Good morning, and welcome to the SITE Centers Reports first quarter 2023 operating results conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the Star key followed by Zero. After today's presentation, there'll be an opportunity to ask questions. To ask a question, you may press Star then One your touch-tone phone. To withdraw from the question queue, please press star then Two. Please note this event is being recorded. I would now like to turn conference over to Stephanie Ruys de Perez, Vice President of Capital Markets. Please go ahead.
Thank you, operator. Good morning, welcome to SITE Centers first quarter 2023 earnings conference call. Joining me today are Chief Executive Officer, David Lukes, and Chief Financial Officer, Conor Fennerty. In addition to the press release distributed this morning, we have posted our quarterly financial supplement and slide presentation on our website at www.sitecenters.com, which are intended to support our prepared remarks during today's call. Please be aware that certain of our statements today may contain forward-looking statements within the meaning of federal securities laws. These forward-looking statements are subject to risks and uncertainties, and actual results may differ material from our forward-looking statements. Additional information may be found in our earnings press release and in our filings with the SEC, including our most recent report on Form 10-K and 10-Q.
In addition, we will be discussing non-GAAP financial measures on today's call, including FFO, Operating FFO, and Same-Store Net Operating Income. Reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures can be found in today's quarterly financial supplement. At this time, it is my pleasure to introduce our Chief Executive Officer, David Lukes.
Thank you, Stephanie. Good morning, and thank you for joining our first quarter earnings call. We had a strong start to the year with results ahead of budget, another productive leasing quarter, which pushed our lease rate to an all-time high of 95.9%, and continued progress on the lease-up construction and delivery of our tactical redevelopment pipeline, with delivery set to ramp into year-end. The net result of all this activity is a $19 million signed, not open pipeline, with commencement sent to accelerate over the next few quarters into 2024, which provides a significant tailwind for the next several years.
I'll start with some comments on leasing and tenant activity, including bankruptcies in light of recent macro and capital markets volatility, and then move to transactions before handing it over to Conor to give more details around the quarter and revised 2023 guidance. In terms of leasing, the trends that allowed us to achieve the leasing volume and economics over the last three years remain in place despite significantly more macroeconomic concerns. Supply in our sub-markets is extremely low, and demand remains strong this quarter from national retailers looking to expand their footprints in the wealthiest suburban markets where we operate. Recent mobile phone data supports the fact that suburban customers are visiting our properties more frequently and more evenly spread through the week than pre-pandemic levels.
We were correct in our belief that this would ignite demand for store locations offering convenient access to goods and services. Beginning in 2020, we made a number of changes to position our organization to capture this demand and maximize leasing velocity. It feels like those changes continue to bear fruit. Leasing demand can be highly cyclical and correlated with the overall economy. To date, we just haven't seen anything material of note that would indicate a slowdown. The one change that we have seen this year, as I noted in February, is the return of chain bankruptcies, including Party City and the widely anticipated filing of Bed Bath & Beyond this past weekend, among others. I'll provide an update on these two identified tenants as we don't have any real exposure to the other tenants that have filed to date.
For Party City, SITE had 17 locations at quarter end, with total exposure. Final outcome is dependent on the company's emergence from bankruptcy, we are really pleased with the results to date and the implicit stamp of approval on our real estate. Shifting to Bed Bath & Beyond, we have 17 locations, including four buybuy BABY stores, which represent 1.8% of base rent. Now that we finally have clarity on timing and control, we feel extremely well prepared for a focused marketing cycle and are confident that, number one, there are single user backfill options for 16 of those locations, given the amount of inbound activity we've seen over the last several months. Two, that the majority of our stores will have executed leases over the next 12 months with rent commencements by year-end of 2024.
Part of our confidence in demand for these spaces is the fact that our portfolio of assets that contain a Bed Bath or a buybuy BABY has a current lease rate of 99%. This portfolio has zero junior anchor space available, the opportunity to access these properties is very attractive to growing national retailers. As you can imagine, we would very much like to recapture space from weak tenants while demand for that space is strong. Our leasing team has been highly focused on replacement tenants in preparation for the chance to upgrade our tenant roster at materially better economics. One such tenant upgrade it executed in the first quarter was a new lease for a specialty grocer at our Tanasbourne property in Portland that will replace two legacy junior anchors that we terminated last year.
That lease brings the SNO pipeline to over 88% leased, with deliveries expected to ramp into year-end. We made additional progress on a few other key locations in the first few months of 2023 and expect to add projects and details to the supplement in the coming quarters. These deals, while smaller scale in terms of total dollars, are expected to best. At 95.9%, our lease rate is now 210 basis points higher versus year-end 2019, and 160 basis points higher than the company's all-time high water mark, which was 94.3% back in 2017. Looking forward, we have another 300,000 sq ft at share of current lease negotiations, with blended spreads above our trailing twelve-month average.
We expect this pipeline to be completed over the next two quarters, concentrated in a mix of national publicly traded credit tenants. That said, the absolute level of quarterly activity will remain volatile as we simply have less space to lease until we take possession of square footage from bankruptcies. Lastly, with respect to transactions, we had less activity in the first quarter as compared to year-end, but did successfully reinvest the remaining proceeds from the sale of $158 million of assets in the fourth quarter. Specifically, we repurchased $20 million of stock and acquired three convenience properties for $42 million. In terms of overall transaction activity, macro and capital market volatility is having an impact on deal volume. I would expect overall transaction volume to remain low until we have some stabilization in benchmark rates and therefore visibility on cap rates.
There is capital available and deals are getting done. They're just taking longer with more moving pieces and a higher risk of fallout. That said, volume for smaller properties, including convenience assets, is still running higher than other retail formats. In summary, we are pleased with our portfolio positioning, balance sheet, and investments to date, which we believe prepare the company for a wide range of economic outcomes. A special thank you to the entire SITE Centers team for another great start to the year. With that, I'll turn it over to Conor.
Thanks, David. I'll comment first on quarterly results, discuss our revised 2023 guidance, excuse me, then conclude with the balance sheet and capital plans for the year. First quarter results were ahead of plan, as David mentioned, due to a number of operational factors, including higher than forecast occupancy and ancillary income, earlier rent commencements, and lower than expected G&A. The operational factors totaled about $0.02 per share relative to budget. In terms of operating metrics, trailing 12-month new leasing spreads accelerated from the fourth quarter, with blended spreads roughly unchanged at just under 9%. We continue to see strong leasing economics for the pipeline, though quarter-over-quarter volumes and spreads will remain volatile given our denominator. The SNO pipeline was up modestly sequentially to $19 million as new leases offset the impact of commencements.
These signed leases represent just under 5% of annualized first quarter base rent and over 5% if you also include leases and negotiation in our pipeline, providing a tailwind to cash flow. We provided an updated schedule on the expected timing of the pipeline on page six of our earnings slides. Same-Store NOI grew 4.2% in the first quarter, with the uncollectible revenue line item a 130 basis point headwind to year-over-year growth. Same-Store base rent growth also accelerated to 3.6%, which was up 80 basis points from the fourth quarter. Moving on to our outlook. We're revising 2023 OFFO guidance up to a range of $1.11 to $1.17 per share, driven primarily by first quarter outperformance, including better than expected Same-Store NOI and a higher outlook for full year occupancy.
Rent commencements, investment activity, and potential tenant bankruptcies remain the largest swing factors expected to impact where we end up in the full year range. We are also raising our Same-Store NOI guidance to a midpoint of 1.25%. Prior period reversals of $3.4 million in 2022 remain a roughly 100 basis point headwind to growth, and we continue to include an annual bad debt reserve, along with specific bankruptcy assumptions related to tenants that have filed for bankruptcy, along with others with well-publicized liquidity concerns. Through the first quarter, we have not used any of the credit loss reserve. We have three notable national tenants in bankruptcy as of today, and that includes Cineworld, Party City, and Bed Bath & Beyond.
For Cineworld, we now have the executed agreements at all three of our locations, though the leases have not been affirmed by the court and remain subject to change until the company exits bankruptcy. That said, the net result of a $1.3 million impact from 2022 remains unchanged from our fourth quarter call, and first quarter earnings reflect the expected amended terms. For Party City, as David mentioned, we do not expect any rejections or store closures as part of the company's restructuring. Similar to Cineworld, though, this outcome is subject to Party City's bankruptcy exit. Lastly, for Bed Bath, prior to their filing, we did receive April rent for the majority of our locations, with $300,000 unpaid as of last week.
The midpoint of guidance for both Same-Store and OFFO continues to assume that we recapture all of their Bed Bath flag stores in the second quarter, that we don't know the ultimate outcome of store rejections, potential lease acquisitions, or subsidiary sales at this time. Moving to the second quarter of 2023, there are a few moving pieces to consider from the first quarter. First, G&A is expected to be approximately $1 million higher sequentially, with a full year run rate of approximately $46 million. Second, interest expense is also expected to be higher as we repay the $87 million unsecured stub bond in May. Third, we are budgeting an increase in uncollectible revenue as a result of bankruptcy activity, including Bed Bath in the second quarter as compared to the first quarter, which had no material headwinds.
A summary of these factors is on page nine of our earnings slides. Ending with the balance sheet and capital activity. At quarter end, leverage was 5.3x , fixed charge remained over 4x , and our unsecured debt yield was over 20%. We have the aforementioned stub bond maturing next month, which we expect to repay at maturity with cash on hand and availability on the line of credit. Recall, we recently recast our $950 million line of credit less than a year ago, which provides significant liquidity and availability through 2027.
To put this all in context, at the midpoint of the guidance range, we expect debt to EBITDA to remain below 6x , to generate almost $50 million of retained cash flow with an AFFO payout ratio of roughly 70% and have no unsecured maturities until August 2024. This leverage profile and liquidity provides substantial capacity and optionality to fund the company's business plan. With that, I'll turn it back to David.
Thank you, Connor. Operator, we're now ready to take questions.
We will now begin the question-and-answer session. To ask a question, you may press Star then one your touchtone phone. If using a speakerphone, please pick up your handset before pressing the keys. To withdraw from the question queue, please press Star then Two. At this time, we will pause momentarily to assemble our roster. Our first question will come from Todd Thomas with KeyBanc. You may now go ahead.
Hi. Thanks. Good morning. First question, I guess, you know, look, there's been a lot of uncertainty around Bed Bath and the outcome now that they filed is still uncertain. You mentioned 16 single user backfills, and it seems like demand for their space may be solid. Any thoughts whether there might be a lot of leases, you know, sort of assumed or auctioned off during the bankruptcy process, how that might play out based on prior bankruptcies that you've sort of lived through and the overall environment today?
Good morning, Todd. It's a great question. I mean, we obviously have no information, no more information than you do. The reality is that the mark-to-market on the portfolio of Bed Baths and buybuy BABY is somewhere in the 25%-30% range, but it varies depending on property. number one, we feel really good about the backfill prospects. As I mentioned in our prepared remarks, if you take that portfolio where we have these properties, they're 99% leased. There's not a single other anchor space available. They are very much attractive to a lot of growing retailers. There is some risk or opportunity, depending on how you wanna define it, that a couple of these leases get bought through the bankruptcy process. I honestly have no idea one way or the other, you know, what the outcome will be.
Okay. Conor, you mentioned in your comments around the updated guidance that the midpoint assumes that you get all the Bed Bath boxes back during the second quarter. You didn't, you know, $300,000 of April revenue was unpaid, but going forward now until leases are rejected, you're expecting to collect rent. In terms of the timing in the second quarter, is that sort of like a June 30 wind down or recapture of all the spaces that you're assuming?
Todd, it's a good question. Look, to David's point, we just don't know yet. We had three leases or three wholly owned leases rejected last night, so obviously we won't get rent on those three going forward for the rest of the year. To David's point, and your question, I mean, this could be dragged out a little bit for a number of leases as they get auctioned and potentially as folks acquire them. You're right, we've assumed a lost month for the month of April or May, depending on which location, and then, you know, call it one or two more months, depending on which location. It's not material if you assume a May 31st or a June 1st or excuse me, a June 30th rejection date, but it's just gonna depend on the location.
Okay. Got it. Just last question, I guess also around Bed Bath, but more around investment activity. You know, does the filing and, you know, I guess planned wind down of their operations, you know, improve asset liquidity a little bit? You know, there's been so much uncertainty around Bed Bath. I'm just curious, you know, whether that does improve liquidity for transactions a little bit and whether, you know, you might be in a better position to sell or monetize certain assets either before signing leases, where someone else might take on the leasing risk or potentially after the backfill?
Well, there's really, there's two aspects to that question, Todd, and it is very, it's a really good question. The fact of the matter is what we've been selling are stabilized assets. We've gotten the best proceeds, you know, historically from core buyers that are looking at stabilized properties. We haven't really been a seller of vacancy. For us in particular, I think as we continue to recycle a little bit, you'll see us sell stable assets and buy growth assets. For the overall market liquidity, I completely agree with you that if there is a vacancy and there's a weaker tenant that's now gone, it's considered an opportunity for a buyer.
I think you'll see more opportunistic buyers go into the transaction market when they have something to do and something to grow the property. I wouldn't expect that that's going to be the type of property that we would be selling.
Okay, great. All right, thank you.
Thanks, Todd.
Our next question will come from Craig Mailman with Citi. You may now go ahead.
Hey, good morning, guys. Conor, I just wanna kind of clarify. I think you guys were 250 basis points of bad debt at the midpoint for Same-Store with initial guides. Is that still the assumption?
Hey, Craig. Good morning. It's come down modestly for a couple reasons. One, I made a comment that we are expecting higher occupancy over the course of the year, so visibility on some renewals is obviously higher today than it was three months ago. So that'd be point one. And then point two, just the calendar. You know, Bed Bath filing, they are going for a historically quick liquidation, right, two months. Now, obviously they've had quite a bit of time to prepare, so there is a chance they're able to pull that off. But as we just get later in the year, if someone files, it's gonna take three to five months or longer for them to wind down operations. That just puts less pressure on potential bankruptcy risk for the year.
The short answer is, it's come down modestly. It's closer to 225 basis points today than 250, but that's a function of our expectation for higher occupancy over the course of the year and just as we get later in the calendar.
As we think about the uptick in Same-Store NOI, really like 25 basis points from bad debt and 25 basis points from occupancy, is that how we should think about it?
Yeah. I mean, I think that's fair. I mean, you could swing it a couple basis points either way. I mean, I would just say, Craig, it's April 25th. David mentioned a number of kind of macro uncertainties we're seeing. You know, we're not trying to push things too hard here. There's a lot of time left, and we'll see how things go. Yeah, I think it's fair to assume it's a little bit of both.
Okay. On the leasing front, sounds like things are still going well. There's a lot of demand. I'm just kind of curious on two fronts. One, in the first quarter, was there any kind of change in cadence as we got into March and the banking issues kind of came to a head? You know, how does activity look in the first quarter? Secondly, I mean, is there enough space coming back from Bed Bath and Party City and some of these other retailers that would kind of be that outlet for demand going forward that could kind of sap some of the additional leasing you guys may have otherwise seen?
Craig, it's David. You know, as far as sentiment changes due to kind of the mid-tier bank drama in the last month, we really didn't see any change in the pace or the volume of lease negotiations. It just didn't seem to infect those conversations. I think if anything, the biggest challenge we're having is there's just not that much space left to lease. To your second question, I'll pivot to that. You know, getting back 17 locations in a portfolio that has zero available is really a great opportunity to upgrade credit. Right now, I would say there's more than 17 tenants that wanna take those spaces.
It certainly will take a little bit of pressure off of the valve of, you know, the demand for space because it'll satisfy some of those retailers. If, you know, 17 of 35 end up getting the space, there's still a leftover of those tenants that didn't get the space. Whether that's true across the country or whether that's just true in our 100 assets and, you know, wealthier suburbs, I don't know. I think for our portfolio in particular, I do feel like the demand right now is definitely higher than the supply.
I would say, Craig, one thing we've been really encouraged about in the last two years is the breadth of demand. I think we have a stat, like 75 anchor signs since the start of the pandemic with 46 different operators. What we're encouraged by is for that 17 spaces, there's the usual discounters and fitness operators, but there's also some, a wider spread, I would say, of folks that we don't normally do business with, which is really encouraging. Again, that could change to your, to your question around macro sensitivity, but we just haven't seen that yet to date.
Just last one, I guess to circle back to bad debt. Aside from kind of the bigger chain bankruptcies, kind of what does the shop credit look like? I know that bad debt was better than expected in the first quarter, is there any change in that credit profile, some of your smaller tenants? Kind of what are you seeing on that front?
Yeah, it's a good question, especially as we grow our convenience portfolio. Remember, we're still 88/12 national, local from a credit mix. We don't necessarily have the exposure to kind of the mom and pops. You know, all that said, that story has changed dramatically since the GFC, and there's just less kind of traditional mom and pop leasing, regardless of your property type. We haven't seen any pressure yet, but I mean, typically you see a general lag, a six-month lag between GDP growth and shop occupancy. If GDP growth starts to turn negative, you're gonna see some pressure on shop occupancy three, six, nine months from now. We haven't seen that yet, Craig, but it's a good question because it is a potential headwind in the future.
Great. Thank you.
Thanks, Craig.
Our next question will come from Haendel St. Juste with Mizuho. You may now go ahead.
Hey there. Good morning. Would 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 at in the both the convenience and maybe open air categories? I'm curious, you know, 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.
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 a convenience standpoint, there do seem to be, there's more inventory than I think in other formats. 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 tenants and good growth, you know, prospects, and we thought 5.5 caps were fair a year ago, it seems like those are 6.5 caps today. I think the ask has probably gone up 100 basis points.
The question I think the second question you ask is where would we transact? I think that really depends on the source of the funds to purchase that. You know, we are doing some minimal recycling, but it kind of depends of, you know, what we're selling at and what we think the growth profile is of the acquisition target. I guess to summarize, it feels like 100 basis points is probably fair from the ask side.
Fair enough. 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're seeing any of that. If perhaps it's just a function of tougher comps or any comments maybe on the consumer, any potential concerns there with that trend in the first quarter. Thanks.
Yeah. 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 twelve, 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. 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, you know, 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.
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. Sometimes the cell data that you're reading about nationally doesn't capture the really short trips. There has been a significant change of delivery services, in-store pickups, drive-thrus, when you add that to the customer traffic, it's a pretty convincing story that the consumer has changed.
Fair enough. Thank you.
Our next question will come from Alexander Goldfarb with Piper Sandler. You may now go ahead.
Hey, good morning. Two questions. Maybe, David, following up on Haendel's question on the shopper trends. If customers are shopping more evenly throughout the week, does this change the either the tenants who are interested in your centers or the way they merchandise? Thus, you know, maybe a tenant who was satisfied with, you know, one sort of format or space and configuration suddenly, you know, 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?
You would say, "Hey, this all just wraps up in increased tenant demands for space, so it really doesn't matter how the customer shops, the bigger overriding theme is just tenant demand." I'm trying to understand if there's a difference or not on the shopping trends versus overall, you know, tenant demand.
Well, it seems, Alex, and good morning, that there's two different categories. One are the more regional tenants, you know, the junior anchors that are drawing from 3 mi, 5 mi or 10 mi away. A lot of these have gotten very sophisticated with their in-store pickup or their delivery from store. They're 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 wanna get as close as they can to the households, recognizing that they're probably gonna 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 a drive-thru. 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.
Okay. The second question is on the rents. I hear you that, you know, we should expect leasing trends to slow, just as you guys literally have less space to lease. You know, it's hard to lease what you don't have. 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, you know, 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?
I think it's a little bit of both, but I'll, 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, you know, sometimes during a quarter, a tenant will leave that's paying single-digit rent, and we might have a 100% mark-to-market. When you, 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've seen in my career.
I mean, you know, as I mentioned twice now, you know, having 17 Bed Bath go away in a portfolio that has literally zero anchor space left, that defines pricing power. When you add on to that, the fact that, you know, in many cases our enterprise value right now is about half of replacement cost. I just don't think that you're gonna see a lot of supply come online when the rents to justify new construction of shopping centers would have to be 50% higher than the rents are today. That's another reason why I think there's pricing power. In the larger locations, you know, the larger units, we might choose credit. We do. We choose credit over, you know, total economics in many cases.
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 have expected a couple of years ago.
You see this play out, I think the best in our renewal spreads. We have quite a bit of tenants with options, right? Negotiated options that are either 0%, 5%, or 10%. 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 we're getting better than that. That for us is the most encouraging, where our renewal rates have effectively gone from, call it, mid-single digits closer to high single digits. That's a big change. 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.
Okay, thank you.
You're welcome.
You're welcome.
Our next question will come from Ki Bin Kim with Truist. You may now go ahead.
Thanks. Good morning. Just want 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. If, you know, for example, if they want to open like 10 stores, has that incrementally shifted at all to like eight? If deals are taking longer to get done?
Hey, Ki Bin. Good morning. It's Conor. You know, just 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 of availability. It's running about 300,000 sq ft today. That's up modestly from where it was last quarter at 250,000 sq ft. You know, 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.
I don't know how we can expand, you know, further from that point.
Okay. On your couple acquisitions this quarter, Foxtails and Parker Keystone, it looks like they're pretty well located convenience centers. Looks like they're pretty fully occupied. I'm just curious of what the upside looks like for you guys.
Well, that's a nice transition.
The cap rate, if you can disclose it.
Yeah. It's a nice transition from Conor's point about renewal spreads. When you see us buy a 100% occupied property in a wealthy suburb, there's a reason for that, and it's because it's a renewals business. you know, the shop renewals and the in-place versus the market, is extremely high in some of these high-income suburbs. The two that we bought this quarter, that's the story. It's a shorter WALT, and it's a higher mark-to-market. Our belief is that the NOI CAGR is gonna be higher than our overall portfolio at the same time with less cost to get there, less CapEx, because it's really a renewals business.
What is the year one yield?
Well, the year one yield for these two is somewhere in the mid-six's. I will say remember that I don't really think year one yield is all that exemplary of an investment in convenience when the business is a renewals business. When you take the year one yield, you factor in a shorter WALT and a higher mark-to-market, I think the unlevered IRR is probably a better way to analyze a property like this.
Okay, thank you.
Our next question will come from Floris van Dijkum with Compass Point. You may now go ahead.
Thanks. Morning, guys. Couple of questions. Obviously, look, you've done a really nice job, Conor, with the balance sheets, you know, de-risked the company. You talk about the fact that you've got interest rate caps on all of your floating rate debt. Maybe you can talk a little bit about the, you know, the maturity profile of those caps and, sort of, you know, as you're thinking about higher rates, what are the things that you worry about right now?
Hey, good morning, Floris. I worry about quite a bit right now, to our commentary.
Well, that's like throwing meat to a dog.
That's... You're talking to the right person about concerns. Look, I mean, there's quite a bit. To your point, we are worried about a rising rate environment. I know the forward curve shows a lower benchmark rate environment three, six, nine months from now. I just think we generally operate the business assuming rates are being higher. It is not our job to predict interest rates, and as a result, we generally have looked to hedge 100% of our capital structure or debt structure. For us, as I mentioned in my prepared remarks, we do have the May unsecured maturity, the stub bond coming up. Our plan is to pay that off with cash on hand in the line.
As a result of that higher line balance, we entered into an interest rate cap in the first quarter to cap SOFR at 5% the next year. That gives us the optionality and ability to wait for a window to term out that debt, to your point, to mitigate some of that future interest rate risk. Whether that's an unsecured offering, a secured offering, we don't know. We have the flexibility to go either direction. You're right, we are intently focused and acutely focused on making sure we have minimal interest rate risk and as much duration as possible. The good news is just given a company of our size, one offering, whether that's secured or unsecured, has a dramatic impact on our duration.
As you know, for the first couple of years we were here, we focused, one, on reducing leverage. Two, we are even more focused on pushing out our duration. Again, it's an acute focus of ours. One or two transactions can have a dramatic impact. We've been, I would say, overly cautious to making sure that our interest rate risk and duration risk are minimal over the last six years we've been here.
Thanks. Maybe, you know, one other question, to your convenience thesis. You said, okay, the cap rate might not be the right way to look at the latest transactions. You got 3% fixed rent bumps. Presumably, there's a, you know, 20%-30% increase on renewals as well on top of that. Does that get you into the sort of the, you know, the low double-digit re-total returns? Is that how you guys think about that?
Well, the factors you just mentioned, I mean, you certainly have fixed 3% bumps, but you've also got, you know, when we're buying properties, we're looking for tenants that have had long-term and aging properties, but they're running out of options, so they're naked renewals as opposed to, you know, fixed rent bumps. That's what drives a lot higher. I mean, I would say that on an unlevered IRR perspective, you know, we like to see it be double digits. But it's difficult to be competitive if you expect it to be, you know, mid-teens, simply because there's lots of other people that also see that same growth.
Yeah. Then of course, the fulcrum piece is the CapEx component. I mean, that's what is most intriguing to us, where we are very aware of the cap rate, the initial yield. What intrigues us on the economics of the business and why David's alluding to the fact that the cap rate is not telling the whole story is the lack of CapEx. A 6.5% for an asset we're buying in the convenience space might not be equivalent to a grocery anchored or lifestyle or power center asset at the equivalent yield.
Right. Maybe you guys mentioned something about, you know, when the economy has negative GDP, you tend to see small shop contraction. How does that play into your convenience thesis? 'Cause would your convenience portfolio get impacted disproportionately in such a scenario?
I don't think it'd be disproportionately impacted, but of course, it would be impacted. I mean, these are small shop tenants. Where we feel like there's mitigants from a risk perspective is the sub-markets we're operating in, the availability in those markets where there is, you know, limited optionality. The second piece is our national credit roster. There are cases where we buy 100% local assets, but the majority is still national to 70/30 national, local mix. Yes, it has exposure to all those factors we mentioned. Everything we own is economically sensitive, but there are quite a few mitigants that make us feel very confident in the investments we've made to date and the investments we'll make in the future.
Yeah, that's useful. Actually. How does that 70/30 mix, you know, national, local compare to your other centers that you have? Is it similar or is it a little bit higher national?
We're 80/8/12. We disclose it. I think it's on page two of the sup. Floris for the entire portfolio. Implicitly, probably the rest of the portfolio, the non-convenience is 90/10, low 90s, you know, high single digits, something like that.
and that's for small shop as well, or that's just, that's the overall point.
That's the whole portfolio. That's the whole portfolio.
Yeah. Yeah. Yeah.
I bet you small shops is probably a similar, I mean, for a larger regional center, you're just not gonna get a lot of local mom and pops. For our grocery anchor portfolio, we've got a mixture of national and locals, but again, it's not that different of a number between the two.
Okay. Thanks, guys.
You're welcome.
Thanks, Floris.
Our next question will come from Samir Khanal with Evercore ISI. You may now go ahead.
Hey. Good morning, everyone. I'm sorry, Conor, just wanna make sure on the G&A front, did you say that you thought it was gonna be $46 million for the year?
Yeah.
Because I know you guided for 40.
Sorry to cut you off there, Samir. I think the last quarter we said it was closer to 48. This is closer to 47. We were trending modestly ahead. There will be a sequential increase in G&A from the first quarter to the second quarter. We're running a little bit ahead of plan. Again, it's April 25th. You know, we feel a little bit better about the number, but nothing material change was.
Got it. Then looking at net effective rents, I mean, it was up a lot in the quarter. Was that just sort of a mix thing or like shops versus anchors, or was there something else going on there?
Yeah. So on that page, Samir, I always point people to the percentage GLA from shops and anchors, and you're exactly right. We have more shops. Shops have a higher net effective rent. As we get control of these Bed Bath locations, I would expect that number to come down because that GLA attributed to anchors will increase. Again, the factors that Flores and Alex asked about from in terms of rent growth, they're positively impacting that effective rent growth. For this quarter in particular, it really is just a mix issue.
Got it. I guess my final question, I guess to, David, you talked about sort of the 17 locations for Bed Bath, you know, maybe 16 sort of single users. Can you provide a little bit more color on sort of economics or rent upside you could see in these locations based on the interest? Now, I'm not asking for specifics, but generally, you know, what sort of upside do you think based on sort of the negotiation power you have here?
Yeah. I mean, based on what we know today, we think the blended mark-to-market is somewhere to 25%-30%.
Got it. Okay. Thanks, guys.
Thanks, Samir.
Our next question will come from Ronald Kamdem with Morgan Stanley. You may now go ahead.
Hey, guys. Good morning. This is Adam Kramer on for Ron. Look, appreciate all the color. I think everything was really helpful on kind of the retail front and bankruptcy front. We just wanted to ask about kind of the Bed Bath and, you know, kind of that mark-to-market I think you sided with those locations. Assuming that's kind of not in your, you know, signed but not opened, kind of number commencement schedule on slide six. You know, I'm really just wondering, you know, when we think out, you know, whether it's 2024, 2025, you know, kind of further upsides to the model, right? Further upside from that S&O, from that S&O schedule and how potentially Bed Bath locations can factor into that.
Hey, Adam. Good morning. It's Conor. Let me know if I'm answering your question. As of the first quarter, the $19 million SNO excludes any of the Bed Bath locations. We don't have any executed leases outside of the one we mentioned last quarter that Bed Bath already vacated in Princeton. Signing those obviously will have the lost rent from Bed Bath and then any new locations we sign will be additive to it. There's probably, I guess, if you could take the Bed Bath rent multiplied by 1.2, and that will get you kind of the net upside to base rent for the portfolio post, you know, Bed Bath coming back online. You know, David's point, it's gonna take us a year to get those open and rent paying.
You'll see a dip in occupancy before you start to see the SNO pipeline start to ramp. Let me know if I'm answering that question directly or not.
No, you did. That was super helpful. It makes total sense. Again, just trying to think about kind of upside to the model, right? As we kind of get, you know, whether it's 2024, 2025, just thinking about kind of further growth as you guys reach, you know, kind of these structurally higher occupancy levels. No, that was super helpful. Just the second one, you know, a little bit separately, right? Just thinking through capital allocation, recognize kind of 1 Q April transaction activity, you know, roughly, you know, roughly kind of match, you know, trades, right, on the acquisitions, dispositions. Is that kind of the strategy going forward, kind of, you know, roughly kind of netting out acquisitions and dispositions?
How are you thinking about kind of the buyback and recognizing you have that maturity coming up, how are you thinking about the buyback, given that you know, were a little bit active on it in the first quarter?
Well, yeah, this is David. The answer to your first question is yes. I mean, our goal generally in the near term is to be match funding dispositions and acquisitions. As we're completing that, and again, it's relatively small, we always have to look at where the stock's trading and make a decision as to how we're allocating capital. I think we make that decision, you know, on a monthly basis whenever we have capital to deploy.
Great. Thanks again, guys.
Thanks, Adam.
Our next question will come from Paulina Rojas-Schmidt with Green Street. You may now go ahead.
Good morning. If I heard well, I think you quickly mentioned before that you see the value of your company as I think you said half of its replacement cost. Can you elaborate a little bit on the idea of replacement cost? Is there a ballpark number you can provide for development cost per square foot for shopping centers like the ones you have today? If how you have seen that change over time.
Sure. Good morning, Paulina. Good early morning for you. Well, as far as you know, our value, you're probably at least equal, if not better than us to look at that. In terms of comparing it to new construction, you know, we've done some construction over the past year, especially, you know, post the cost increases of inflation, you know, both with labor and raw materials. I would say of the buildings that we've built in the last year, we're averaging around $500 a square foot to deliver these buildings, not including land. If you built an entire shopping center that had more anchor space, I think those costs would be a little bit lower on a per square foot basis.
Even down at $4-$4.50 a square foot ex land, that's kind of where I'm getting back to the ballpark of somewhere, enterprise value somewhere around half of replacement.
Very helpful. Thank you.
Thanks, Paulina.
You repurchase shares again this quarter. Indirectly related to that, I know it's hard to say in this environment, where do you see your stock trading today relative to NAV?
Hey, Paulina, good morning. It's Conor. Just on the share repurchase, as we said in our prepared remarks, effectively, we're reinvesting the proceeds from the fourth quarter, from the asset sales. I think it was $158 million, and we sold those at, I think it was a 6.7 blended cap rate. We took those proceeds and reinvested those in the stock and some assets and debt pay down. For us, I just have to tell you, our visibility and our confidence on, you know, selling at a 6.7 and buying at a higher number is really high. You know, in the last 6 years, I think we've only bought back stock on four occasions.
All four of those occasions have been related to disposition, where we sold at X and bought at Y. I would just tell you, we feel comfortable with that spread that we engaged at in the fourth quarter and as we wrapped up that program in the first quarter. Otherwise, we really have no additional comment.
Okay. Thank you.
You're welcome.
Our next question will come from Michael Mueller with JPMorgan. You may now go ahead.
Thanks. Hi. just two, I think, quick ones here. First, just on the Bed Bath. Conor, it sounds like by the end of June, we should assume roughly $7 million of rents go away, then guidance has those coming on within a year or so. Is that correct? Should we be thinking of.
Back end loaded, by the end of 2024 and just not a whole heck of a lot until then. That's the first question. The second one is, it looks like you have about eight redevelopment expansions that come online over the next year or so as well. Is there a shadow pipeline that you see kind of backfilling that pipeline?
Hey, Mike, good morning. On your Bed Bath question, it's our assumption that we'll lose that $7 million of rent as of the end of the second quarter. To David's answer, you know, to some of the first questions, we just don't know. Like some of those leases could get assumed. We don't know. I mean, the bankruptcy process, again, they're trying to wrap it up as quickly as possible. That would be in a historically quick process, though. Could it go beyond the second quarter? Of course, at certain locations. Our assumption is that you're right, it just all goes away. There could be some ancillary upside in the back half of the year, but if we're trying to move as quickly as possible and get these released, we probably wouldn't go down that path.
You're right, you would have downtime. I mean, there's nothing that we think would get backfilled this year. You're exactly right. Traditionally, you would have a fall opening at the end of next year. You would have lost rent from the third and fourth quarter this year and the first and second and maybe third quarter of next year. Obviously we'll see how it plays out. It's our assumption that they're gone in the second quarter. On your redevelopment question, the short answer is yes. These are smaller projects, call it $1 million-$10 million, we like them. We think they're incredibly accretive. They're 100% pre-lease generally, we feel really good about the risk reward and the economics. There is a shadow pipeline.
We talked about an asset we bought in Boca last year that there's a project we're working on. There's a couple other, longer dated projects or longer timeline projects we've been working on for some time. I wanna caution these are $1 million-$10 million projects. These aren't, you know, large scale, taking space offline, mixed use developments, but we're excited about them. We're doing them because we think the economics make sense. We're hopeful to add more, but it's a process. It's a slog. We've got a great team on it. You'll probably see a couple more get added over the course of the year.
Got it. Okay. Thank you.
You're welcome.
Our next question will come from Linda Tsai with Jefferies. You may now go ahead.
Hi. I think you said earlier, for the Bed Bath & Beyond centers, there's no in-line space available. You have 17 anchor boxes and then more than 17 tenants looking for spaces. Could you talk about some of those tenants? I think you also said that there were some that aren't ones that you typically see. More interested in those.
Yeah. Good morning, Linda Tsai. It's David Lukes. I think, you know, Conor Fennerty did a pretty good job, I think, at summarizing it before. There's a long history of discounters, taking locations, you know, very large national chain discounters, Ross, Burlington, TJX concepts. But in the last couple of years, what we've also seen is new concepts, many of which are sponsored by those investment grade companies. TJX certainly has sponsored a couple of new concepts. Same with Dick's Sporting Goods, same with Dollar General. We've seen new concepts that are IG rated that have started to become very active in the space. On top of that, we've seen more, you know, regional chains that have really good balance sheets that are anything from home furnishings to furniture to entertainment. The variety is pretty wide.
I mean, if you think about the number of anchor leases we've done in the last couple of years and the percentage of those that are new concepts or individual concepts, it's pretty high.
Thanks. Then would you expect to split those boxes, and would that require more CapEx?
At this point, I don't believe so. I mean, the size of the Bed Bath that we're getting back, it looks to us like the demand is a single tenant backfill. That's why I think in our prepared remarks, we mentioned out of those 17 locations, 16 of them appear to be single tenant backfills, and we feel pretty strongly about that at this point. The last one that makes up the 17 is really a redevelopment project, in D.C. Metro, where we expect to be using entitlements to get more densification, and we'll likely split that land and sell off a piece.
Thanks.
Thanks, Linda.
Our next question will be a follow-up from Haendel St. Juste with Mizuho. You may now go ahead.
Hey there. Thank you. Just one more, Conor, maybe. I understand the timing of the bad debt is one of the factors you've highlighted as a swing factor, but can you talk a bit about the expected cadence for the Same-Store NOI growth this year, below 2% at the midpoint? As we look ahead, given your SNO-related occupancy visibility that the band you're seeing, I'm curious what type of ballpark Same-Store NOI growth does that imply for next year? I think many of us have thought about this as a long-term 2% to 2.5% Same-Store NOI business. I'm curious if you guys think you can top that long-term average next year. Thanks.
Hey, Haendel, can you repeat the first half of the question? Sorry, I just missed that piece.
Sure, sure. Was hoping to get some color on the cadence for the Same-Store NOI guide that you've laid out this year. Understanding again that bad debt was one of the factors you've outlined as a swing factor, but just wanted to get a sense of the cadence for this.
Sure. There's two major factors, and you hit one of them on the head in terms of the SNO pipeline and the commencement dates. Page six on our slides has that laid out by quarter. You can see it's a cumulative chart. The fourth quarter is the most impactful, as I talked about, I think, as Mike's question. You know, typically you just have for a lot of the national anchors, a spring or a fall. This particular year has quite a few fall openings. It is back half weighted from a commencements perspective. The other piece is occupancy and what happens with bankruptcies.
Bed Bath, depending on, you know, Todd and Mike's questions, when they reject these leases, when they ultimately move out, it feels like the third quarter could be your trough from an occupancy based rent perspective. Then you kind of accelerate from there as rents commence. To your question on future years, future growth, look, we'll save that for 2024. I would just say as an industry in general, you have a set up just given what's going on with rent growth and the occupancy upside, given these historically high SNO pipelines for an above trend Same-Store NOI outlook. Now, let's see what happens to the economy. Obviously a hard landing, soft landing, we don't know.
You do have the ingredients between a lack of supply and I would call outsized SNO pipelines for the industry to do above 2%, above 2.5% for a number of years. I would say just kind of augmenting that or further accelerating that given, you know, I would say the accretion from our tactical redevelop pipeline, you could further add to that. I would just tell you, we're very macro aware. We're trying to be sensitive to the uncertainties we're seeing in the environment. You do have the ingredients for potentially outsized Same-Store for the sector for a couple of years now. We'll see what happens with the economy.
Appreciate the color. Thank you.
You're welcome.
This concludes our question and answer session. I would like to turn the conference back over to David Lukes for any closing remarks.
Thank you all for joining. We'll talk to you next quarter.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.