RPT Realty (NYSE:RPT) Q3 2022 Earnings Conference Call November 3, 2022 10:00 AM ET
Company Participants
Craig Benigno – Investor Relations
Brian Harper – President and Chief Executive Officer
Mike Fitzmaurice – Chief Financial Officer
Conference Call Participants
Derek Johnston – Deutsche Bank
Todd Thomas – KeyBanc Capital Markets
Wes Golladay – Baird
Linda Tsai – Jefferies
Haendel St. Juste – Mizuho Securities
Mike Mueller – JPMorgan
Craig Schmidt – Bank of America
Operator
Greetings and welcome to RPT Realty Third Quarter 2022 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded.
I would now like to turn the conference over to your host, Craig Benigno, Senior Analyst, Investor Relations. Please go ahead, sir.
Craig Benigno
Good morning and thank you for joining us for RPT’s Third Quarter 2022 Earnings Conference Call.
At this time, management would like me to inform you that certain statements made during this conference call which are not historical may be deemed forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Additionally, statements made during the call are made as of the date of this call. Listeners to any replay should understand the passage of time by itself will diminish the quality of the statements made. Although we believe that the expectations reflected in any forward-looking statements are based on reasonable assumptions, factors and risks that could cause actual results to differ from expectations.
Certain of these factors are described as risk factors in our annual report on Form 10-K for the fiscal year ended December 31, 2021, and in our earnings release for the third quarter 2022. Certain of these statements made on today’s call also involve non-GAAP financial measures. Listeners are directed to our third quarter 2022 press releases, which include definitions of those non-GAAP measures and reconciliations to the nearest GAAP measures and which are available on our website in the Investors section.
I would now like to turn the call over to President and CEO, Brian Harper; and CFO, Mike Fitzmaurice for their opening remarks, after which we will open the call for questions.
Brian Harper
Thanks, Craig. Good morning and thank you for joining our call today.
We are happy to report another solid quarter across all elements of our business. Overall, we are operating from a position of strength. Our capital recycling efforts for the year are now complete. We have closed on about $225 million of acquisitions located primarily in Boston and Miami that were funded on a largely leverage and earnings neutral basis with asset sales in Chicago, Detroit and Columbus.
The balance sheet is in great shape. Today we have no debt maturing until 2025 roughly 95% of our debt is fixed and we have a clear pathway to leverage in the low-6s as signed not open or SNO commences. Our SNO balance jumped 60% since last quarter to a record high of $14 million led by another strong quarter of leasing volume that pushed our lease rate to 94%. SNO represents about 8% of annualized third quarter NOI giving us strong visibility and healthy organic growth in the 2023 and beyond.
In the quarter we closed on the transformational acquisition of Mary Brickell Village in the heart of downtown Miami. We have been actively integrating this asset into our portfolio through our in-house design studio as well as with Gensler, a leading architectural firm. We have developed placemaking and modernization plans that will help drive our significant mark-to-market opportunity at MBV. Today, we are thrilled with the tenant demand at this asset and are experiencing unsolicited strong interest from world-class operators.
Recent lease comps are over 50% above our underwriting, and we are currently in negotiations with several first-to-market tenants at rents in the $130 per square foot range. As a result, we are being extremely measured in how we strategically curate the ideal mix of tenancy. Our goal is to deliver the best possible customer experience that results in optimal foot traffic, sales productivity and rents. Longer term, Gensler is also helping us envision the future at Mary Brickell, which will include significant densification. Our site is zoned for up to 4.1 million square feet of residential, office or hotel use, which gives us great optionality for future value creation. Simply put, Mary Brickell is stronger and has significantly more upside than we originally thought.
Turning to our value-enhancing remerchandising, redevelopment and outlet expansion pipeline, today, we have roughly 14 active projects totaling $57 million that are expected to generate a weighted average return on cost of about 10%. Due to the demand at our centers and our hands-on asset management approach, this set of opportunities has increased from effectively zero at year-end 2020. Last week, we closed on the contributions of two Midwest assets into the grocery-anchored joint venture. These sales provided earnings neutral funding for Mary Brickell after factoring in management fees, and signed leases scheduled to open next year. This is on the heels of selling two assets located in Chicago and Detroit during the third quarter.
Before turning the call over to Mike, I wanted to provide some additional color on two retailers that have been in the news as of late. That’s Regal and Bed Bath & Beyond. We have a proven track record of proactively recapturing space and releasing to higher-quality tenants at double-digit returns. These opportunities are no different. We are playing offense given the robust demand at our centers, and the leasing team is firing on all cylinders. At the end of the quarter, we had three leases with Regal that are paying us $25 per square foot and account for 2.4% of ABR. All three are freestanding, making them easier to backfill or repurpose if needed.
By way of example, during the third quarter, we proactively recaptured a Regal at River City Marketplace in Jacksonville that we released to BJ’s Wholesale Club. Not only will this trade significantly improve the credit of the asset when the BJ lease starts in early 2024, but it will also more than double the cash flow we are getting from Regal. Additionally, we expect cap rate compression for the overall center given the upgrade in tenancy. This is a great example of how the pandemic created an opportunity for us as we were able to obtain a recapture rate as part of our deferral negotiations with Regal. Our remaining locations are at Deerfield Towne Center in Cincinnati, Providence Marketplace in Nashville and The Crossings in Boston with expirations in 2026 and 2027. Each of our remaining Regals are strong performers that are well situated within their respective markets and have experienced strong improvements in traffic since 2020 and year-over-year. In the case of The Crossings, the closest national theater is over 35 miles away.
Regarding Bed Bath, we have eight Bed Bath and four buybuy BABY stores in the portfolio that account for 2.4% of our ABR. Our stores have a low average ABR per square foot of $11.59, which is about the lowest rent amongst our peers. We believe replacement rents would be in the mid-teens, providing a strong mark-to-market opportunity. We have seen good demand for each of our locations from a wide range of tenant types, including grocers, discount apparel, home furnishings and sporting goods. Given the overall supply demand imbalance for high-quality retail real estate in strong markets and our below average in-place rents, we see this as an opportunity to drive earnings and improve tenant quality over time.
With that, I’ll turn the call over to Mike.
Mike Fitzmaurice
Thanks, Brian, and good morning, everyone.
Our balance sheet is in great shape and puts us on strong footing and thrive in today’s environment. Liquidity is high, and we expect it to be about $425 million at the end of the year. Liabilities are low as we have no debt maturing until 2025. Leverage is getting better. We’ve ticked down to 7.0 times this quarter. Including our SNO balance of $14 million, this week’s revolver pay down of $80 million and undrawn forward equity of $16 million, our net debt to adjusted EBITDA would be 6.0 times. This puts us squarely at the midpoint of our long-term range. And lastly, today, we only have roughly 5% floating rate debt, eliminating [ph] our downside risk to a rising rate environment.
Financial results are coming in just above plan. Operating FFO per diluted share of $0.27 was flat versus last quarter despite the outsized bad debt expense related to Regal’s bankruptcy filing in September. Of the $576,000 of bad debt that we recognized during the quarter, $557,000 was due to Regal. Of note, same-property NOI was 1.6% for the quarter, putting us at 5.4% year-to-date. We continue to opportunistically take advantage of the strong leasing environment. We signed 85 leases totaling about 700,000 square feet in the quarter. This brings our year-to-date leasing volume to 1.7 million square feet, putting us on track to hit our highest yearly leasing volume since 2014. We generated renewal lease spreads of 8.5% and 7.0% during the third quarter 2022 and on a trailing 12-month basis, respectively.
These spreads demonstrate that a limited supply of new retail construction over the last several years is allowing us to drive rent on renewed deals with less CapEx and no downtime. Absent the purposeful recapture of spaces that we expect to remerchandise, our retention rate for 2022 is expected to be about 88%, well above historical rates. The robust leasing activity drove our signed not commenced balance to $14 million, an increase of $5.2 million or 60% over last quarter. To be clear, our SNO represents rent and recovery income for spaces that are currently vacant. Over 50% of this record level SNO comes from essential tenants as well as leases with best-in-class retailers such as Sierra Trading Company, Burlington, BJ’s Wholesale Club, Publix, Giant/Ahold, Sephora and Ferguson Gallery. Our SNO backlog will provide earnings tailwind through 2025 with a total incremental benefit to operating FFO expected to be about $0.15 per share, up from $0.09 per share last quarter.
We expect $0.01 to come online in the fourth quarter of 2022, $0.08 in 2023, $0.05 in 2024 and $0.01 in 2025. Our leasing success resulted in a sequential uptick in our lease rate to 94%, up 70 basis points and 150 basis points year-over-year. This pushed our leased occupied spread to 510 basis points, the widest spread since we began tracking the stat. Our occupancy did tick lower this quarter due in large part to the proactive recapture of two anchor spaces: Regal at River City Marketplace and Pottery Barn outlet at Northborough Cross, which have already been released to BJ’s Wholesale Club, Marshalls and HomeGoods. These proactive and planned recaptures reflect our long-term mindset of improving sustainable cash flow, credit quality and merchandising mix.
Turning to guidance. Given the better-than-expected performance in the quarter, we are raising our operating FFO per share guidance to $1.02 to $1.05, up from $1.01 to $1.05, a $0.005 increase at the midpoint. Additionally, we are raising our same-property NOI growth assumption range to 3.75% to 4.25%, a 50 basis point increase at the midpoint. We do expect operating FFO to decelerate in the fourth quarter due to previously discussed asset sales in Detroit and Columbus. Also, our incentive compensation is not finalized until the fourth quarter, which could result in an uptick in G&A expense in the fourth quarter, similar to what we experienced in 2021.
And with that, I will turn the call back to the operator to open the line for questions.
Question-and-Answer Session
Operator
Thank you. [Operator Instructions] We have a first question from the line of Derek Johnston with Deutsche Bank. Please go ahead.
Derek Johnston
Hi everybody. Good morning. Just wondering how Mary Brickell is tracking versus the initial underwriting versus the initial plan. You do still have some vacancy there. So besides that, what type of merchandising mix or what does the center need in your opinion?
Brian Harper
Yes. Thanks, Derek. With Mary Brickell, we knew we had something special when we bought the asset. And as I said in my prepared remarks, now our opinion is even much greater. I think it’s – pointed out is, given the zero supply of space in the Brickell market, which is considered one of the hottest submarkets in the country, the demand is astonishing. The sales coming from this trade area rival both Manhattan and Vegas. Food and beverage alone in Brickell does $0.5 billion in sales, and international American retailers want a presence in this submarket. Brickell, really in the last two years, has now a desired location similar to areas such as Design District and Aventura, and we see that even improving.
We need to keep in mind that the center is only 200,000 square feet. So this, coupled with the zero supply of space, the top-tier sales and – it allows for extremely favorable pricing power for landlords. In my prepared remarks, I mentioned $130 triple net for rent. We see this even gaining higher when we proactively recapture the space. As tenants expire, we will see significant mark-to-market in this $45 ABR center. Right now, we’re really laser-focused, Derek, on like the design Phase 1 with Gensler and the placemaking of the center, and we are negotiating a few deals with first-to-market, even really first to U.S. concepts. To say the least, this center will deliver significant NAV for our shareholders even prior to any densification. And just really to sum this up, we see this as double-digit unlevered returns before we go vertical. So it is much stronger than any of us thought when we underwrote this at $76 a square foot.
Derek Johnston
Got it. Thank you. That’s helpful. And just a little bit on the private markets, certainly, transaction volumes have really fallen off a cliff here. You guys were very active this year intelligently to do it at front-loading, clearly. But what can you tell us about private markets right now, the bid-ask between buyers and sellers? And I thought it was interesting that you said you’re most likely done for the year, but any color there is really appreciated? Thanks guys.
Brian Harper
Yes. I mean I think this is a wait-and-see approach at sellers and owners. Sellers and buyers looking at each other and who blinks first, it’s a pricing discovery. I think the smaller, more tangible, maybe grocery or core power urban infill; call that 50 bps of widening, the rest is too early to tell. But we’re sitting and observing right now and really focusing on firing on all cylinders on the operational front, just given the large SNO pipeline that we anticipate even growing even further. Thanks.
Operator
Derek, do you have any further questions.
Derek Johnston
No. That’s it for me. Thanks guys.
Operator
Thank you. We have a next question from the line of Todd Thomas with KeyBanc Capital Markets. Please go ahead.
Todd Thomas
Hi. Thanks. Good morning. First question, I guess, Mike, on guidance. So the revised guidance implies fourth quarter OFFO of, I think $0.235 that compares to $0.27 this quarter. You talked about incentive comp, some of the asset sales or dispositions or contributions. Can you just provide a little bit more color, I guess, on the step down that you’re expecting from $0.27 to $0.235 at the midpoint? And also, any considerations around 2023 that we should be thinking about for the model?
Mike Fitzmaurice
Sure. I think you hit it right at the head. It’s really those two elements that are causing the deceleration into the fourth quarter. It’s about $0.02, Todd, from the sale of Shops on Lane in Troy, plus about a half quarter from the sales we did in the in the third quarter, second quarter, sorry, with Mount Prospect and a few more assets in the Midwest part of the country. And then another $0.02 is going to come from G&A. So that really kind of urges you from the $0.27 to the $0.23. And as you think about next year, I mean, at this point in the year, especially in today’s environment, there are some knowns and unknowns. The biggest known for us, the least amount of risk is our signed not commenced backlog, about $14 million, which is expected to contribute about $0.08 next year, about $0.03 in the first half of 2023, and $0.05 in the second half. If you layer on that implied fourth quarter run rate of about 23%, that puts you right at $1 and that’s a good place to start. And there’ll be puts and takes from there, which will offer more clarity on our February call in 2023.
Todd Thomas
Okay. That’s helpful. And then maybe we could just shift to the leasing environment a little bit. Brian, I’m curious if you’re seeing any change at all, any let down in tenant demand or in the conversations that you’re having. And then sizable increase in the SNO pipeline that you talked about, can you talk about, I guess, the leasing pipeline for what’s in advanced negotiations, what’s behind that SNO pipeline, whether you feel that you can continue to build that leasing backlog from here as economic occupancy continues to improve?
Brian Harper
Yes. Let me tackle the demand. It is as robust as I’ve ever seen in my career and I think that comes down to a few things. One, supply and demand, currently there’s virtually no new supply, which is incredibly supportive for landlords with Class A product, which we have. Two, retailers are much healthier going into this recession. Our portfolio is much stronger than before, just given the geography changes. I mean we’ve sold one-third of our portfolio. We now hold core holdings in cities like Boston, Miami, Tampa and Atlanta.
A lot of this in that SNO, 62% of our SNO bucket is in Florida and Boston. Another 10% is actually in Detroit, which we have Class A product there. And like the final point on just demand, it comes down to occupancy costs. And having a low ABR portfolio like us, I mean, that really helps us drive the leading – sector-leading spreads, which we’ve done since we’ve been here in any environment, in the good times and in any recessionary environment. So I very feel there’s been no select slowdown. We’ve been signing leases even yesterday. The demand for future called the shadow. We are in advanced lease negotiations with several grocers and even home improvement. So it’s as robust as our SNO schedule. So we feel very good going into 2023. And certainly, a lot of this is going to hit end of 2023 and well into 2024.
Mike Fitzmaurice
And Todd, a few things I would add there. I mean, today, we’re 94% leased, and we think we can get this portfolio to 95%, 96%, which represents another couple of percent of leasing, which is about $4 million to $5 million. $2 million, to Brian’s point, we are in active negotiations on the legal front or in LOI. So we’re about almost halfway to that 95%, 96% goal. And a lot of that’s going to come from a small shop, I mean today, our anchor lease rate is about 96.7%, so we got a little bit of opportunity there to get that closer to 98%. But really, it’s a small shop, and today, we leased it at 87.2%, and just too kind of give you some math on what that opportunity looks like, for every 1% increase in that rate equates to about $875,000 in rent, which is about $0.01. So it’s pretty material to our portfolio. And then the trifecta effect you get from small shop is the higher ABR per square foot. You get the better escalators of 3% to 4%, and you also get a higher recovery on those expenses. So we’re pretty excited about the opportunity ahead of us.
Todd Thomas
Thanks all.
Operator
Thank you. We have next question from the line of Wes Golladay with Baird. Please go ahead.
Wesley Golladay
Hey good morning to everyone. I just want to look at this very highly uncertain economic backdrop. Does this change how you’re going to approach leasing? I get that it’s really strong on the ground that you’re seeing, but there is some deterioration going on in the background that may not show up until probably next year. I’m just wondering if you’re going to – when you do these leases, are you pulling back from any categories. Or are you saying, hey, let’s just target the best risk adjusted returns, which maybe Mary Brickell Village? Any change in the leasing dynamics over the last few quarters?
Brian Harper
Sure. I mean we’ve always been laser-focused on credit, especially IG credit. And when you look at a lot of the SNO, whether that’s the lululemons of the world to the T.J. Maxxs to the Publix to the Aholds, we’re very focused on that. So I mean, Wes, I look at this leasing and I look at where I can get the highest return possible. Small shop leasing in our SNO, we roughly average 40% return on cost. Our anchor deals in the SNO roughly average 15% return on cost. That’s a total of 20% return on cost. That coupled with our redev remerchandising at a 10%, that’s a good business. And so we have a team just analyzing the credits of all of these retailers of which we’re doing the leases with, and so we’re very, very focused. And there will be more scrutiny, certainly but right now we’re all focused on operation and our organic growth.
Wesley Golladay
Got it. And then when you look at recapture spend, that’s been a big part of the story this year. You got ahead of some of the bad credits. Would you look to continue recapturing? Or are you just now going to wait for these things to naturally come together?
Brian Harper
Yes. I think we’re – we play active asset management, almost like we are hands-on, boots on the ground, looking at space-by-space biweekly with a CRM program that rolls up to me. The status of the local tenants, the status of the regional tenants, the status of – I mean, we have knowledge in every space. So whether it’s your boxes or whether it’s small shop, we have a general idea of how well they’re performing. And our goal as landlords is to recapture and drive a merchandising mix that effectuates higher sales but also grows cash flow. And if there’s an opportunity to recapture, call it, a Bed Bath proactively and replace with a grocer, replace with a TJX concept, replace with a Total Wine, that’s something we’ll look at.
Mike Fitzmaurice
Yes. And generally, we will make these decisions [indiscernible]. I mean look no further than what we did here in 2020. Two, we took back about 300,000 square feet of space this year from a purposeful perspective. And that’s already been all leased. And we’re talking about Giant/Ahold. We’re talking about Publix. We’re talking about Sierra, Marshalls, HomeGoods, BJ’s Wholesale, so that’s the recipe, and we’re going to continue that if it makes sense as Brian noted.
Brian Harper
I mean in summary, Wes, we’re on offense on leasing.
Wesley Golladay
Okay. Yes. And I guess a bigger picture question on that. Is it just easier now to recapture? Are they harder to negotiate? You have to pay less now that you know that these – some companies are clearly saying, we’re going to shut down stores. You may be actually helping them out a little bit to shrink their footprint. So I just wonder if it’s monetarily a little bit…
Brian Harper
It’s never easier. Some of the tenants – I wish it was easier, to be honest. But I think a couple of things. It’s always good where the tenant, you can double dip and maybe write you a check to get out, where we have a tenant lease in hand on the other. And two, it’s very few tenants in our cash flows are having issues. So we actually, I would say, 90% of the time try to recapture space and get turned down. So this will be selective. This will be with precision, and this will be using the highest return that we can get, given CapEx is fragile.
Wesley Golladay
Got it. Thanks everyone.
Brian Harper
Thanks Wes.
Operator
Thank you. We have next question from the line of Linda Tsai with Jefferies. Please go ahead.
Linda Tsai
Hi. Thanks for taking my question. Given the 88% retention ratio, you’re at 94% occupancy. Do you think you could get to 95% by year-end 2023?
Mike Fitzmaurice
Look, I think it’s too early to tell on the occupancy front. From a lease perspective, I think there’s a shot. But like I was talking to – discussion with Todd, I think there’s some knowns right now and there’s some unknowns. The most – the best known item for us right now is that signed not commenced, which is going to absolutely grow our occupancy. And as Brian and I both commented on, we have several million of leases in negotiation that should continue to push that leased rate.
Brian Harper
And I think a couple of things, Linda, too. If you look at our supplemental, specifically look at Delray and Broward. These deals are 60% and 70% leased. We have a market-leading share grocer for both. These are $17 ABR centers that we see growing to mid-30s, so really two special pieces of real estate that are currently low occupancy that you’ll see a big increase in that leased occupancy here in the short-term.
Linda Tsai
Got it. And then it sounds like that $14 million SNO pipeline really creates a healthy cushion. So against that kind of background, how do you think about bad debt for 2023? And would you create a reserve for Bed Bath & Beyond?
Mike Fitzmaurice
I think it’s too early to tell with Bed Bath & Beyond at this point. Again, we are very happy with our locations. I think Brian commented in his prepared remarks that we’re – those are above-average stores. But in the event we do get them back, its low ABR per square foot presents us a huge opportunity. As far as the bad debt goes, I mean, this year, ex- the favorable benefit we got from prior period collections, we’re on track to meet our 100 basis points of revenue as what our bad debt recognition will be for 2022. And I don’t expect that to change going into next year absent Bed Bath & Beyond.
Linda Tsai
Got it. And just one final question for Brian. When you talk to retailers, how are they thinking about store opening plans as they look to 2024? Is inflation or cost pressure part of their consideration?
Brian Harper
I mean we’re looking at – I mean, certainly, that comes up. And I think really having that low ABR portfolio helps. We will be able to still drive rent, still allow them for healthy occupancy costs, given increases in their labor and costs. So it’s a meeting of the minds on that. And just given the low ABR and kind of the high-quality portfolio we have, I think that’s a benefit. We’re really looking even – we’re signing leases for 2024 and maybe even talking on some locations for 2025 right now, Linda. So it’s really looking outer years, too, and there’s been no let down at all.
Linda Tsai
Got it. Thanks.
Brian Harper
Thank you.
Operator
Thank you. We have next question from the line of Haendel St. Juste with Mizuho Securities. Please go ahead.
Haendel St. Juste
Hey there. Good morning. Just a few follow-ups from my end. First, I guess I wanted to get some clarity on Regal and Bed Bath. Do they pay rent? I guess, said differently, did they not pay rent in September? And are they current on October and what do you expect for November? Thanks.
Mike Fitzmaurice
They did not pay September rents, and that’s across all their landlords. They did pay us October, and we fully expect them to pay November and December.
Haendel St. Juste
Okay. Thanks. And that’s Bed Bath and Regal?
Brian Harper
Bed Bath has paid everything and are current.
Haendel St. Juste
Got it. Got it. Okay. And then on the SNO pipeline, I just want to get a bit of clarity on the big jump here from $14 million – from $9 million to $14 million this quarter. How much of that is specifically attributable to Mary Brickell Village? Trying to understand, is that part of the…
Brian Harper
$1 million of that $14 million is Mary Brickell. So the rest has been organic.
Mike Fitzmaurice
Yes. I’ll give you a bridge from last quarter. We – the last quarter is about $8.7 million as of the end of the second quarter. We had about $1.5 million commenced during the quarter, which leaves us about $7.2 million. And then we signed $6.8 million of new leases during the quarter, $1 million attributable to MBV, which gets us to that $14 million.
Haendel St. Juste
That’s very helpful. And one more: just the environment today, the transaction is clearly – has been challenging, but just curious about the remaining capacity in your JVs and your thoughts on deploying capital via the JVs here and maybe some opportunistic investments. I’m curious what you have – what you’re currently thinking. Or if there’s anything you’re actively looking at, what type of IRRs minimum you’d be looking for? Just curious on your views of deploying some of that JV capital over the next couple of quarters.
Brian Harper
Yes. Thanks, Haendel. So let’s start with the net lease platform. We have $1.1 billion remaining capital to be deployed. We feel very good on that cash of being patient and waiting for times of stress. So Tyler and team are building a great pipeline that we expect even further cap rate widening. We fully think that this is going to be a great environment to have capital, which we do, in that world.
Grocery-anchored. We have about $759 million remaining capital that we deployed. We talk to GIC all the time. There’s a lot of conversations going on positively on that platform. I would say from an IRR unlevered, what was, call it, 7% to 9% is now double digits. But as I said in my prepared remarks, we’re really being patient. We’re waiting for things to settle or waiting to get some confirmation from the Fed. But with that said we still are looking in the universe and just seeing what’s trading and trying to apply our data analytics team towards that.
Haendel St. Juste
Appreciate that. Thank you guys.
Brian Harper
Yes. Thanks Haendel.
Operator
Thank you. We have next question from the line of Mike Mueller with JPMorgan. Please go ahead.
Michael Mueller
Hey, I tried to get off of the queue. My question was on where you thought you could be active on the investment front, but I guess it didn’t work out there. So I think I’m good.
Brian Harper
Thanks Mike.
Operator
Thank you. We have next question from the line of Craig Schmidt with Bank of America. Please go ahead.
Craig Schmidt
Thank you. When you think about growing the small shop occupancy, where do you think the opportunity lies in local tenants or regional and national?
Brian Harper
I think it’s a combination. I think it’s probably – we have just some great tailwinds with the regional and nationals and as in tip-off of a deal in St. Louis, where it was more of a power center with Whole Foods. We’ve added Sephora. We’re doing a lululemon deal, and that was primarily a local small shop tenant that we’ve made about 80% national. We’re seeing strong regional’s in certain parts of Florida and certainly in Boston. So I think it’s going to be a mix Craig, but I think probably heavier lean towards national and regional tenants.
Craig Schmidt
Great. And then I wonder, are you seeing any softening of sales in the hard good categories. We’ve seen a number of hard good retailers take down their 2022 guidance. And in addition, the U.S. Department of Commerce sales showed a weakness in the hard good categories?
Brian Harper
We’re playing close attention to that. As of now, I think it’s truly to tell from what our sales data captures. So we haven’t seen any significant boost one way or another in hard goods, but we are certainly seeing the same data that you saw, and we’re keeping a close eye on that.
Craig Schmidt
Okay. Thank you.
Brian Harper
Thank you.
Operator
Thank you. We have next question from the line of Todd Thomas with KeyBanc Capital Markets. Please go ahead.
Todd Thomas
Yes. Hi. Thanks. Just wanted to circle back, I guess to the external growth in the investment platform. Brian, you mentioned that unlevered IRRs of 7% to 9% are now double digits. Is that where required returns have moved or was that comment about something else? And has GIC’s appetite also slowed? Or are they looking to remain offensive here, perhaps take advantage of the decrease in competition? And I guess like how do you manage that relationship with GIC just given where both of your cost of capitals and maybe required return expectations are?
Brian Harper
Yes. So really, the return isn’t a required return. That’s really where I’m seeing that, of kind of this unsettled no man’s land today. I think things will settle where we’ll be able to understand where those yields should be in the next several months or first quarter. And speaking with GIC, their appetite has not slowed. There are a lot of conversations occurring with them. They’re obviously very pleased with the returns that we’ve provided on both platforms, and the relationship has gotten stronger. So I think that is more of a wait and see on how we can align and really help each other grow the most efficiently and produce the highest returns for our shareholders and them, so there’s ongoing conversations.
Todd Thomas
Okay. All right. That’s helpful. And then I just had one other question and apologies if I missed this and you commented. But maybe, Mike, in terms of sort of the holiday season or post-holiday season in early 2023, are there any known move-outs or any potential vacates that you’re aware of today? Anything that’s anticipated as we turned the corner into 2023 at this point?
Mike Fitzmaurice
I mean you’re going to have your normal seasonal move-outs probably related to a small shop that you experience every year. But in terms of any heavy anchor spaces at this point, no.
Todd Thomas
Okay. Alright. Great. That’s all. Thank you.
Brian Harper
Thanks Todd.
Operator
Thank you. Ladies and gentlemen, we have reached the end of the question-and-answer session. And I’d like to turn the call back over to Brian Harper, President and CEO, for closing remarks. Over to you, sir.
Brian Harper
Thank you, operator. Our positive third quarter results are a testament to the investments in our business that we have made over the past few years. Our long-term focus, innovative approach and investments in people, processes and our portfolio have led to a more resilient cash flow that we expect will produce consistent results year-in and year-out. Thank you all for joining our call this morning. Have a wonderful day.
Operator
Thank you. Ladies and gentlemen this concludes today’s conference. You may disconnect your lines at this time. Thank you for your participation.
Be the first to comment