Federal Realty Investment Trust. (FRT) — Q1 2023 Transcript

Thanks, Leah, and good afternoon, everybody. Strong start to 2023 here with $1.59 first quarter FFO per share results, ahead of both consensus and internal expectations, and 6% growth over last year's first quarter. Also happens to be the best first quarter result we've ever posted. Here's the best part. We signed 101 comparable leases for more than 0.5 million square feet at $34.72 a foot, 11% higher than the cash basis rent the previous tenant was paying in the final year of their lease, and 24% on a straight-line basis. Demand was exceptional with momentum encouragingly strong at the end of the quarter, late March. As you know, I've been expecting the inevitable tail-off of leasing activity for months as the portfolio leases up. These activity levels exceed historical levels by 20% to 30%; we just plainly haven't seen that tail-off yet. The retail demand for the product that we offer is in lockstep with what today's consumers and retailers demand in these affluent first-ring suburbs of major metropolitan areas. One of the larger drivers of that leasing performance this quarter was the signing of four grocery deals, three new deals and renewals. The renewal was implied in the Boston suburb with Star Market and Albertsons brands. The new deals included Giant Food replacing Shoppers Food Warehouse, a grocer that I'm not allowed to announce yet replacing Michaels at Fresh Meadows and Queens, and Aldi replacing Barnes & Noble on Long Island. Together, these four deals turned $3.3 million in base rent or $17.81 a foot to $4.4 million in base rent or $23.40 per point. Strong rents and rent growth in proven productive centers in Northeast densely populated suburbs. The timing of them all getting done in the first quarter bodes well for the future. The Bed Bath bankruptcy filing news was not exactly welcome, but was inevitable and frankly, better than the band data is being write-off so that we can get on with creating incremental value in our shopping centers. There are many more productive retailers than this one that should be serving our customers. Deals are in the works for all of our Bed Bath boxes, and replacement rent should start to ramp up in late 2024. With average Bed Bath base rent at $15 a foot, rest assured that Federal's portfolio will be more valuable, not less, once these locations are retained. Dan will provide more detail on what we've assumed in our numbers. The natural lease expiration of a large-format Bed Bath & Beyond store at Wynwood Shopping Center in suburban Philly closed in January as expected and was the primary cause of a modest 20 basis point drop in occupancy in the quarter. That closure, along with a Tuesday morning in suburban Boston, which also closed when the lease expired in January, fairly overshadowed the many store openings elsewhere throughout the portfolio. Meanwhile, small shop occupancy gains continued on a quarter and increased 50 basis points, totaling a total increase in small shop occupancy of 270 basis points since Q1 2022. The quality of our shop tenants and the discerning way that we choose them at our properties is where we create a ton of value. All small shop tenancy is not equal. And as much as I love the grocery deals I mentioned earlier, it's the retail side of the big four mixed-use communities that I find most impressive. Taken together, Assembly Row, Bethesda Row, Pike & Rose and Santana Row are a real company differentiator for Federal and more in demand than ever before, with retail leased occupancy at 98% and tenant sales well above 2019 levels. These properties are with estimated foot traffic of more than 28 million shoppers in the trailing 12 months. That's a big number and comes from the database of Placer AI. Roughly two thirds of tenants report sales at big four, so the numbers are representative. Overall sales per foot totaled $700 with total food and beverage sales per foot in excess of $1,000. In our estimation, this is the product and the markets that consumers in a post-COVID world want the most. I know you've heard me say it many, many times before, but it's fair to repeat. Demographics matter, especially in times of economic pressure and especially now as the $5.5 trillion of government stimulus that propped up the economy during the pandemic is waning. Past cycles have convinced us that families simply have to have money to spend for retail real estate cash flow to grow. 68,000 households with an average annual household income of $150,000 sit within three miles of Federal Realty centers. That's $10.2 billion of family income generated within a three-mile radius, and more than half of those people have a four-year college degree or better. I know no other significantly sized retail portfolio that matches that. With the late quarter on the transaction flow, we sold a small grocery-anchored shopping center in the quarter for $13 million, a center located in very suburban Newberg in Pennsylvania as one of the latest three-mile population demos in our portfolio with an obvious candidate for sale. More interesting was our acquisition of the fee interest and the anchor tenant leases at Huntington Square Shopping Center on Long Island from Seritage Realty Trust for $35.5 million. Back in 2010, we had purchased a leasehold interest in the shop tenants with the hopes of someday finding a way to consolidate the anchors and the fee. With this first quarter transaction, we now fully control this 18-acre parcel in affluent East Northport on Long Island. As I mentioned earlier, we just replaced Barnes & Noble with an Aldi grocery store, creating another grocery-anchored property in the portfolio. With a $5 million-plus annual income stream on our $56 million all-in investment, we've created a much more valuable property with an unlevered IRR in the low teens and arguably $20 million-plus of immediate incremental value. You might have also noticed that after the quarter's end, we refinanced our $275 million in bonds coming due June 1, with a new five-year $350 million green bond at 5.375%. The offering was significantly oversubscribed with demand helped by our lead underwriters. Next up will be the financing or refinancing of our $600 million bonds coming due next year. We would expect to be opportunistically in the market at 400 basis points in the second half of this year. For an additional source of growth in 2021 and beyond, you only need to look at $600 million-plus of construction in process on the quarter-end balance sheet to identify a significant source of future income and capital already invested, much of it still not reflected in our results. What was reflected in the quarterly results was a $10 million property operating income contribution from the latest completed phases of some of our mixed-use operating properties, namely Assembly Row Phase III, 009 Roads at Pike & Rose and a full quarter stabilized Cocoa Walk. Finally, our floor-by-floor buildout at Santana West seems to be attracting more interest in the marketplace as inquiries and property tours have seen renewed life in the last 30 to 60 days. The tech sector in Silicon Valley is far from settled, but the increased activity is certainly welcome. We continue to see our fully amenitized office spaces in our mixed-use communities to be the product of choice in their respective markets. Okay. That's about it for my prepared remarks this morning, and I'll turn it over to Dan before opening it up to your questions.

Thank you, Don, and hello, everyone. Our $1.59 per share reported FFO was a first quarter record for Federal, and probably above our expectations and last year's $1.50 results, representing a 6% annual increase. Our performance again was broad-based as all facets of our business continue to contribute. Specific drivers, which deserve mention, include that overage percentage rent continues to outpace expectations as our retail sales demonstrate strength and resiliency. Parking revenues also saw gains above forecast as customer traffic at our large mixed-use assets continues to drive higher. Small shop occupancy again showed gains, and we saw lower expenses both at the property and corporate level. This was offset modestly by higher collectibility impact or bad debt expense was forecast. Our GAAP-based comparable POI growth metric was 3.6%, coming in at the upper end of the range of our 2% to 4% initial guidance. On a cash basis, comparable excluding prior period rent term fees is 5.2%. Cash basis comparable minimum rent grew by 4%. Term fees in the comparable pool this quarter were essentially flat to the first quarter of 2022 at $1.4 million in each period. Prior period rent this quarter was $1.3 million versus $2.4 million in the first quarter last year. Please note that we have added all of these figures to Pages 10 and 11 of our 8-K supplemental disclosure. Year-over-year occupancy results were also solid, with our overall occupied metric growing 140 basis points year-over-year from 91.2% to 92.6% and our lease percentage increasing 50 basis points from 93.7% to 94.2%. Sequentially, we took a small anticipated step backward given 1Q seasonality and two known anchor partners in January at lease expiration, which were reflected in our guidance. Our signed-not-occupied spread in the existing portfolio stands at 160 basis points as we continue to show progress in getting tenants open and rent paying. This spread represents roughly $18 million of incremental total rent. Our signed-not-occupied in our non-comparable pool also stands at $18 million for the total rent, bringing total signed-not-occupied to $36 million. This effectively brings our SNO percentage to a total of 3%. These executed leases will continue to drive bottom line results over the next two years, with roughly 65% coming online over the remainder of 2023 and the balance primarily in 2024. When you include new lease deals in our pipeline for currently unoccupied space, this increases the SNO figure even higher. Rollover for the quarter was 11% on a cash basis and 24% on a straight-line basis, the second consecutive quarter to have the cash number in double digits and a straight-line number up into the low to mid-20s. I highlight the straight-line number as it reflects sector-leading contractual annual rent increases embedded in our leases, both anchor and small shop blended at roughly 2.25% across the portfolio. Year-to-date, small shop rent bumps have averaged about 3%. Now to the balance sheet. We ended the first quarter with $1.3 billion of total available liquidity at quarter-end, comprised of $1.2 billion available under our revolver and $100 million of cash. As many of you saw, we successfully accessed the unsecured market subsequent to quarter-end with $350 million of five-and-three bonds, and as a result, no maturities until early '24. Also, keep in mind that for our term loan, whose initial maturity is also in 2024, we have two one-year extensions at our option, taking the maturity into 2026. With respect to our leverage metrics, our net debt-to-EBITDA ratio is roughly 6x, and we fully expect to be back to our targeted level in the mid-5x in 2024. Additionally, we are targeting free cash flow after dividends and maintenance capital to return to pre-COVID levels by next year. Our in-process pipeline of active redevelopments and expansions now stands at $740 million, with only $250 million remaining to spend against our $1.3 billion of available liquidity. Now on to guidance. With initial guidance to start the year showing FFO growth of 2.5% at the midpoint and 4% at the top of the range, and a solid first quarter under our belts, we are affirming guidance for 2023 at $6.38 to $6.58 per share. While we continue to see strength and resiliency in our business, with three quarters left for the year, it is rare that we would modify guidance at this point in the year. For the first time in almost two years, we are seeing tenant bankruptcies in retail as selective businesses struggled to compete in a challenging economic environment of higher interest rates and diminished government subsidies. Despite the bankruptcies to date, where we have manageable exposure, we still feel comfortable with our initial 100 to 135 basis points of total credit reserve comprised of roughly a 75 basis point general reserve and a 25 to 60 basis points specified Bed Bath reserve. Given where we started in May and the expected range of outcomes, this Bed Bath reserve has now been reduced to 20 to 45 basis points, given the cash rents we've already received on eight of our nine anchor boxes that have not yet been projected, including May rent. That range will depend on the timing of the bankruptcy process and which leases are affirmed and/or assumed, if any. From a comparable growth perspective, given a solid first quarter metric, we are affirming the 2% to 4% range for comparable POI growth as well as our 3% to 5% range on a cash basis adjusting for prior period rents and terms. Page 27 in our 8-K provides an updated summary of the key assumptions for our business. Additionally, in addition to the expanded disclosure on term fees and prior period rents that I previously highlighted, you'll also notice several other additions to our 8-K relating to revenues, comparable POI growth, debt, occupancy and leasing metrics, demonstrating our commitment to continuing to expand our disclosure to provide the information we believe is most relevant for investors to analyze our business effectively and efficiently. And with that, operator, you can open up the line for questions.

Just curious about the renewals, those popped up in the fourth quarter, if you look relative to the trailing 12. You also had lower TIs. Is that a mix? Or is that kind of a new normal? I know you mentioned some anchor leasing. Just curious if you can comment on that.

Yes. It was essentially a mix with regards to what was done during the quarter. One of them was the grocer renewal that we had up but also just a broader mix. And obviously, the TIs, again, a mix of the leases that got done.

I kind of wanted to talk about mixed-use and added residential. I noticed on your future development opportunity page, you've gone from six mixed-use projects that could add residential to now 14. What I'm wondering is, I've heard you say that one-third of your properties are mixed-use now. Where do you think you might be in five years' time? And the second is, will mixed-use assets grow faster in their rents than strictly retail ones? And what are retailers telling you about mixed-use? And what are the residential people telling you about mixed-use?

Boy Craig, that's pretty funny. I love how we limited it to one question. You have a whole white paper in that question there. You are the best. So a couple... Not at all. Don't apologize. I'm just having a little fun. Listen, what you see in the 8-K is a continuation of what we believe, and that is the ability, wherever we can, to maximize the use of the real estate that we own, especially when we're talking about successful retail shopping centers, and you know ours are on bigger pieces of land. And so the ability to add other uses is something that it's just part of our DNA and something we'd like to be able to do. Now I don't expect us to be running and putting shovels into the ground over the next nine months or twelve months at those projects because the economics don't make sense today. I do expect them to make some sense in the future, and that's what that is supposed to convey. Now with respect to the overall mixed-use properties, what we have clearly found is that the demand for lots of uses in both office and retail and residential, and frankly, at a really well-done mixed-use property is a real differentiator. It's where people want to be. It's why in the comments I made, I'm talking about traffic counts that are really enormous. These are a lot of visits there, a lot of sales. They also seem to have the ability to raise their prices in places like that more than that more value-oriented properties. And I guess you would expect that Apple in areas, the Lulu Lemons of the world, etc., they can raise prices. And as a result, we see the ability to charge higher rents there. Now if we did that right on the ground floor, then we should also see outsized returns, both in the form of occupancy and the rates that we're getting upstairs in the other users. That's been our experience, frankly, since COVID, I think it's even stronger than it was before COVID.

Yes. Don or maybe Wendy, just on the leasing side. I know this strength has probably surprised you, Don, things have remained healthy. Consumer spending has held up. I'm just wondering what you guys are hearing from tenants. You mentioned that maybe bankruptcies are picking up. I'm just wondering how you feel about the 75 basis point general reserve, and might you not use all of that as you sit here today just as you survey the landscape.

Steve, let me just add some color first before Dan talks about the numbers. But you're right, we're seeing great demand on the retail leasing side, specifically in the small shops. We have not seen a decline of anything considerable as it relates to people's ability to fund projects and make decisions. They're making decisions for the long term, and they're understanding that with these recession discussions, the headwinds that we're facing, the decisions that they're making are critical to their livelihood, especially for the mom-and-pop. So there's a flight to quality that continues to happen in our portfolio. So I'm feeling very bullish about what I see in our pipeline. Again, I honestly was expecting it to level off a little bit, and it has not. It is as robust as ever. So I'm very encouraged.

And I guess, Steve, I would only add to that. Yes, there might be some room in the 75 basis points. But I read the same things in the newspapers that you do, and it's May 5th or May 4th, or whatever day it is. By the way, Steve, my 25th anniversary at Federal Realty is today, so happy anniversary to me! It makes me laugh though because the power of the small shop tenants, and that Wendy mentioned is something I really want to make sure that you understand a little bit. We don't do kind of first-time mom-and-pops. We don't have those types of businesses here. They are almost always adding a store or adding a food use from a place that has strong cash flow at another location, whereby they're expanding into the third, or the fourth or the fifth. There is that flight to quality. That's a critical component. So if this is anything like whatever happens this year or next year is anything like prior recessions, this is one of the strongest parts of our portfolio and the place that differentiates us.

Happy 25th, Don! To celebrate, let's talk about office demand. Can you just talk a little bit more about the interest you're seeing in Santana West? This feels like a serious increase. Is it all tech whole building or by floor? Any additional color is helpful there? And then we'd also appreciate updated info on 919 lease-up and initial rent contribution expectations.

Sure. Yes. Greg, this is Jeff. Let me start off on the West Coast; obviously, Don can jump in on the second part of your question. So the business decision we made late last year to allow the building to be leased by floor-by-floor and to start building out the building, so we were a great alternative to the sublease space that's coming on the market that I'm sure you've heard about is working out for us. That combined with a little bit more of a settling, at least in the mid-sized tenant market as to what they're going to need in the way of office space, has caused tours to tick up, and we have paper going back and forth with a couple of tenants. So they're not full building tenants, but they are multi-floor tenants, and I don't know whether we'll get any of them to sign, of course, at this point, but there is activity, and I would call the activity very good. I'm really happy we made the decision we made to start building out more floor-by-floor.

Yes. And Greg, just to say the obvious, that is a difference in feeling. I don't think we could have said that. In fact, we didn't say it on the February call or maybe last November. So I'm really happy about that decision at this point too. Hopefully, it bears fruit. Time will tell. And with respect to 919, it's really interesting. On 915, we turned the building over the floors over to Choice. They are building out their space. We will have a contribution from them starting next year.

End of the year.

Sodexo has signed the lease, and we are almost ready to turn the space over to them. That process is going very well. Currently, over 60 percent of the building is fully leased. We are actively negotiating with several tenants for most of the remaining space. It’s intriguing, especially given the current negative sentiment around office spaces, to think that a segment of the market may actually be lacking supply. This segment includes mixed-use properties in desirable first-ring suburbs, which is exactly what we have. I'm quite optimistic about the progress we're seeing at Road, and it's similar at Assembly Row. With new developments at Santana West, I hope we will have more positive updates to share soon.

So now that you've entered Hoboken Phoenix, and I know you've mentioned you're not rushing to start digging any time soon. But as you deploy more capital, do you see more urban infill or population growth areas and maybe just how you think about the two different market types.

Yes, Conor. It certainly wouldn't be areas with big population growth. The problem with big population growth means that there's usually room for a lot more supply to be added. And we want to be in supply-constrained areas. There's nothing more supply constrained than Washington Street in Hoboken, and I love the investment that we've made there. We're just getting into the one redevelopment there, and we're hopeful we can effectively make the numbers work. I'm very encouraged by that fact. I would not, again, expect to see us under construction in the next month or two or something like that. But that project is going to make some sense. To the extent we can find more that makes sense in markets where we already are like that, we'll look at it all day long. But that's the type of thing that's far more attractive to us than chasing headcount.

This is Hassan on for Craig. The active mixed-use redevelopments all have a 6% projected return. How are you thinking about return thresholds for incremental project starts given the elevated cost of capital?

Yes. No, it's a very good question. I think I've answered this a couple of times, but think about it this way. We need incremental returns on top of our cost of capital in terms of development of at least 150 basis points from an IRR perspective, more like 200 basis points from an IRR perspective. The reason I keep saying IRR perspective is that the projects we do won't be done unless they grow faster. Our experience has shown us that those projects we are able to increase rents faster. The residential component is important with respect to that. But incrementally, once we get comfortable with what our cost of capital is going to be, I'd like a little more clarity from the Fed. Maybe we're getting a little bit closer that way on the debt side. On top of that, add 150 to 200 depending on the risk of the particular project from an IRR perspective. I hope that's helpful.

I guess could I ask about your shop occupancy at 90% leased? What is the gap between occupied and leased, and how much more will that number, can you drive that over the next two years? And how much more do you think that will increase maybe even this year?

Yes. The occupied percentage of the small shop is 88%. We would expect to be able to drive both of those up higher. I think that's a real opportunity, and up towards the occupied percentage above 90% and up towards north of 92% on the lease side. I think there's still more room to run on that in our portfolio.

I wanted to touch on capital recycling, primarily because it's such an important growth tool for REITs. And really, it's been hampered as you know, especially this year. But Don, with the Fed striking a pause here and some calling for perhaps a first round of cuts maybe in Q1 '24, somewhere around that time frame, do you think there's visibility in rates, and somewhat of a stability in rates can condense or narrow what must be a wide bid-ask spread? So you can maybe do some accretive acquisitions and reignite that growth engine later in the year?

I do, Derek. I mean, you said the word in your question; there has to be some level of stability. There has to be predictability. And without that, as there hasn't been, it's sure, the bid-ask is very different. That will change. Now it will change over time, and there are other things than just the Fed that dictate whether there is or an acquisition market that makes sense for a disposition market that makes sense, but it's not going to stay the way it is. So yes, I mean, we've run this business for a long time. We'll continue to do that. During those cycles, there will be a reversion to some level of stability that allows us to get stuff done. No questions.

Dan, you had a slight beat on FFO relative to the consensus. You are not touching guidance as it's still early in the year. I guess like what are you looking for over the next three months, or when we next speak on an earnings call, that would give you more confidence that you can take the year's expectations higher? And then separately, like what are you looking for that might give you a little bit more caution in terms of the outlook for the year?

Look, I think the biggest driver would be just continued strong leasing volumes. Our pipeline is as strong as it is large in terms of what's been executed to date this quarter and what's in the pipeline of executed LOIs. It's never been higher. If that continues, and we can see that continue, I think that will obviously give us some confidence. On the flip side, I think the market has some risk out there, particularly with regards to tenants and whether or not tenants will be able to weather this difficult economic environment, whether or not we see a continued uptick in bankruptcies. And I think that balance, we've done very well balancing that. We have managed to have very little exposure or, on a relative basis certainly, but just in absolute terms in terms of our exposure to those bankruptcies; we hope that continues.

This is Ravi Vaidya on the line for Handel. I hope you guys are doing well. Just wanted to comment and ask about the signed not occupied spread. You currently are at 160 basis points. Would you view this as a long-term steady state for what SNO could be?

Look, we've done an exceptional job, I think, of bringing our SNO metric down from north of 300 basis points in our existing portfolio down to 160 basis points. We'd like to get that tighter. We'd like to get that down to 100 basis points to 125 basis points. One of our differentiators though, is that we have an SNO space that is yet to be delivered from our large redevelopment and expansion pipeline that is equal to that size. So we have $18 million in the existing portfolio, and $18 million of total rent in our development, redevelopment and expansion pipeline, and that equates to over 300 basis points. I think that's pretty compelling. And I don't think anybody has a redevelopment pipeline that has the pre-leasing that has been done, where it's something that is a real differentiator because we've got scale. That truly, I think, the equivalent of what's in the existing portfolio and what's in the redevelopment portfolio is effectively 300 basis points or more.

Just a quick question on occupancy. I think last quarter, you talked about potentially pushing economic occupancy above 93%, maybe in the mid-93s by year-end. Just wondering if that's changed given the Bed Bath announcement and your views on near-term bankruptcy risk in general.

Yes, it depends on our nine anchor boxes; we've only had one lease rejected so far. We'll see how it develops. If there is a complete liquidation, our occupancy percentage will likely drop from 93% to around 92%. It's difficult to predict which leases will be purchased during the liquidation, and we hope to have more clarity on that as the bankruptcy process continues.

Don, you have talked about how you believe your portfolio outperformed peers in an economic downturn. You have highlighted how affluence and good demographics are a key driver behind that. But are perceived perhaps as a vulnerability is your slightly higher exposure to more cyclical categories, restaurants, and a little bit more foot price apparel. So could you please provide a little bit of a history lesson on how these segments have performed historically in downturns in your portfolio to have a better understanding of how the overlap between high demographics and cyclical categories perform?

Thank you for your question. In my prepared remarks, I made a point about how mixed-use properties with generally higher-end tenants perform. We've observed that retail real estate is very localized. In the specific markets where we operate, both historically and currently, there has been an increase in sales. Importantly, during inflationary periods, these tenants are often able to raise their prices. If we consider aspirational tenants like Lulu Lemon, they have significantly increased prices over the past couple of years compared to retailers like Big Lots that target a lower demographic, where it's more challenging to implement price increases. This is crucial for all aspects of our business, including restaurants. Looking back, during the 2008-2009 financial crisis, there was concern about our portfolio because of our higher number of restaurants and lifestyle brands. It turned out these categories performed the best for us during that time. Currently, our mixed-use properties are seeing restaurant sales of over $1,000 per square foot. This success is partly due to their ability to raise prices and the significant volume they handle, enabling them to cover the rents we charge and more. We believe this trend will continue. We are a smaller company compared to our competitors, and we maintain close relationships with our tenants. We understand the strategies they are using to navigate tough economic times, which gives me confidence. We've been in this business long enough to recognize patterns, and I expect our performance to align with historical behavior. I hope this information is helpful.

Congrats on a solid quarter. Don, last quarter, when you talked about dispositions, it sounds like there was a pipeline of a little bit over $100 million or so you were working on. I think this quarter, you announced $13 million of it done. Could you talk about the rest of the pipeline, what's kind of happening there, whether it's taking a little bit longer to close deals because of the shakeout in the debt market? Just give us a sense of maybe what's kind of happening on that front?

Yes. We have and continue to have a list of assets that we would recycle as a component of our business plan. We have that list in good times and bad times in terms of what it is. So those are not a lot of properties, but they are a few that we look at. That's what we talked about last quarter, last year, etc. We need to get comfortable that we're going to get paid well. In going through that process, we couldn't get comfortable on as many of those assets as we thought we could. That doesn't mean they come off the table. That just means pursuant to the question that was asked a little bit earlier, once there's some stability and understanding of the general market conditions, you'll see a pickup in the disposition side of our business.

I'm not sure if you look at it this way, but I think one of your peers talked about the average rents in their SNO pipeline. I was just wondering if you had a number for that for yours.

Probably on a total rent basis in the kind of the low to mid-20s and probably mid- to upper-30s on a base rent basis. But we can come back to you with more precise numbers. I don't have them exactly here.

Don, a number of years ago, you guys expanded into the Hispanic centers out in California. I'm looking for an update on that. The Korean markets, like the H Marks of the world, seem to also be a pretty powerful anchor, and those shopping centers also seem to have that cult-type following. Do you see expanding into more of the Asian and Hispanic centers? Or has your experience so far with what you bought a number of years ago not panned out the way you thought?

Thanks, Alex. It has worked out as we anticipated, and likely even better, considering we did not foresee a global pandemic. Those properties performed exceptionally well during the pandemic. The answer to your question truly relies on finding the right local partner. It also depends on the market, as we need to feel comfortable working alongside a partner who shares our views on property management. Prime Store has proven to be a great partnership. We faced challenges in adding more to it; we had aimed to expand, but individual deals need to make sense, and we didn’t find any that do. However, those assets perform very well. I will actually be visiting Prime Stores on Monday of next week. That aspect has worked out quite well. When it comes to other property types in demographics that we are less familiar with, finding the right partner is crucial. These are significant real estate decisions that must be managed, leased, and developed according to local market conditions. Without familiarity, we risk incurring losses. Therefore, it is essential that we have the right partner, which we have yet to identify.