Q3 2021 Brixmor Property Group Inc Earnings Call

Greetings and welcome to the bricks more third quarter 2021 earnings conference call.

At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad. As a reminder, this conference is being recorded I will now turn the call over to Stacy Slater.

Thank you operator, and thank you all for joining Brexit more third quarter conference call with me on the call today are Jim Taylor, Chief Executive Officer, and President and Angela Aman Executive Vice President and Chief Financial Officer, as well as Mark Horgan Executive Vice President and Chief Investment Officer, and Brian Finnegan Executive Vice President.

Chief revenue officer, who will be available for Q&A before we begin let me remind everyone that some of our comments today may contain forward looking statements that are based on certain assumptions and are subject to inherent risks and uncertainties as described in our SEC filings and actual future results may differ materially.

Assume no obligation to update any forward looking statements.

So we will refer today to certain non-GAAP financial measures further information regarding our use of these measures and reconciliations of these measures to our GAAP results are available in the earnings release and supplemental disclosure on the Investor relations portion of our website.

Given the number of participants on the call. We kindly ask that you limit your questions to one or two per person. If you have additional questions regarding the quarter. Please re queue. At this time, it's my pleasure to introduce Jim Taylor, Thanks, Stacy and good morning, everyone. Once again breaks more continued to deliver as a value add.

Leader in the shopping center space with strong leasing volumes at attractive spreads highly accretive reinvestment deliveries growing cash flows improving traffic and a strong leasing and reinvestment pipeline that set us up for continued growth and outperformance for several quarters to come and.

When you step back and consider how we've outperformed before during and now emerging from the pandemic. The key value added drivers are evident first the proven tenant demand for our well located centers from growing retailers, such as target Marshalls home sense, Burlington Ross Alta.

Five below specialty grocers, such as whole foods sprouts and all day.

Fast casual restaurants, such as Chipotle, copper chopped and Starbucks and many other national regional and local tenants across our core categories as well as exciting new concepts that seek the proximity to their customer our centers offer speaking of grocery demand when you factor.

In the grocery leases in our pipeline the overall grocery percentage within our portfolio climbed to nearly 80%.

Second our very attractive rent basis, which is reflected in our consistently high leasing spreads in fact, our in place average base rent has increased in each of the last 21 quarters. Sensus team has joined a track record of which we are very proud and importantly, as I will discuss later we have many more.

Years of below market lease explorations to harvest third our sector, leading leasing and operating platform. They continue to capture leading market share of new store openings, while delivering attractive margins and fourth the highly accretive reinvestment deliveries that act as a flywheel for our growth.

Continually improving our centers and driving follow on leasing importantly, we've now impacted over 150 of our centers delivering over $600 million of investment at an average incremental return of 11%.

Through our performance, we have demonstrated a unique ability to capitalize on disruption grow beyond pre pandemic levels and create real value for our shareholders and that momentum continues as always it begins with leasing where this quarter, we signed 332, new and renewal leases comprising one seven.

Square feet, including over 700000 square feet of new leases at a cash spread of over 26%. These leasing volumes spreads and importantly delivered new AVR rival those realized at the peak of 2019, and again underscore not only the strong tenant demand to be in our wallet.

Kitted centers, but importantly, the continued improvements we've made to them overall leased occupancy increased 30 basis points year over year, and I'm, particularly pleased by the acceleration in small shop leasing where occupancy grew 140 basis points year over year to 85, 7%.

As we've highlighted on previous calls the upside and small shop occupancy as an additional growth lever for us as we deliver our reinvestments in anchor repositions. Its a growth lever where I believe we have several hundred basis points of continued occupancy upside not to mention significant upside and small shop right.

Our anchor at rent upside complements that small shop growth, where this quarter, we achieved cash spreads on new deals of over 34%. When you compare what anchors we have expiring over the next few years without options, which average rent of $8 99, a foot versus our average new anchor rent it.

<unk> over the last 12 months in the 12 to $13 range. We are confident in our ability to continue to drive growth in anchor rats.

During the quarter, we also capitalized on strong tenant demand to drive great intrinsic lease terms with options and only 51% of our leases and 92% of our leases containing embedded rank growth well over 2%.

Further we remain disciplined with leasing and tenant specific capital achieving average net effective rents of $15.26 a foot well above our historical averages.

We also delivered another $52 million of reinvestment in the quarter at an average incremental return of 10%, creating over $34 million of incremental value as we've observed before they create the same amount of value in ground up development, you would have had to deliver over 200 million or four times the investment.

At much higher risk.

Our value creation engine continues to deliver impressively and I'm very encouraged by the follow on leasing momentum. These investments are driving not to mention the cap rate compression they realize.

And we are excited as we look forward to 2022 and beyond the trifecta of are signed but not commenced ABR of $44 million. Our forward leasing pipeline, which is comprised of 51 million of AVR and are in process reinvestment pipeline, which includes 400 million of projects and an incremental 9% of our.

Turn provide us tremendous visibility on future growth and continued improvement in value.

From an operation standpoint, we continue to embrace sustainability as a primary objective through solar power generation led lighting low water landscaping and other practices that are not only environmentally responsible they help us see achieve some of the best operating margins in that sector. I'm also pleased to report.

The graduates has once again recognized our efforts with a green star rating and ranked US first in our peer group in their public disclosure score.

From an external growth standpoint, we've announced the acquisition of a publix anchored center with shop lease up and mark to market opportunities in the high growth coastal market of Poly's Island as well as an additional 250 to 300 million of grocery anchored acquisitions under LOI or contract.

Importantly, each of these are opportunities in our existing markets that allow us to leverage our value added platform to drive growth and compelling returns even in a cap rate.

Even in a compressing cap rate environment.

Mark will provide some additional color on our pipeline as well as the overall investment market during Q&A, but decided but suffice it to say I'm very encouraged by our momentum here.

In just a minute Angela will provide detailed color on our results our improved guidance and expectations. The timing of our signed but not commenced pipeline as well as our strong balance sheet and liquidity.

As you would expect we are pleased with our continued performance as well as our visibility on forward growth simply put the brakes more value added business plan continues to deliver and.

In recognition of that our board voted to increase our quarterly dividend of <unk> 24 cents, an increase of 12% to reflect our growth meet our minimum taxable income distribution requirements and as always position us for growth in the future with that I'll turn the call over to Angela.

Great. Thanks, Jim and good morning, as Jim highlighted the breadth and depth of the recovery continued to be evident in our financial and operational results with continued growth in built and leased occupancy accelerating leasing spreads and ongoing improvement in rent collection.

<unk> was 39 cents per share in the third quarter, which reflected a loss on debt extinguishment of nine cents per share related to the previously announced redemption of our 2023 unsecured notes.

Property NOI growth was 14, 5% driven most significantly by revenues deemed uncollectible.

During the third quarter, we collected over $10 million of previously reserved base rent and expense reimbursement income outpacing the reserve required for current period billings, which has continued to fall as collections from our cash basis tenants have continued to improve.

Base rent ancillary and other revenues and percentage rent were also positive contributors to same property NOI growth this corner.

Despite a year over year decline in weighted average billed occupancy base rent became a positive contributor for the first time since the beginning of the pandemic due to the impact of lease modification in abatement agreements recognized in the prior period as well as contractual rent increases and consistently positive leasing spreads over the last year.

And that expense reimbursements were a detractor from growth this quarter and were impacted by the year over year decline in weighted average build occupancy and an increase in operating costs and service levels have normalized across the portfolio.

We continue to experience positive momentum in occupancy this quarter with sequential improvements in both built and leased occupancy rate.

The occupancy was up 10 basis points sequentially, well leased occupancy was up 40 basis points.

Worth, noting that our small shop lease rate increased 90 basis points sequentially to 85, 7%, which is 60 basis points ahead of our pre COVID-19 level.

The spread between signed and commenced occupancy expanded from 300 basis points last quarter to 330 basis points this quarter and based on the strength of the current leasing environment and as Jim highlighted the size of our forward leasing pipeline, we expect spreads to stay wide for some time, even if build occupancy continues to move higher.

As a result of the occupancy upside embedded in our portfolio and on the back of significant value enhancing reinvestment activity over the last five years, the best possible forward indicator for bricks more it's not a narrowing of the spread between build and leased occupancy, but rather a consistently widespread between these two metrics as newly executed leases commence build occupancy.

Rose and the signed but not commenced pools replenished by additional incremental leasing activity.

In terms of total dollars of signed but not commenced pool, which includes the 330 basis point spread between the build and lease rate and 20 basis points of new leases signed to replace tenants currently in occupancy represents $43 $5 million of base rent or approximately 5% of our annualized third quarter built base rent.

From a timing perspective, 70% of this rent is expected to come online by mid 2022.

During the third quarter, we began the process of moving certain cash basis tenants back to accrual basis. The impact of straight line rental income from the 31 tenants that were transition during the quarter was approximately $800000, which was offset by approximately $600000 of straight line rental income reversals during the period.

At this time tenants, representing approximately 14% of our total AVR are accounted for on a cash basis and the collection trends from these tenants continue to improve with cash collections of third quarter build base rent exceeding 85% as of October 26, which represents a 600 basis point improvement from the second quarter collections rate at the time of.

Our last call.

We will continue to work closely with tenants to address outstanding balances and where appropriate and aggressively pursue our rights under the leases.

We have updated our 2021 assets all expectations to a range of $1 72 to $1 75 per share.

Importantly, while the revised guidance is within the range of our prior guidance. We have now absorb the nine cents per share of loss on debt extinguishment recognized this quarter that was not included in prior guidance.

Adjusted for the loss on debt extinguishment, the midpoint of our range is effectively up nine and half cents per share due primarily to an improvement in our same property NOI growth expectation with our full year guidance now seven five to eight 5% up from four 5% to 6% last quarter.

The improvement in our same property NOI guidance is attributable to cash collected during the third quarter related to amounts previously reserved the realized improvement in collection rates from our cash basis tenants and improved expectations related to net expense reimbursements ancillary and other income and percentage rent.

Consistent with our prior methodology at the low end of our range assumes no additional recovery of previously reserved amounts and no additional improvement in cash basis collection. In addition, I would underscore that our revised guidance range does not contemplate the conversion of any tenants to or from cash basis accounting during the remainder of the year, which could result in significant volatility in <unk>.

GAAP straight line rental income that's all.

Our guidance range does it does contemplate additional expected transaction activity, but does not contemplate any items that may impact <unk> comparability in future periods.

Turning to the balance sheet at quarter end, we had $1 $7 billion of total liquidity, representing our Undrawn 1.25 billion revolving credit facility and over $400 million of cash on hand.

We have no debt maturities in 'twenty, and 'twenty, one or 2020, three and only $250 million of maturities in 2022.

Debt to EBITDA on a current quarter annualized basis is now at 6.2 times slightly below our pre pandemic level.

Our balance sheet and liquidity will continue to support our ongoing portfolio transformation efforts through our accretive value enhancing reinvestment pipeline and a variety of external growth initiative that will allow us to further leverage the strength of our platform to create value for all stakeholders and with that I'll turn the call over to the operator for Q&A.

Thank you if you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May Press Star two if you would like to remove your question from the queue.

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Your first question comes from Todd Thomas with Keybanc.

Hi, Thanks, good morning.

First question I wanted to ask about the company's stance on investments from here, Jim you know, whether we should expect the company to shift towards being a net investor as you work through the pipeline that you discussed as being in negotiation and can you just talk a little bit about your your appetite overall here.

You know, where we are finding despite an overall compressing cap rate environment, some very attractive opportunities as I mentioned, Todd for us to leverage our portfolio our relationships with tenants are access to data or understanding of their store opening and closing plans to find opportunities within our market.

Where we have lease up mark to market additional density and we can drive appropriate I think compelling returns even against the backdrop of compressing cap rates. So you know stay.

Stay tuned.

We kind of giving you an idea of the number of opportunities that we have they're all within our markets and you know we expect to continue finding opportunities like that in this environment.

Oh, Okay, how how should we you.

You know think about pairing dispositions against acquisition activity here, I guess I'm, a little unclear, whether there's a desire to sort of lean into investments a little bit more at this point in the cycle, you've previously talked about.

When activity being generally balanced just just curious if there's a change at all there in the strategy.

We are sitting on a significant amount of cash, but we do expect over the long term to be balanced and capitalize on opportunities. Similarly in this environment. The harvest are assets, where we see limited upside, but importantly, we're finding from an external growth perspective.

Some pretty compelling assets within our markets that allow us to actually build more coal for the value added furnace.

Okay. That's helpful. And then and then Angela I think you said, 70% of the signed not occupied pipeline is expected to come online by mid 'twenty two is that right and how much of that is incremental.

Net of move outs in and what's not in our current run rate.

Yeah, no that 70% number is right and it's pretty ratable across the next three quarters in terms of what will come in line or or the timing of when that will come online and as we disclosed in the Sop. The vast majority of the signed but not commenced pool is incremental to tenants currently in occupancy so the $43 $5 million represents about 350 base.

Points of our total GLA 30, 330 of that it's truly incremental to tenants that are in occupancy today in terms of who might move out you know over the next three quarters and offset some of that growth I would just point to the fact that move outs have been at historically low levels. This year and you know we're watching closely as we get into the fall.

Quarter of this year and first quarter of next year, but we feel good about that trend continuing here in the near to medium term.

Okay Alright. Thank you you bet. Thanks Todd.

Next question Katie Mcconnell with Citi.

Great. Thank you can you discuss your pricing expectations for the acquisition pipeline and what are you assuming in terms of clothing timing with them or about 2021 guidance change or swap it potentially spill into next year.

You know I'm going to let Angela cover the guidance elements of the question, but you know from a pricing standpoint are we.

We are seeing cap rates in the five range for assets that we think fit with our strategy, but I think what's important to understand Katy is that with those we see vacancy we see significant upside in rents, we see opportunity to reposition densify these assets consistent with.

The acquisition actually that we announced earlier in the year Bonita Springs down in Florida and again. These are assets that are in markets. We're currently operating in so we believe we have particularly good insight in terms of where market rent is and how we'll perform.

So that's kind of an overview of the pricing in terms of the timing Angela Yeah, I would I would just say you know we never comment too specifically on timing from an acquisition or disposition perspective, but the 250 to 300 million that are that you know it was mentioned in the earnings release and Jim mentioned in his comments, we've already closed $25 million mm.

In the fourth quarter of the police island acquisition that $250 million to $300 million incremental I would expect some additional portion to close here in the fourth quarter, but really many of those acquisitions to close as we can into Q1.

Got it Okay, and then can you just discuss how you determined lunch or a cash basis tenants back to us through all that then and now.

Not this quarter, but how should we think about the balance of that $37 million converted to cash basis throughout the pandemic and of that how much is still online and off line.

Sure well thanks for that question Katie I'd say, a few things I guess as it relates.

Specifically to the conversion of tenants I'm back to accrual basis. We went through you know we've always handle on sort of the the cash versus accrual decisions on a lease by lease and tenant by tenant basis across the portfolio and that's the process. We went through again in the third quarter of this year. The tenants were moving back at this point are not only tenants that have no outstanding.

Our balances no deferral balances outstanding AR, but also had been paying timely really throughout the course of 2020. One we do think you know as we continue to get longer payment history, and see more tenants really kind of find their footing. You know after the pandemic that you will see additional tenant move stack that 14% of our total ABR that.

On a cash basis. This obviously you know a historically wide number given what the portfolio center over the last over the last year or 18 months. So I do think you'll see additional tenants moved back to accrual basis as it's appropriate in terms of the total amount of straight line income reversals. We've had to date. It has been about $37 million I would just.

It's important to remember that there are tenants included in those straight line rental income reversals that have left the portfolio out of there were 2020 bankruptcy activity and other move outs that have happened over the course of the last 18 months. So the total amount available to bring back online it's gonna be a smaller number than that 37 million and as we bring tenants back sort of what's happened to him.

Individual straight line balances over the course of the last 18 months will create some volatility in that number and that number as well. So it's really very difficult to at this point to give any more finite guidance as I mentioned in my prepared remarks, and I think it's laid out explicitly in the earnings release as well we have not from a guidance standpoint.

Throughout the course of this year, but I would assume as we get into 'twenty, two as well I assumed in guidance any conversion to or from cash basis accounting and given the potential volatility there.

Okay, great. Thank you.

Thank you Kay.

Next question, Jeff Spector with Bank of America.

Great Good morning, and congrats on the quarter I guess, if I could.

Thanks, Jim if I could start with the macro maybe first just given this earning season supply chain issue questions margin questions are dominating earnings calls I guess, Jim can you just discuss those risks and know how bricks more is is.

I guess positioned versus those risks in the market today.

Jeff That's a great question. So when you consider what we have in the pipeline today that 400 million, that's largely purchased through G. Max contracts. So we have a pretty good handle on the cost and we're we're pretty far along in that so perhaps you see a couple of projects shifted a quarter or two either way.

A timing perspective, but we don't really expect much significantly there, but it's certainly an issue as we look forward and beyond that and it's something that we're working with our tenants on so we're seeing our tenants increasingly except existing facades existing HVAC equipment really in their push and desire to get their stores open.

In this environment.

But it's something that we're watching carefully we know our tenants are all over it and we're hopeful.

Hopeful that you know through the course of 2022, you began seeing some of that resolved.

Thank you and then the second question.

Just was curious on the 332, new and renewal leases I think you said they rival or maybe exceeded the peak of 19 are there any key differences.

That you would want to highlight between I guess the leases done in 19 versus today are they are they similar in terms of the.

The tenants the categories et cetera, well I think the biggest thing is more around you know we continue to drive ABR per foot and we're real proud of that and I'd say that there's a great greater breadth of tenants that we're doing business with now and also we're really pleased with the demand that we're seeing from grocery type uses because we.

We think that adds a lot of incremental value and traffic draw to the centers, Brian what's been.

Particularly encouraging is just the demand from both our core tenants those that Jim mentioned in his opening remarks and in the value apparel specialty grocery home general merchandise categories, and then the new tenants that we're seeing to the portfolio because of all the things that we're doing in terms of reinvestment in terms of better off.

Operations were just bringing a better class of tenants to our portfolio and they're able to pay higher rents and just on those higher rents the rents, we're signing new leases or 14% higher than they were on the on average over.

For the past three years, so we're continuing to see better tenants come to our centers and pay higher rents and we've been really encouraged across.

Thank you.

Thanks, Jeff.

Next question Derek Johnston with Deutsche Bank. Please go ahead.

Hi, everyone. Thank you just sticking on the redevelopment pipeline you know certainly a good use of cash with a 10% yield on the projects completed this quarter at 9% overall.

How are you able to continue to achieve these yields you know in the labor and supply constrained environment. So even value add read seemed to be grappling with cost and yield compression a little more than Brexit, what's the secret sauce here guys.

Perhaps the biggest thing is an attractive rent basis, you know we've talked about it since we've joined that we have really well located older shopping centers, you know with as I mentioned in my remarks.

Average expiring rent over the next couple of years of under nine Bucks a foot. So that gives you a lot of room, if you will to absorb.

The inevitable rise.

The rise in cost and other challenges that are just part of the business.

The other thing I would say that I think is particularly attractive about our value added strategy is that it's a pretty granular execution in other words, we're not making massive bets in any one location.

As I mentioned before we've deployed over the last five years about 600 million of capital I think the average project size was about four to 5 million. We had some that were a couple of million. Some that were 10 to 20.

But you know that that helps us if you will diversify our risks are with respect to any one situation or any any particular issue that we might run across with the jurisdiction or with a contractor or with an unforeseen condition or today with rising costs.

So I'd say the biggest driver and differentiator for US is just where we start and that is that attractive rent basis.

Where you were able to generate those returns in the high single and low double digits.

No that's that's very insightful. Thanks.

So then just looking at the $4.4 million of recaptured uncollectible rents.

First off it seems like 33 million ish may still remain uncollected. Please correct me if I'm wrong with that number and is there any guidance or thoughts about further recoveries going forward or should we just really start sunsetting, that's on our minds and looking to the future. Thanks, Yeah I'll take that in a few parts. So the score.

4 million you you referenced I think is the total revenues deemed uncollectible.

That was recognized on the P&L that was comprised of actually turn and a half million dollars of out of period cash collections, both base rent and that expense reimbursement and there was some disclosure on page 11 of the stuff that I think helps you see that number and then the offset to that $10 5 million, which was about $7 1 million of reserves, we took related to.

Primarily.

Third quarter base rent and expense reimbursement, so that's sort of the magnitude in terms of what what happened during the quarter in terms of what's out there in the remaining two are potentially be recognized from an income statement impact I'd point, you to page 12 of our supplemental package, which really lays out everything we've accrued but uncollected.

Over the last 18 months I think the entire pandemic period, which.

Which is about $55 million of that amount $46 million has been reserved for so it's really about $46 million that would theoretically have the potential to have an income statement impact. If it were collected I would caution you a little bit in terms of thinking that that $46 million is high likelihood to be collected there are amount.

And that $46 million that do relate to tenants that were twenty-twenty bankruptcies or otherwise left the portfolio, but probably somewhere between 65 and 75% of that amount relates to tenants that are still in the portfolio and where as I mentioned in my prepared remarks, we're working very hard to address and collect those outstanding balances.

As tenants are reopened and operating a more normalized level and are doing well for the most part across the portfolio.

Great. Thank you Angela.

Thank you.

Next question, Juan Sanabria with BMO capital markets.

Hi, Good morning, just a question Angela on the balance sheet you referenced leverage is now below where you were pre.

Pre COVID-19, if you could just remind us or refresh us on where you're targeting leverage from here and how we should think about funding for.

For the acquisitions you highlighted the $2 15 to 300 billion that are in the works.

Sure Yeah, so, whereas as you mentioned six two times on a current quarter annualized basis I feel good about that level sort of staying in and around that range. Even at some of the out of period amount moderate from here and we continue I think to improve what the reserve on current quarter billings look like so feel really good that that's a pretty sustainable level.

Potentially some volatility quarter to quarter, we've always said our long term target from a leverage standpoint is about six times and we feel like that's the right leverage for this portfolio, particularly given the significant rent mark to market across the portfolio on a look through basis, even if you just capture what's in the signed but not commenced Paul you know your your.

Probably a third to a half of a turn inside of that and so we really feel six times today on a spot basis is kind of the right level, we're very close to that level now.

In terms of our.

Funding for the acquisitions, obviously, we generate a significant amount of free cash flow, which is used for a combination of the reinvestment pipeline.

Other external growth initiatives, we will continue to take advantage of what we think is a very strong market from a disposition standpoint absolutely.

That's the only gotten better I would say over the last 12 to 18 months and and look at really you know all potential sources of capital as we identify opportunities that we think are really good fits for our portfolio and allow us as Jim mentioned earlier to continue to build that value enhancing pipeline over time.

Great and then just one quick follow up.

Acquisitions, you talked about that kind of five plus percent yield I believe.

Is that the going in yield that you guys are kind of targeting or is that more of a stabilized number once you capture the market to market opportunities that are densification. It's it's a great question that as the going in NOI yield in that kind of low to mid five range.

That we expect to realize year, one of ownership and that as we continue to execute whether it's lease up mark to market or value added Reinvestments, we expect to drive those yields a few hundred basis points higher.

Thank you you bet.

Next question, Mike Mueller with JP Morgan.

Yeah, Hi, a quick question. If you look at the anchor repositioning and redevelopment assets that you've taken care of to date, how much of the overall opportunity do you think has been addressed in the current portfolio just thinking about it go forward pace of capital deployment.

We believe we have over $1 billion of investment behind what we have underway and importantly, Mike we continue to fill that shadow pipeline, we we sort of highlight some of those projects.

In the supplement, but we're real encouraged by you know while we have rolling you know you've got these pesky things called leases that control your timing.

Well, we have rolling those explorations I mean today, we've impacted about 150 of our centers you know I would expect over time the impact of similar number if not more as we continue to execute the anchor repos. The addition of out parcel.

<unk> the full scale Redevelopments and you know what's exciting for us and I hope it's coming across in our results is how that that activity is not only driving great return on the capital being committed but it's driving follow on leasing and occupancy it's driving better.

<unk>, Brian mentioned the increase in just the absolute new rent realized across the last couple of quarters.

So we're real encouraged with how the strategy is setting us up for several quarters to come.

Got it and then just thinking about the small shop leasing and traction there can you talk a little bit about what the mix of tenants you are seeing.

Based food heavy local national just kind of any color in terms of what's standing out there.

Hey, Mike Hey, this is Brian as we mentioned we've been incredibly encouraged by the small shop activity and they are in many of those categories with strong casual dining operators like Chipotle and shopped and cava that Jim mentioned in his opening remarks, our financial institutions, we're looking at smaller general merchandise operators like the <unk>.

Pop shelf that we added to the portfolio earlier this year of five below so the depth of demand remains incredibly strong from a small shop perspective, we still think there's a tremendous runway for growth there, which also we have been talking a lot about small shops, but the anchor pipeline is accelerating as well our anchor pipelines as strong as it's been.

Since <unk> of 'twenty, when we had a backlog of anchor deals at the start of the pandemic. We mentioned a number of those categories as well so as we get more of those anchor deals signed as we bring more of those anchors online. We expect to continue to add stronger small shop operators at higher rates, Yeah, and I would say, what's encouraging Mike is as it is.

Collection of what we're seeing in the small shop at the national tenants that Brian highlighted but also regional and local tenants with good crowded experienced operators that are bringing you know really relevant users and services to to the centers.

Got it okay that was it thank you.

Next question, Greg Mcginniss with Scotia Bank. Please go ahead.

Hey, good morning, Hey.

I'm trying to kind of understand what appears to be somewhat stalled rent collection improvement at that 97%.

Does that reflect full collections relative to pre pandemic norms.

Yeah.

In terms of whats not paying less unable to pay rent because of pandemic issues versus maybe not being a great fit the portfolio longer term.

Yeah, one of the things as Angela highlighted in a remark that I would highlight for you is that the rate of increase in collections is moderating as we get closer and closer to 100%, but you are seeing our cash collections continue to improve quarter over quarter. So you know the the law.

<unk> bid you know, we're very focused on is Angela highlighted in her remarks.

One of the strategies that we took that I think actually drove our outperformance in collections overall was a focus on getting tenants opened healthy operating again and remember also that we are dealing across a number of jurisdictions some of which have limited our ability to legally enforce the.

<unk> under the leases. So we're now in that last 2% to 3%. That's you know either tenant categories that have been really disproportionately impacted thank entertainment.

Some restaurants and others that we're working through at this point, but you know we were we're very pleased with the trend, we're seeing particularly in the cash collection.

Yeah, I don't I don't have a lot to add I think I think Jim hit it on the head I do think we're probably if you think about our historical revenues deemed uncollectible number. It was you know under 100 basis points somewhere between 75 and 100 basis points. So we are still probably you know give or take 200 basis points wide of a normalized level in the portfolio I do think to Jim's point, what's real.

Interesting here is how concentrated.

That revenues deemed uncollectible number or the collection shortfall is in those categories that were disproportionately impacted by the pandemic, namely restaurants entertainment fitness to some degree and then other personal services, so kind of salons and those are the tenants. We continue to work most closely with but outside of that really across the board I would say probably that.

Collections picture for the rest of the tendency is better than it is in a normalized environment and so it is it is a more concentrated you know issue we're dealing with today and just continuing to try to work closely to understand what's happening in specific tenants businesses in and what kind of support they'll need them to get fully back on their feet and why are we can't we're not.

Concerned about our ability to backfill the space, which I think is critical given the broader tenant health that Angela referred to.

Right, Okay, and just to clarify a point you made earlier on.

Outstanding.

Category, I mean that 65 to 70.

But correspondingly tenants that are still in the portfolio are those tenants also current on rent.

In terms of like you know.

October rent and just haven't paid background or what what's the percentage there yeah I mean.

Theres some theres certainly some tenants that are active in the portfolio just get back to that point about the fact that overall collections are at 97% Theres clearly some amount in that 65% to 75% of active tenants in the portfolio number that are scoped into that $46 million of reserve on the total amount of coupon uncollected over the last year.

Some of them are active and in good standing across the portfolio and we just continue to work through some of those outstanding balances oftentimes from that the kind of peak pandemic impacted periods.

Okay. Thank you.

Thank you.

Next question he been Kim with Shirley.

Thanks, John Good morning, I wanted to good morning, So wanted to go back to the acquisition questions. How should we think about this bigger picture.

Should we expect much financial accretion from this acquisition activity or you become you know fast forward a year from now are you selling assets.

To balance that out where there is upside, but it doesn't come for a couple of years.

You know we think even in this environment that we can generate some accretion as we begin to grow externally both as we dipped.

Deploy the cash on our balance sheet, but also as we found out with free cash flow disposition.

Et cetera.

So you know, we we like how we're positioned.

You know again key then what's striking is the cap rate environment has compressed pretty dramatically and what that what we've always focused on it I think is even more important now are finding those assets, where you've got a well below market rents for example in the boxes as we.

As we saw in Bonita Springs lease up opportunity in the small shop mark to market.

And really leveraging the national and regional platforms that we have to understand and underwrite what the tenant demand is to be in that center as well as our redevelopment expertise to figure out how we can reposition and drive a value added return. So that's really been our focus so it's it's.

Exciting that we're seeing some opportunities now I think as we've emerged from the pandemic, there's a lot more coming on to market and Mark I don't know if you.

Have any other thoughts.

One thing I would say is you know as we've talked about in the past we have a target asset list. That's how we're able to look at deals that make sense for us and chase them in today's environment, because we see the we've seen the opportunity to sell these assets for a long time.

We like that you know as we think about today's market keep in mind as Angela mentioned, we've got $1 7 billion in liquidity. So when we go to a seller and we position ourselves with someone who can close quickly. None of these financing that that's a real benefit from people who are selling to us and we think that's an advantage for us as we move into this part of the cycle. When we're looking at looking at external growth.

<unk>.

Got it and when you look at your lease expirations I mean, so far you've been able to do a pretty good job on renewals and options getting 7% to 8% positive lease spreads are when you look forward.

Is that sustainable or is there a mix change or could change that might change that number going forward.

He'd been Hey, this is Brian we've been encouraged by what we're seeing in terms of accelerating both renewal and new lease rent growth looking out we'd have anchor rents expiring over the next two and a half years and under $9 a foot we're signing those today over 12 Bucks. So you've got close to a 40% spread there just in those anchor.

<unk> and so you may see some fluctuation in a given quarter, but again the investments that we're making in our properties. The better operations, we continue to attract better tenants of our centers and we're creating competition for space and also there's not a lot getting built so our centers are getting better our senator our tenants are performing better so we're able to drive those increases.

In renewals and like I said, there may be some fluctuation here quarter to quarter, but we expect the trajectory to continue to be strong yeah, and one thing to highlight there keeping that Brian touched on is that we are seeing a real nice increase in the rents. We're realizing them I think it's as a result of the of the strategy.

That we've executed where we really are improving these centers and we're able to drive higher right.

Okay, great. Thank you you bet.

Next question Anthony Powell with Barclays. Please go ahead.

Hi, Good morning, a question on the acquisitions is there any particular geographic skew to the deals or are they pretty widely spread across your portfolio.

Barb.

Yes, it really mirrors our existing portfolio.

So existing markets like the Carolinas, Florida through the southeast, obviously northeast Upper Midwest, Texas and California.

Got it thanks, and I think people have asked a few different ways, but yeah, you've sold a lot of assets over the past few years and clean up the portfolio going forward are you growing your portfolio size as you.

You do more deals so would you expect to expand from the 386 to a higher number going forward.

I do expect us to to accrete the relative size of the portfolio. In time, you know we are capitalizing on this liquidity environment to opportunistically dispose of some assets that we've fixed and where we think we've realized value. So we'll remain disciplined as all.

Weighs on that hold IRR decision.

But as you also highlighted we've.

Sold over $2 billion over the last four to five years harvesting assets that we deem noncore and exiting a number of single asset markets.

Much of that work is behind us. So as we look forward, we're able to be much more opportunistic and I like the position we're in from that standpoint, and certainly I'm encouraged.

Again by the investment market and those dynamics that we're seeing.

Got it and maybe one more you talked about the lease to billed spread maybe expanding as you continue to backfill with new leases, but.

Is there a maximum to that when do you expect to start to see that close either in terms of a maximum I guess percent leased or just a time period. When you start to expect to see that number I guess compressed.

Yeah, I mean, the comments I made in my prepared remarks are really meant to address just that I think it's a really good question for us given where our occupancy sits today in the embedded opportunity in the portfolio from that standpoint, it's really for us less about the the spread narrowing but about both the building and the leased occupancy numbers.

<unk> to move higher until we get to effectively full occupancy where some other portfolios in the space really are today from a lease standpoint. So I just think there's a lot of opportunity here, particularly as it relates to the small shop occupancy number to continue to move the bill number higher and then continue to backfill that signed but not commenced pipeline.

Keep the spread wide, but really be commencing leases throughout that time period and generating growth now and building the foundation for future growth as well.

Okay. So a full obviously it could be is it 95% leased 90 fixed I'm just curious when do you when do you think that.

That may start to narrow them all in.

In the future Yeah, I think given the work that's been done on this portfolio over the last five years and and as Jim was just pointing out some of the rationalization of the portfolio from a footprint standpoint, I don't see any reason why this portfolio shouldn't you know over the medium to longer term operate at levels consistent with the industry at large which would be in that kind of 95% level.

Okay. Thank you.

<unk>.

Next question Floris van <unk> with Compass point.

Hey, good morning, guys. Thanks for taking my question I think we've had a lot of questions. Jim on in particular on the acquisition side I think because it's it is slightly different than your messaging to date over the last couple of years, which is reinvesting in your portfolio.

Which you've done very successfully and gotten some great returns.

The.

Returns are.

That your.

Estimating probably on this 300 million odd of acquisitions as you know call it half as attractive or have as high as your redevelopment.

If I'm not mistaken your messaging is that look we're just using or the existing cash on the balance sheet, which is sitting there, earning zero and we're getting a 5% with growth.

And we're going to continue to invest call. It 150 to 200 million a year in redevelopment and get the double digit type returns is that is that the right way to think about it.

I think that's right I mean remember we also have free cash flow and we will be making some dispositions opportunistically, but floor it's to your point.

If we could wave a magic wand terminate all those below market leases and recapture them and deliver only reinvestment we would you know.

We're getting after that.

As expeditiously as as as we can given just the natural lease expiry schedule and as we highlighted that goes on for several years and we believe we have well over $1 billion behind the $400 million that we have underway today and you're right that is some of the V.

Sorry, best activity that you can execute if you just take a look at the $600 million that we've delivered over the last four and a half years out of 10.

That's the equivalent of about $2 $5 billion of ground up development. So you know we we really are pleased with our performance, but we're excited about what lies ahead. It's it's not finite but we can walk and chew gum at the same time, you know we've harvested a substantial number of shopping centers and we're looking at all.

<unk> within our markets frankly to build a future pipeline right defined centers like Bonita Springs in Florida, where we've got an expiring box, that's paying us $2 to $3 a foot even I can lease that box, Brian would love me, but even I can find it backup tenant for that.

You know those are the types of opportunities that we're seeing in the acquisition environment, which is kind of interesting right because all cap rates aren't created equal.

We focus so much on that cap rate, but the real question to ask as an investor is where's that low to mid five going over time and you know we we like what we're seeing from a mix perspective, we're not taking any great risks.

They're assets that are absolutely consistent with what we own we're not diverging from a style perspective, you know, we're really looking at those assets and centers in markets that we know with tenancy that we know our tenant demand that we know where we think we can make smart risk adjusted that.

That also help us drive growth in addition to the great reinvestment activity that we've executed and Havent had.

Yeah.

Just maybe if you can touch upon remind us how many single asset markets you still have left in the portfolio and then maybe also.

They call it $18 million of NOI that youre going to get from your existing ongoing development pipeline. How much of that is included in the in the $36 million of ABR in your <unk> AVR I'm going to let Angela answer the second question, but in terms of you know single asset.

Markets were in about 30 to 40 is still down from a little over 100, and many of those markets, though like Ann Arbor or going to be markets, where we think we can find some a good additional opportunities to grow.

Yeah, and then Florida I think your question was just how much of the the signed but not commenced pool is attributable to redevelopment or value enhancing activity does that your question, Yes, I would say, yes, exactly yeah about 30% of the signed but not commenced pool is probably right. It related to just our larger scale redevelopment projects something like that that number bounces around a lot quarter to quarter.

But it's clearly been a big driver of leasing activity given the excitement of a lot of those projects are generating.

Great. Thanks, guys you bet. Thank you Floris.

Once again, if you would like to ask a question. Please press star one on your telephone keypad.

Okay.

I would like to turn the floor over to Stacy for closing remarks, thanks, everyone and we look forward to speaking with many of you at NAREIT next week. Thank you very much.

This concludes today's teleconference. You may disconnect your lines at this time and thank you for your participation.

Okay.

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