the end of this year, going into ’25 and compressing that commenced rate, bringing that — growing SNO pipeline back online, yeah, that should translate into above average core operating earnings growth, all else being equal, and I stress, all else being equal. We’re going to have a bond to refinance again in ’25. I mean, there are other elements to the plan that certainly incorporate, that will impact that result. But I think the idea and the direction that you have in mind is correct.
Lisa Palmer: Yeah, and the other big part of all else being equal is, we can’t control any geopolitical or economic uncertainty. But all else being equal, absolutely agree. That’s why I’d come back to over the long term, two years isn’t a long term, but it’s an average. We would expect to be in that 2.5% to 3% average same-property NOI growth.
Linda Tsai: That’s very helpful. Thank you. And my second question is, on the Rite Aid’s and Bed Bath & Beyond that contribute to the economic anchor occupancy decline. Can you just give us an update on where you are in various stages of signed leases versus working on backfill still?
Alan Roth: Yeah, Linda, happy to answer that question. This is Alan. So the team has made really great progress. I’ll start with Bed Bath & Beyond, 9 of our 12 are executed. And again, so a number of those won’t be coming online until later in this year, but really great retailers REI, RH outlet, LL Bean, Fresh Market, TJ Maxx. I mean, there’s some just great users that are backfilling these, and we’ve experienced rent spreads that actually exceeded what we anticipated, north of 40%, while also keeping our capital levels as I mentioned in my remarks at a very I think judicious level for those. So the remaining three are all in negotiation right now. So we are beyond the point of prospecting. We hope to wrap those up in relative short order and really have all of those back open and rent paying.
With respect to Rite Aid, we had we had at the time of filing 22 locations, including those that came through the UBP merger, six of those have been rejected, five are closed. One is in the closing process. And again, I think a testament to how our team proactively gets out in front of these, two of those six locations are already leased. One to a hardware store, one to fitness operator. And so, we’re actually pursuing the remaining four. And we’re going to stay on our front foot relative to the balance of that portfolio as you know, Rite Aid continues to go through that process as they haven’t officially exited bankruptcy.
Linda Tsai: And how do we think about those rents for Rite Aid, are they sort of all over the map. Are they above or below market?
