Gaurav Mehta: Good morning. I wanted to follow up on the asset sales. Just to clarify, the $80 million number that you have in the slide, does that include $25 million or you would have $25 million on top of $80 million?
Scott Hogan: It does not. The $84 million is the actual dispositions. I think the comment we were making is we have about $100 million in acquisitions, roughly $80 million in dispositions. The next two transactions will really balance that. So we’re going to get about an additional $20-ish million to go, just continuing to refine the portfolio, upgrade the portfolio with – by recycling and without the need for external capital.
Gaurav Mehta: Okay. Okay. Great. Second question on your leverage. I think you touched upon this in your prepared remarks, but hoping to get some more color on your debt to EBITDAre [ph] going from 7.8 to the guidance of $6.7 [ph]
Scott Hogan: Sure. In the first quarter of this year, we’ve got some elevated G&A costs around legal pertaining to our efforts with Pillarstone and also proxy contest costs. We also expect NOI to grow throughout the year and that to continue to improve by the time we get to the fourth quarter. So I think we’ll see improvement both in the numerator and the denominator by the time we get to the end of the year through top line growth and also through lower G&A costs.
Gaurav Mehta: Okay. Maybe one more follow-up on the balance sheet. The 2024, I think the $55 million debt that you’ve talked about on the – earlier on the call, you said 6.2% rate. Is that the rate that’s expiring on that debt? Or is that the rate you’re seeing in the market?
Scott Hogan: That’s the right lock we have on that loan, and I didn’t understand the second part of the question about the market, sorry.
Gaurav Mehta: And I guess, where would you – how do you plan to replace that debt? Would you be looking to do another mortgage debt or put that on the line?
Scott Hogan: I mean that is the replacement debt. So we would – it’s a $55 million loan and then we’d use those proceeds to pay down the revolver.
Dave Holeman: We have about $50 million of debt maturities this year. And basically, I think this is just replacing those, right, Scott?
Scott Hogan: That’s right. Yes.
Gaurav Mehta: Okay, understood. Thank you.
Scott Hogan: Thank you.
Operator: Thank you. [Operator Instructions] The next question we have comes from John Massocca of B. Riley Securities. Please go ahead.
John Massocca: Good morning.
Dave Holeman: Good morning.
John Massocca: Maybe going back to the capital recycling. I caught the acquisition cap rates, but what’s the disposition cap rates and the kind of the other leg of that – of those transactions?
Scott Hogan: Sure, John. Yes, we’ve done $84 million in dispositions since October ’22. Those have been at a disposition cap rate of 6.2 based on the trailing 12-month NOI. The acquisitions, the other side have been at a 7.1 cap rate on first year NOI actual or projected.
John Massocca: And maybe how does year-to-date compare to that longer-term number?
Scott Hogan: I think you’re asking what’s our volume level for recycling? Is that what you’re asking?
John Massocca: No, no, just cap rate. I mean, I was going to – how does the year-to-date cap rate compared to the number you’re sitting [ph] since 2022?
Scott Hogan: Yes, I think it’s right on it. So I mean we’re not trying to play with the period. It’s just saying and looking at the most recent performance on a 12-month period, what we’re buying versus what we’re selling right now, there’s about a 1% spread positive for us.
John Massocca: Okay. And then maybe just kind of more holistically, I mean, just because they were in the same market, what makes something like selling Mercado at Scottsdale Ranch and moving into the other assets you purchased in Scottsdale, like what’s kind of the logic in that – those two transactions together?
Scott Hogan: Sure. Let me help a little bit on this. So first of all, Mercado was in an area that was a bit challenged as far as locationally because it only hit a 180-degree trade area. So the trade area was somewhat limited along Shea [ph] Road, and it was further closer to Fountain Hills. So what I look at is I always think about where is my location as far as infill in my trade area. And what I like about – so if you look for almost a swap from that type of asset where your trade area is limited by 180 degrees, which is pretty significant. That’s because the Indian reservation surrounds it and then you go all the way to Scottsdale and Shea, which is probably – it’s the Northern Gateway over to PV, Paradise Valley and also the East gateway to the 101, which goes around the city.
So it’s probably one of the best what I consider one of the best intersections in the city of Scottsdale versus a trade area that’s limited. And that’s been some of the recycling. So just to comment on some of the recycling that we have done. It’s either been assets that are tapped out, limited trade areas, limited growth and opportunity. And the assets that we’ve purchased, I think we’ve exceeded our expectations on the rental rates and the lease-up times.
John Massocca: Okay. That makes sense. And then on the bad debt that increased, any kind of specific themes to call out there? Was that one tenant, multiple tenants, any particular tenant industry? Just looking for some more color on that.
