Haendel St. Juste: Hey there, good morning. What you guys discuss what you’re seeing out there in the market in terms of cap rates for the types of assets you’re looking to – you’re looking at in the, both the convenience and maybe open-air categories? I’m curious, what you’re seeing out there as well as kind of where you’re willing to execute perhaps and how you describe seller sentiment today? Thanks.
David Lukes: Sure, Haendel. Good morning. I guess it’s hard to speak to the overall shopping center sector just because number one, we’re not looking at every format type. And secondly, there just have not been that many transactions. From the convenience standpoint, there do seem to be – there’s more inventory than I think in other formats. So it’s giving us the opportunity for John and his team to do a lot of underwriting. I would say that the ask price if these were assets that we thought had strong markets, good solid tenant and good growth prospects, and we thought 5.5 caps were fair a year ago. It seems like those are 6.5 caps today. So, I think the ask has probably gone up a 100 basis points. And the question, I think, the second question you asked is where would we transact?
I think that really depends on the source of the funds to purchase that. We are doing some minimal recycling, but it kind of depends of what we’re selling at and what we think the growth profile is of the acquisition target. But I guess to summarize, it feels like a 100 basis points is probably fair from the ask side.
Haendel St. Juste: Fair enough. And then question on the foot traffic, saw some data place or data that suggests that foot traffic was down year-over-year in the first quarter. Curious if you are seeing any of that. It’s perhaps it’s just a function of tougher comps or any comments maybe on the consumer? Any concerns – any potential concerns there with that trend in the first quarter, thanks.
David Lukes: Yes, I mean, when we look at foot traffic data, cell phone data, I think, we’re parsing it in several different ways. One is the trailing 12 like you’re talking about, but that can be a little lumpy if a year ago there was something unique. And a year ago there was an excess amount of traffic, I think, coming out of the pandemic. So I think a little bit of slowdown doesn’t really warrant a whole lot of concern. If you look at the traffic versus 2019, which is the final year before COVID it’s still very healthily positive. I think what’s even more interesting though is that you’re getting a lot more frequency of trips. And part of that is because the hybrid work culture in most of our suburban locations is just allowing people to take more numerous but shorter trips.
And sometimes the cell data that you are reading about nationally doesn’t capture the really short trips. But there has been a significant change of delivery services, in-store pickups, drive-throughs and when you add that to the customer traffic it’s a pretty convincing story that the consumer has changed.
Haendel St. Juste: Fair enough. Thank you.
Operator: Our next question will come from Alexander Goldfarb with Piper Sandler. You may now go ahead.
Alexander Goldfarb: Hey, good morning. So two questions. Maybe David, following up on Haendel’s question on the shopper trends, so if customers are shopping more evenly throughout the week, does this change either the tenants who are interested in your centers or the way they merchandise and thus maybe a tenant who is satisfied with one sort of format or space and configuration suddenly wants to shift or do something? Basically, does this change in shopping allow you guys to drive more rents because of the way people are changing their and shopping more evenly? Or you would say, hey, this all just wraps up in increased tenant demands per space, so it really doesn’t matter how the customer shop, the bigger overriding theme is just tenant demand. I’m trying to understand if there is a difference or not on the shopping trends versus overall, tenant demand.
David Lukes: Well, it seems Alex, and good morning, that there’s two different categories. One are the more regional tenants, the junior anchors that are drawing from three, five or ten miles away. A lot of these have gotten very sophisticated with their in-store pickup or their delivery from store, they are using the store as part of their supply chain. I think that those tenants are simply looking at the increase in population in the suburbs and the convenience of having something delivered from the store. And that’s kind of what’s driving a lot of demand. The cell phone data that I was talking about, I think, is more applicable to the smaller shop tenants, and particularly in the convenience assets, because with customers around more frequently during the week and making more kind of quick in and out trips, that is definitely sponsoring demand from tenants that just want to get as close as they can to the households recognizing that they are probably going to get multiple trips per week as opposed to once per week.
The simplest example is QSR chains, I mean, QSR chains are looking to get very close to the wealthy customers and they really want to drive through. And I think those are both societal shifts that seem like they’re pretty sticky because an awful lot of tenants want that type of format.
Alexander Goldfarb: Okay. And then the second question is on the rents, I hear you that we should expect leasing trends to slow, just as you guys literally have less space to lease. It’s hard to lease what you don’t have. But as far as the rents go, the spreads are impressive. Is this a function of an acceleration in pricing power or this is just a reflection of either the legacy leases that are rolling? I’m just trying to understand, is it more a function of where the rents were historically, or are you seeing rent acceleration as you price deals?
David Lukes: I think it’s a little bit of both. But I’ll give you some details behind that. I mean, when you’re looking at a company like ours that only has 105 properties and sometimes during a quarter a tenant or leave that’s paying single digit rent, and we might have a hundred percent mark-to-market. So, when you put it all together, it kind of falsely makes everything look good, even though it’s just blending higher because of one lease. Having said that, I do think that there is significantly more pricing power today than I have seen in my career. I mean, as I mentioned twice now, having 17 Bed Baths go away in a portfolio that has literally zero anchor space left, that defines pricing power. And when you add on to that, the fact that in many cases our enterprise value right now is about half of a replacement cost.
So I just don’t think that you’re going to see a lot of supply come online when the rents to justify new construction shopping centers would have to be 50% higher than the rents are today. That’s another reason why, I think, there’s pricing power. And in the larger locations, the larger units we might choose credit, we do. We choose credit over total economics in many cases. But when you get down to the mid-size and the smaller shops there are high quality tenants that are definitely pushing rents much higher than I would’ve expected a couple years ago.
Conor Fennerty: Yes. And Alex, you see this play out the, I think, the best in our renewal spreads and we have quite a bit of tenants with options, right, negotiate options that is 0%, 5% or 10%, and you’ve seen slow kind of steady pressure upward on our renewal rates, which are now approaching close to 10%, which implies that for the 5%, 10% options, there’s quite a few leases on top of that, that we’re getting better than that. And so that for us is the most encouraging where our renewal rates have effectively gone from call mid-single digits closer to high single digits. That’s a big, big change. And so again, it’s a reflection of: one pricing power to your point is kind of acceleration rents, but also the mix of what we’ve got.
Alexander Goldfarb: Okay, thank you.
David Lukes: Welcome.
Operator: Our next question will come from Ki Bin Kim with Truist, you may now go ahead.
Ki Bin Kim: Thanks. Good morning. Just wanted to go back to your opening remarks regarding client, tenant sentiment. I was just curious what kind of changes in terms of tenant sentiment, in terms of maybe how many proposals they have, for example, if they wanted to open like ten stores, has that incrementally shifted at all to like eight? And if deals are taking longer to get done,
Conor Fennerty: Hey, Ki Bin. Good morning. It’s Conor. Given our footprint, I don’t think we’re a great proxy for kind of overall national tenants open to buys. I would just point you to our leasing pipeline, our new lease pipeline, which again, we don’t have a lot availability. It’s running about 300,000 square feet today. That’s up modestly from where it was last quarter, 250,000 square feet. So, again, to David’s prior answers, we haven’t seen a change in tone or sentiment. We are very macro aware. It just hasn’t flown through in our conversations. All that said, we’re not a proxy for the national retail environment. We’re a proxy for a pretty small subset of assets located in affluent communities. So, I don’t know how we can expand further from that point.
Ki Bin Kim: Okay. And on your couple acquisitions this quarter, Foxtail and Parker Keystone looks like they are pretty well located convenience centers, but looks like they’re pretty fully occupied. I’m just curious what the upside looks like for you guys. if you can disclose it.
David Lukes: Yes, it’s a nice transition from Conor’s point about renewal spreads. And when you see us buy a 100% occupied property in a wealthy suburb, there is a reason for that. And it’s because it’s a renewals business. The shop renewals and the in place versus the market is extremely high in some of these high income suburbs and the two that we bought this quarter, that’s the story. It’s a shorter Walt and it’s a higher mark-to-market. And so our belief is that the NOI CAGR is going to be higher than our overall portfolio at the same time with less cost to get there, less CapEx because it’s really renewals business.
Ki Bin Kim: And what is the year one yield?
