Q1 2023 Brixmor Property Group Inc Earnings Call

Speaker 2: Greetings and welcome to the Bricksmore Property Group first quarter 2023 earnings conference call.

Speaker 2: At this time, all participants are in a listen-only mode. A brief 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.

Speaker 2: It is now my pleasure to introduce your host, Stacey Slater. Thank you. You may begin.

Speaker 3: Thank you, operator, and thank you all for joining Brixmore's first quarter conference call. With me on the call today are Jim Taylor, Chief Executive Officer and President, Angela Ahman, Executive Vice President and Chief Financial Officer, and Brian Finnegan, Executive Vice President, Chief Revenue Officer.

Speaker 3: Mark Horgan, Executive Vice President and Chief Investment Officer will also be available for Q&A.

Speaker 3: 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 FEC filings and actual future results made different materially. We assume no obligation to update any forward-looking statements.

Speaker 3: Also, 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.

Speaker 3: 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-cue. At this time, it's my pleasure to introduce Jim Taylor. Thank you, Stacey, and good morning, everyone. Our results this quarter once again underscore the proven tenant demand for our...

Speaker 4: to 94%, a record for the company in an occupancy level that not only grew on a year-over-year basis but also sequentially during what is typically a seasonally low quarter.

Speaker 4: Our continued momentum in small shop occupancy as well, which grew to 89.3%, another all-time record for the company. Our new and renewal leasing spreads of 43 and 14%, respectively.

Speaker 4: Our average rate on new and renewal leases of over $22 a foot, which grew our average in-place rent to $16.46, showing we have room to run, while remaining disciplined with the capital to drive that growth.

Speaker 4: our growth and expense recoveries, even while delivering a higher operational standard of excellence to our tenants.

Speaker 4: Our delivery of another $14 million of reinvestment during the quarter at an incremental return of 10%, bringing our total delivery since we began to $885 million at an incremental 11%.

Speaker 4: And our successful harvesting of 125 million of lower growth, non-core assets, at a blended cap rate well inside our implied cap rate.

Speaker 4: Bottom line, we are proud of how our durable value-added business plan continues to deliver, with same-store NOI and FFO growth during the quarter of 4.9% and 3.5% respectively. Results that I believe will compare favorably within the sector, as we all face declining prior period rent collections tenant disruptions.

Speaker 4: our progress on recaptured space and the continued strong demand from growing tenants.

Speaker 4: NAN Angela will provide additional color on our operating results, our strong liquid balance sheet, as well as our improved outlook and guidance for the balance of this year.

Speaker 4: I'd like to focus on the unparalleled visibility our execution provides on forward growth, particularly in an environment of increased disruption that we've been preparing for the last several quarters.

Speaker 4: That visibility begins with the 60 million of AVR that we've commenced over the past year, for which we will get the full benefit of in the coming 12 months.

Speaker 4: Second, we have our sign but not commenseless pipeline, which has 56 million of ABR that will commence this antial will detail in a minute over the next several quarters.

Speaker 4: Third, we have nearly 38 million of leases in our forward new leasing pipeline. And finally, we have an even larger amount of ABR under LOI.

Speaker 4: This cumulative activity will propel growth that we believe will be at the top of the sector for the next several quarters, even through much more significant levels of disruption.

Speaker 4: And please remember, the spreads we continue to achieve underscore the competitive advantage of our attractive rent basis.

Speaker 4: allowing us to unlock value as we execute our plan.

Speaker 4: Importantly, this leasing momentum is also driving our value accretive reinvestment pipeline.

Speaker 4: which currently stands at $360 million at an incremental return of 9% and a gross return several hundred basis points higher. Not only are we creating huge value even in a higher interest rate environment, we enjoy the flywheel effect of follow-on small shop leasing.

Speaker 4: growing rate, and lower applied cap rates that the Center has impacted. Lastly, we have the free cash flow to fund our reinvestment pipeline on a deleveraging basis for the next several years without having access to capital markets.

Speaker 4: Simply put, we benefit from an all-weather strategy of delivering growth.

Speaker 4: We also enjoy a strong balance sheet with depth EBITDA 6.1 times a very well-latter debt maturity schedule in over 1.2 million of capacity. Looking forward, I believe this strong balance sheet position may unlock some interesting acquisition opportunities.

Speaker 4: as private asset-level borrowers face refinance and capital requirements in an environment of constrained liquidity.

Speaker 4: But importantly, as always, expect us to remain disciplined as our self-funded internal growth strategy already provides us with visibility on achieving top of the sector growth.

Speaker 4: With that, I'll turn the call over to Brian for a more detailed look at our leasing activity and outlook. Brian ? Thanks Jim and good morning everyone. We drove yet another quarter of outstanding leasing productivity as our team continues to capitalize on robust retail or demand in a supply constrained environment.

Speaker 4: attracting great tenants to our portfolio at much higher rents. The demand for space is coming from a broad range of tenants that are focused on expanding and investing in their physical store footprints, including leading operators in the off-price, health and wellness, specialty grocery, restaurant and service categories. The transformation of this portfolio is also putting us in a great position.

Speaker 4: to continue to capture an outside share of retail demand going forward.

Speaker 4: This was evident during the quarter as our team added new leases with best-in-class retailers such as Target, PetSmart, HomeSense, 5 Below, Barnes & Noble, Planet Fitness, Chipotle, First Watch, and Bath & Body Works.

Speaker 4: We have also leveraged this demand to proactively recapture at risk tenets base and quickly advance new leases with tenets that will improve the overall appeal of these centers. This is clear on our progress out of the gate with FedBath. At year M we had 19 FedBath locations representing 60 basis points of AVR.

Speaker 4: As of today, we have control of ten of these locations, and have already leased two to a great finish.

Speaker 4: As of today, we have control of ten of these locations and have already leased two to great tenants, Sprouts Farmers Market and Home Goods.

Speaker 4: Our team is well underway in leasing the remaining space with leases and L.O.I.s out to multiple retailers, primarily single tenant backtills in the off-price home health and wellness categories at Rancidor and Lyon with the overall 35 to 40% growth in new leases that we have been achieving the last several quarters.

Speaker 4: What is particularly encouraging and important to note is the speed in which we have executed leases on recaptured space, with deals being completed in under 90 days.

Speaker 4: This really demonstrates the strength of these locations and how quickly tenants want to open in our centers.

Speaker 4: As we look forward in the year, we continue to be encouraged by the depth of tenant demand, putting us in a great position to not only navigate the disruption, but to continue to attract great tenants to our centers at among the highest rents we've ever had. With that, I'll hand it over to Angela for a more detailed review of our financial results. Angela? As a grant sponsor I look forward to developing the Listenmet

Speaker 5: Thanks Brian and good morning. I'm pleased to report on a very strong start to 2023 that positions as well to respond to rising levels of tenant disruption and macroeconomic volatility. NAIRID FFO was $0.50 per diluted share in the first quarter, driven by same property NOI growth of 4.9%. Base rent growth contributed 500 basis points to same property NOI growth this quarter.

Speaker 5: reflecting the continued successful transformation of our portfolio and the strength of the current leasing environment, which have resulted in significant occupancy growth at rent per square foot levels well above our portfolio average.

Speaker 5: In addition, net expense reimbursements and percentage rents contributed 120 basis points and 20 basis points respectively.

Speaker 5: As anticipated, revenues deemed uncollectable detracted 150 basis points from same property unawide growth, primarily due to the ongoing moderation of out-of-period collections of previously reserved amounts.

Speaker 5: As Jim highlighted earlier, we achieved record total lease occupancy during the first quarter of 94%, driven by a 20 basis point sequential increase in the anchor lease rate to 96.1% and a 10 basis point sequential increase in the small shop lease rate to a record 89.3%.

Speaker 5: Our continued leasing momentum resulted in a spread between leased and billed occupancy of 400 basis points at the end of the quarter, up 40 basis points since year end. In addition, our total signed but not yet commenced pool, which includes an additional 50 basis points of GLA related to space that will soon be vacated by existing tenants, and a scheduled $56 million of annualized base rent.

Speaker 5: of which we expect $36 million, or approximately 65%, to rent commence during the remainder of 2023. As Jim and Brian have both highlighted, we fully expect that recent retailer bankruptcy announcements will result in occupancy pressure as we move through this year. That said, the significant and near-term weighted nature of our signed but not yet commenced pool.

Speaker 5: will help to minimize the impact of retailer disruption on our operational and financial metrics while also allowing us to accelerate our efforts to harvest the below market rent basis inherent in many of these spaces and set the stage for future growth.

Speaker 5: From a balance sheet perspective, we ended the quarter with debt to EBITDA of 6.1 times, a fully unencumbered balance sheet, 99% fixed rate debt, and total liquidity of $1.4 billion.

Speaker 5: Subsequent to quarter-end, we utilized $200 million of our liquidity in the form of our delay-draw term loans to tender for $200 million of our 2024 unsecured bonds, extending the maturity through 2027 at swapped fixed-rate pricing well inside of where we could issue new unsecured bonds today.

Speaker 5: As a result, we now have only $300 million of remaining debt maturities through year-end 2024. In terms of our forward outlook, we have narrowed our 2023 guidance for same-property NOI growth to a range of 2 to 3.5%, reflecting improved expectations for base rent and net expense reimbursements at the lower end of the range.

Speaker 5: quarter during the year, creating a challenging comparison for second quarter 2023.

Speaker 5: In addition, the midpoint of our same property guidance range continues to reflect approximately 150 basis points of year-over-year impact related to recently announced or anticipated bankruptcy activity, which is reflected in our expectations for base rent and net expense reimbursement. Only half of the 150 basis point impact.

Speaker 5: is related to store closures or lease rejections that have occurred to date, while the remainder is related to potential additional disruption from tenants currently in bankruptcy and from future bankruptcy filings that may occur during 2023.

Speaker 5: We have also raised our guidance for 2023 NAIRID FFO to a range of $1.97 to $2.04 per diluted share. In addition to our revised expectations for same property and Y growth, our revised FFO guidance also incorporates the recent $200 million tender, which will result in the recognition of a $4.3 million gain on debt extinguishment in the second quarter.

Speaker 2: And with that, I will turn the call over to the operator for Q&A. Thank you. We will now be conducting a question-and-answer session. If you would like to ask a question, please press star-1 on your telephone keypad. A confirmation tone will indicate that your line is in the question queue.

Speaker 2: You may press star 2 if you would like to remove your question from the queue.

Speaker 2: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Our first question comes from Jeff Spector with Bank of America. Please proceed with your question.

Speaker 6: Thank you.

Speaker 6: Silence.

Speaker 7: Jeff, are you on? Yes, I'm sorry about that. I'm here. Thank you. And congratulations on the quarter. My first question is on acquisitions. We recently saw you and I know we talked a little bit about acquisitions during our meeting.

Speaker 7: but given you commented on potentially taking advantage of opportunities in the future, I guess where is the market today? Do we have any more clarity on pricing? I think the market is still in transition. So we really haven't seen enough deal flow to establish where pricing has moved, but there's clearly been upward pressure because of where interest rates have moved. Mark, I don't know if you have any additional color.

Speaker 4: Yeah, I think it's... Well, it's clear there's good demand for assets, pricing's moved out probably 100 basis points at least since the end of 2021.

And so from a forward perspective, we think we'll start to see assets that make more sense from a risk-reward perspective later this year. And sellers really are starting to understand where the market is, and the bid-ask spread is narrowing. But the market does remain pretty slow at this point, but we're cautiously optimistic. We'll start to see. Ryan Galaxyuth, aka. Disciple

and better opportunities here as the year progresses. And Jeff, we can be patient, right? You know, and so we are looking at a lot of opportunities, but we'll wait when we feel it's opportunistic. Okay, thank you. And is there something in particular?

that you would focus on whether it's one type of open air center versus another or a region? You know it would be consistent with what we've already done to drive value. So we'd be looking for centers in and around the markets that we currently serve today so we can continue our clustering strategy.

And importantly, we're looking at centers that have some value add component to it, whether it's through reinvestment and redevelopment, additional density, mark to market in the rents. We expect to see some interesting opportunities going forward, of course, because of the tenant disruption that we're seeing, as well as, as I mentioned in my prepared remarks, we

tightening lender requirements as it relates to refinancing.

So, you know, we haven't fully seen that work through yet, so when it does, I think we'll be ready, but it will be consistent from an overall strategy standpoint with what you've seen us execute in the past.

So, you know, we haven't fully seen that work through yet, so when it does, I think we'll be ready, but it will be consistent from an overall strategy standpoint with what you've seen us execute in the past. Great. Thank you. Thank you very much.

Our next question comes from Todd Thomas with KeyBank Capital Markets. Please proceed with your question.

Hi, thanks. Good morning. Angela, you mentioned that there might be some occupancy pressure in the near term as a result of some of the bed bath base that you anticipate recapturing. I guess two questions. You know, one, you have a lot of positive momentum in place. Do you expect occupancy to decrease?

You know, not just in BRICS, more as portfolio, but maybe across open air altogether. Do you expect that space to be a potential risk that, you know, could throw, you know, certain markets perhaps out of equilibrium a little bit to some extent?

Sure, I'll take the occupancy question first, Todd. You're right to point out that we have a lot of momentum going into this year. We talked about how significant the near-term weighted nature is of the sign but not commence pool. There is just under 2 million square feet of that 3 million square feet is expected to run commence over the course of this year.

very significant, several hundred basis points from an occupancy perspective. We continue to see outside of bankruptcy situations very high retention rates across the portfolio. So while there will be some move outs, we continue to operate in an environment where those move outs are pretty muted, again outside of the bankruptcy situation.

Based on the tenants who have filed to date and our expectations around the liquidation of some of those platforms, we believe we could still post a pretty healthy occupancy increase over the course of this year or through year end.

I think the question is really going to be whether or not there are additional filings over the course of this year. We feel very comfortable that we've adequately accounted for any additional disruption within our same property NOI guidance range. But the timing of that activity and the ultimate impact in terms of restructuring versus liquidations will make an impact on occupancy. We still feel very confident we'll be in a position.

are certainly hopeful we'll be in a position to continue to move occupancy higher given that sign but not commenced tailwind. Yeah, and Todd just on the overall supply dynamic, I mean just remember that these boxes are coming online in a market that has been incredibly supply restricted the last few years. We're coming off two years.

record low move outs. All of the names that have filed have been on folks radar for a long time. Our team has been proactively marketing these spaces. I think the other thing you're seeing broadly in the market is retailers bidding on this space. You look at Five Below who took out 30 Tuesday morning spaces and as we look at the demand that we're seeing for the bad bath boxes

with the LOIs and leases we're negotiating in addition to the ones we're already signed, we don't think this materially alters the supply dynamic really at all. You have great operators that are expanding in the specialty, grocery, off-price, health and wellness segments that just are really looking for a lot of good boxes, good boxes that we have in the portfolio. So overall we feel pretty comfortable.

Thanks, Handel. The recovery ratio in the first quarter does look high at 89.6%. That has to do with a couple things, but significantly with the mix of expenses we experienced in the first quarter just being a little bit more highly recoverable. We do think for the full year that that line item net expense reimbursements are going to be a positive contributor to same property on Y growth, somewhere in the 50 to 75 basis range, but that recovery ratio is going to moderate as we move through the year. You just sort of get a different mix of expenses as we move through the year. The positive improvement or positive contribution to NOI over the course of the full year is really being driven. That is University labelled with a 60% improvement over the next two hours.

by efficiency and spending, certainly, but also most significantly by that significant increase in weighted average bill occupancy.

that could be impacting that, and should we expect that to remain similarly high over the next couple of quarters? And what does that suggest for occupancy, perhaps, over the next 12, 18 months? Thanks. Yeah, the pipeline is not growing because of delays in getting rent commenced. We commenced more rent during the first quarter than we had originally expected. The pipeline continues to grow just because of good momentum on leasing productivity and the fact that we're just continuing to lease up some of that vacant space and benefit from some of the tailwinds of the reinvestment activity over the last few years. That's also why you've seen, you know, the small shop component of the sign-but-not-commence pool continue to grow as well. So, no issues in getting rent commenced. Things continue to happen.

in line with our expectations or a little bit earlier, but no delays to note.

Thanks, and our next question comes from Craig Mailman with city. Please proceed with your question.

Hey, good morning. Angela, maybe just to circle back on bad debt. I know you guys didn't adjust it here, but I'm just kind of curious, one, whether conversations have increased with any tenants outside the known bankruptcy that would make you feel like there could be.

Um, more kind of distress coming as the year progresses. And two, just given the cadence of seasonality here from a, from an impact to earnings, um, does it feel like you, even though you have the same level of that debt, maybe the FFO impact in 23.

could still be a little bit less if it's more back-end weighted at this point. Thanks, Greg. I'd say a couple of things. We're not at this point seeing any issues in any significant way as it relates to rent collections from cash basis tenants or additional disputes or anything that would move our guidance for bad debt higher. We did come in a little bit lower than that in the first quarter. That was expected just based on things we knew about going into the first quarter, which is part of why we maintain the guidance for the full year. I think also, just given the macroeconomic volatility, I think you heard Jim, Brian , and I all allude to the fact that we're not seeing any issues in any significant way.

Maybe an update, terms of leasing is going well with the forward pipeline under LOI. Have you guys seen any change in cadence though post-SGB and what's gone on since March in terms of kind of demand, gestation periods, anything on that front?

Quite to the contrary, demand continues to remain strong. And I think what's interesting to note is that you have retailers who have given more cautious outlooks for 23 and beyond, given concerns about the consumer, nonetheless remain very committed to their forward store opening pipelines. Why? Because that's a profitable channel for them. You also believe in there is SANeasy?

they've got some significant white space. So that supply-demand dynamic that Brian referenced is really playing into our favor. And if anything, we're seeing an acceleration of timeframes from LOI to lease, reflecting the shared interests for them, both

retailer and us to get those stores open. And Brian and team I think have done a really good job of stepping up and meeting that demand. And you're seeing it, you know, we had the question before about our sign but not commence. The growth in that at the 400 basis points is absolutely an outcome of that leasing momentum. Particularly when you consider the rent that we delivered during the quarter.

So we feel good. Obviously, we're very focused on continuing to harvest that demand in this environment and remain very optimistic about what we see in the general industry over the next several quarters.

Great, thank you. Thank you, Beth. Our next question comes from Greg McGinnis with Scotiabank. Please proceed with your question.

Hey, good morning. Angela, I know you've talked about target leverage of around six times in the past, but how are you thinking about that target today given the leverage improvement versus last quarter and the signed, the not commenced tailwind that you're going to experience? If you plan on sticking around six times, should we expect to see a greater push on acquisitions or with the development pipeline?

Thanks, Greg. I would say our target has been six times since we joined the platform, really informed by the below market basis of the portfolio and the fact that over time as we harvest that basis, you're going to continue to see leverage drift a little bit lower than that. Six times today on a look-through basis is actually inside of six times.

What you're seeing today and us moving down to 6.1 does reflect in part our continued ability to harvest some of that below market basis. We are achieving those levels. I think you've heard from Jim and Mark at this point that in terms of the acquisition outlook, we're watching the market closely and are hopeful that we'll see some opportunities in the second half of the year. But the market is pretty quiet at this point.

But I think as you've seen us, including in the first quarter, continue to raise some liquidity through well-priced dispositions, you know, we're creating a little dry powder that we can use to the extent those opportunities materialize.

Okay, thank you. And then I guess thinking about the portfolio recycling and transaction environment, like you just mentioned, and previously the acquisition market's a little quiet today for what you would actually want to acquire, at least the prices that you want to acquire at. But should we still expect to see this kind of normal course portfolio recycling on it?

transactional activity, but we're always going to remain disciplined to harvest those assets where we believe we've maximized value. You know, we look at that hold IRR. You'll notice not only did we achieve some compelling cap rates in terms of the dispositions that we made, but we...

We sold assets that were more highly occupied that we had backfilled and leased and didn't see future growth opportunities. So I think any responsible plan will always have some ongoing pruning of the portfolio, reluctant to provide any guidance as to specific transaction levels. I know that may be frustrating for your models.

but appreciate that we're always going to be disciplined. And we're encouraged that Mark and team have been able to find liquidity for some of these smaller assets that are truly non-core. Okay, thanks Jim. You bet. Our next question is from Juan Sandria with BMO Capital Markets. Please proceed with your question. Hey Juan. Hi, good morning. Just a quick follow-up, I guess, to start. The question or the answer to Todd Thomas' question on sequential occupancy improvements for the balance of the year, was that, was you answer with regards to billed occupancy or the lease rate? A billed occupancy.

Great, thanks. And then, just curious what the traffic data from the underlying consumer is telling you. Understand that the retailers themselves still seem very enthusiastic about leasing high-quality spaces, but just curious if you're seeing any change in the consumer behavior.

across regions or affluence levels, anything you could point to where you yourself are maybe seeing some signs of changing in behavior.

We haven't seen it yet. We're always looking. We're encouraged that the traffic levels on a year-over-year basis remain positive. And to your question about geography, it's been pretty consistent throughout the country in terms of what those traffic levels have been. So we're encouraged by that.

I think the retailers themselves, as I mentioned earlier, importantly are looking through kind of some expectations of customer slowdown and weakness, but nonetheless remain very focused on their new store pipelines, which I think is an encouraging sign, both of what that future demand is gonna be, but also the fact that these retailers are focused on the store model as a profitable channel.

and they see white space in terms of where they wanna open new stores. I'm really proud of how we as a team are capturing a disproportionate share of that demand. When you look at sort of what our indexing is relative to overall new store openings, we way out index what our position would otherwise suggest.

Those are very good tailwinds. Traffic levels remain up year over year, which we're encouraged by. We have not seen any meaningful change. And maybe just a quick follow-up.

There seems to be a greater emphasis on the pad sites for drive-throughs. I'm assuming that that requires more square footage to effectuate for new drive-through build-ups. Does that maybe limit the amount of pad developments you could do in a go-forward redevelopment pipeline or not necessarily? I'm just trying to think through what that latest trend means.

and if you think about what municipalities are doing, right, they're lowering parking requirements. If you look at tenants receptivity in terms of having these type of uses and pads and not as concerned with visibility as they were in the past, what we're doing, one of the things to do to think about is you take back

at-riff tenant space, you're also freeing up a lot of restrictions on that space. So as Jim highlighted, we've been very focused on driving our out-parcel pipeline and densifying our sites. You look at Chipotle, which entered our top 40 this quarter, we've got a great pipeline with them, the likes of Shake Shack and Chick-fil-A, Starbucks, and our team's done a fantastic job, our redevelopment, our operating teams, along with our teams and national council.

several years. And one pleasant surprise of the program has been that we're actually generating demand on the balance of the center. So as we bring in a Starbucks or Chipotle or Chick-fil-A, one of those high traffic uses, we see a positive impact on the small shop leasing throughout the center. So it's it's been a very virtuous cycle for us.

Thank you. I appreciate that. Our next question comes from Connor Mitchell with Piper Sandler. Please proceed with your question. Hey, thanks for taking my question. Following up on the bank upheaval mentioned earlier, I guess I was just wondering, maybe ask a little differently, if it's caused any credit availability issues with any of your...

smaller tenants meeting or any of the small shop tenants seeing their banks pull back at all? We haven't. In fact, our small shop tendency remains as strong as it's ever been. And we've talked about on prior calls the work that our teams have done, our leasing teams have done with Angela's teams in terms of our credit underwriting.

And what you're really seeing is the strength of franchise operators. You look at a Jersey Mike's franchisee or somebody like that. They're typically multi-unit operators and the credit profile of that tenant has actually gotten a lot stronger. So I'd say overall we haven't seen any impact, but I would just say broadly that our small shop tenants base is a lot stronger.

the small shops that we're attracting because of all the work that we've done across the portfolio are a lot stronger as well. Okay that's helpful and then discussing the demand and then the supply dynamic a couple times, given the declining availability of the anchor spaces are you seeing any larger format tenants?

launch more concepts that fit into small shops? Sure, I mean you saw IKEA just make an announcement where they're coming to the US, they're looking at 5 to 10,000 square foot spaces as kind of these mini showrooms with five-year deals.

We're certainly seeing an operator like Dix who's talked about their house of sport, their 110,000 square foot concept that's done much smaller locations like with Golf Galaxy. Macy's has really been focused on their market by Macy's and their backstage concepts. So what's been particularly encouraging about the depth of demand is just how many tenants.

And you're also seeing tenants willing to go smaller than prototype, which creates additional flexibility in that demand. Thanks. Appreciate the call. Our next question comes from Caitlin Burrows with Goldman Sachs.

As we mentioned, we were pretty pleased with where we traded those assets well inside of where we trade on an implied basis.

We clearly benefited from strong demand for gross granted assets across all regions in the US currently. We saw demand from...

Okay, and then on the leasing spread side, I know renewals is one that isn't often as high as on the new leasing side, but leasing spread for renewals jumped in the quarter. The corresponding renewal TIs did too somewhat. So I was just wondering, was that driven by a specific deal and what are you hearing from tenants with respect to wanting to stay in their space?

in seven and a half years and it really speaks to all the things we've been talking about today. What we've been doing in the portfolio, the fact that we've got better tenants that are driving more traffic, more tenants want to stay. And if you look at our retention rate, which you pointed out at 84.1%, it's up 270 basis points from where it sat a year ago. So we put better tenants in, we've got a much stronger overall tenant base.

And based off of what we're seeing in the overall demand environment, our team's utilizing that to really drive rate, both with new leases and renewals. So it's something that we continue to be encouraged by and something that we expect to continue to be able to make progress on.

in the overall demand environment, our team is utilizing that to really drive rate both with new leases and renewals. So it's something that we continue to be encouraged by and something that we expect to continue to be able to make progress on.

Thank you. Our next question comes from Floris Van Digtum with Compass Point. Please proceed with your question. Hey, Floris. Hey, Jim. Good morning. Question for – I mean, if I look at your portfolio, I mean, you're continuing to click along here and this capital recycling, it's actually – it's very low risk. If you could talk about –

I know you guys have, in the past have said, all the assets that you've redeveloped, you've boosted your small shop occupancy, and I can't remember what it is, but a couple hundred basis points. Presumably Angela will probably give me the exact number. But can you, if I think about the upside potential, that one of the big upside potentials here is, even though your small shop is at record levels of 89%, it's still, it would appear to have some more upside relative to what some of your peers have. And again, if you reinvest in your portfolio, you know that.

should have more room to go and small shop rents are double for your anchor rents. And so significant potential upside here. Can you guys share what the occupancy is on the assets? You know, the small shop occupancy on the assets that you redevelop, so you spent 885 million in your portfolio, what is the occupancy level in those assets that you've you've touched? Small shop, obviously, compared to the rest of the portfolio.

It's a couple hundred basis points higher than the average and importantly we continue to see improvement that we expect to be able to achieve on those reinvestment projects Occupancies at or above where the peers are overall from a portfolio standpoint But you make another very important point Flores, which is given where the rate is There's much more leverage to every 10 basis points of improvement and occupation

agency in particular and you're seeing it also in the rates that we're achieving, which quarter in and quarter out we continue to set new records. So that's the plan, the follow-on impact of the plan.

you know from a capital recycling standpoint where we don't see much more room to run in terms of rate and occupancy typically that will be an asset that we consider for harvesting and when prudent so I'm really glad you highlighted it because I think it's something that's not fully appreciated that

Not only are we driving great ROI on that $885 million that we put to work, but there is very substantial and clear follow-on benefit, both in terms of occupancy and rate in the small shops. The other thing that Brian alluded to that we're also driving is additional density at the properties as we bring in pad sites, et cetera, which sometimes are our highest return opportunities. So it's all part of the overall strategy of driving consistent outperformance and growth. And importantly, it's all within what we own and control today.

So when we look past the $360 million or so that we have underway, we believe we have another billion dollars of opportunity behind that. And when you look at the proportion of the portfolio that we've actually completed reinvestments on, it's a little over a third. We have more room to run there too. So.

It's exciting to see it now finally coming through. To no longer have to talk about it, but actually point it out in the execution. And it's also exciting to see kind of the cumulative impact working its way through. Thanks, Jim. And I guess maybe my follow-up, you guys, obviously that sign not open, it's 56 million of ABR. You got three calls that say climb up the altitude and it'smarking that up in fallen

Angela, maybe if you can remind people that there's a follow-on impact as well, which is the recoveries. And I know that you touched upon that, the fact that your 89% or 89.5% recovery was abnormally high. Shouldn't we expect critical performance on to take him to Roboticsals as milk blood?

your recovery ratio to stabilize at higher levels than where they've been because the increased occupancy and obviously, and part of that is through that S&O pipeline? Yeah, absolutely, Flores. As you continue to increase field occupancy, you will continue to see.

a meaningful increase in the recovery ratio and the contribution from net expense reimbursements over time. If you look at that sign, but not commensible, as you said, $56 million represents the annualized base rent from those leases. It's just under 3 million square feet of GLA. If you kind of conservatively assume recovery is on that space of something like $4 a foot.

You're looking at, you know, call it $11.5 to $12 million of additional outside. Thanks. That's it for me. Thank you. Our next question comes from Kee Bin Kim with Truist. Please proceed with your question.

Thanks, Tom. Good morning. Good morning. So it's interesting that your top 10 MSAs has 93% leased occupancy. It's actually lower than the markets you consider have other. Your smaller markets where they have 96% leased rate. And I realize within the top 10 you have some markets like Chicago, Dallas, or Miami that are dragging down the average, but you still get the most out of most of the US cars.

us about a particular market and much more driven by opportunities that we have for future redevelopment. And that includes markets like North Dade, includes markets like Chicago, where we have lower occupancy assets around which we are leasing and building plans for reinvestment and you'll see us continue to announce them in the coming quarters.

as we hit our minimum leasing threshold. So really a lot of that vacancy, if you will, is part of the fuel of our future pipeline. There's another interesting point embedded in what you said, and that is that we have non-top 100 MSAs that are some of the best growers and some of the best assets.

in the industry. So, you know, I think sometimes those MSA statistics can can hide, if you will, some real upside opportunity in assets like in Ann Arbor, Michigan or other areas where you know, we see that supply-demand imbalance particularly attenuated.

and we also see a lot of tenants who believe those markets represent white space for them. So it's really much more driven by a few assets in each of those markets with lower occupancy.

Okay, and...

Okay, and I was curious about

your proactive leasing for troubled retailers maybe before they're even baked BK, you know, so for example, you know, if a retailer like Julyant Fabrics you know, if they have a limited lifetime.

How quickly do you try to release some of those assets or get some interest in tenants before bankruptcy is actually announced?

Yeah, Keith Bennett's a great question. Our team is laser focused on really everybody on the watch list and I think it's demonstrated in the results this quarter. Having the leases already signed on the spaces we proactively took back from Bed Bath. We signed a lease in under 60 days on our one-party root city rejection an asset that we bought in suburban Chicago with five below.

You've seen some of the demand that we're seeing with Tuesday morning out of the gate with tenants that are willing to proactively negotiate LOIs and leases to get control of some of this space. So our team's done a fantastic job and they're laser focused, so we're not waiting for the actual rejection notice to come through or for the bankruptcy announcement.

We understand what the interest is. We understand what the rents are that we can achieve, and we're executing on them as quickly as we can. So it's really a credit to how the team has approached these and expect us to continue to do that moving forward. Thank you. Thank you. Good question. Our next question comes from Teo Akusama with Credit Sui. Please proceed with your question. Hey, Teo. Hi, yes. Good morning, everyone. Congrats on the solid quarter. Good morning.

I know you guys usually give us a recap in terms of ICSC, but again, just kind of going into it in three weeks, just kind of wondering what you're seeing, what you're hearing from your clients, whether anything feels different heading into ICSC this year versus last year, and what you're seeing in the future.

is up at ICSE, our teams have full calendars as we look three weeks out from the show, full calendars with tenants that are looking to open stores that are trying to get those last few stores in for 2023 and really looking out to set their 2024 and pipelines beyond with many of the tenants that I mentioned today. So retailers are bringing more of their teams out which is a sign of a new year. For more information, visit ICSE.gov

attendance is expected to be up pretty meaningfully year over year. We'll know the final numbers, but ICSE is already ahead of pace.

Interesting. Thank you. Our next question comes from Anthony Powell with Barclays. Please proceed with your question.

Good morning. Percentage rents were a bit higher than we were modeling in the quarter. What's the outlook for that line item throughout the year?

Yeah, you know, there are timing issues with percentage rents just in terms of when we get sales reports from different tenants and when that income is recognized. We do expect it to be a slight positive contributor for the full year, but not overly material. That was baked into our guidance for same property and a lie in the net expense reimbursements and other bucket we gave last quarter.

which was 0 to 50 basis points, that number is now more like 25 to 50 basis points. Thanks. And maybe one more, you know, with the strong lease spreads, are you also seeing, I guess, higher rent bumps on an annual basis in your new leases that you're signing? We are. This is Brian . We actually, 100% of our deals had rent growth this quarter.

rate that we ever have in the portfolio, but we are focused on growing rents over the initial term and our team's done a great job of continuing to make progress there.

All right, thank you. Thank you. Our next question comes from Mike Mueller with JP Morgan. Please proceed with your question. Yeah, hi. I think you described the first quarter dispositions as being low growth, and I was curious, was that a little bit more about the specific assets or...

had done to backfill space and really more asset by asset assessment as to what we saw the ability to grow that asset going forward. So less about a market call much more about the asset in particular.

From a leverage perspective, we dealt with buyers who were all cash buyers in the quarter. We dealt with some buyers who were using lower leverage bank financing, and we did have one buyer on an earlier-in-the-quarter trade use CMBS. So I think overall, when you look at leverage for open-air retail, you continue to see demand from lenders, given the overall…

attractiveness of the asset base that you have assets that are well below replacement costs that generate strong cash flows and potential for growth. So you continue to see relatively strong demand to finance open retail today. Got it. Okay, thank you. Our next question comes from Paulina Rojas with Green Street. Please proceed with your question. Good morning. I have one question.

increased.

so much and so quickly.

Yeah, I think you're right to raise that as one particular pocket of risk we're certainly keeping our eyes on. It's not just private equity backed companies, but it's really about the leverage profile there and whether or not debt has been fixed and companies have some room to withstand some of the headwinds right now. We look at all of those factors, but really at all times throughout the course of the cycle we are always keeping an eye on.

that will impact the comparability of 2Q23? Yeah, the amount of out-of-period collections recognized in the second quarter of last year was about $10.5 million. That was easily, you know, two to three, really $2.5 to $3 million higher than any other quarter during the course of last year, so it's a pretty material impact.

Thanks. And then in terms of the 75 to 110 basis points of bad debt, how much was realized in 1Q? Yes. So the level of revenue deemed uncollectible as a percentage of total revenues in Q1 was about 30 basis points in the same property pool, so a little bit below that full year range. And we've held the full year 75 to 110 basis points.

Jim or Brian , I'm sorry if I missed this, but I mean, we talked about bed bath, you know, the rent growth, you can achieve the 30 to 35%. I think that's what you said.

Maybe talk about the other side of the equation. Like what's the cost factor to achieve this rent, right? The CapEx involvement. I know you said some of these boxes could be taken as is. But in the event that some of them were split, maybe talk about the net effective rent growth. So maybe a bit of color on that. Thanks. It's a great question. I'll let Brian answer parts of it. But.

When you take a step back, the fact that most of the activity that we're seeing is single-tenant back bills certainly reduces that and some of it is as is. So really all you're paying is a brokerage commission to get that tenant in. So it depends also on the use. If you're bringing in a specialty grocer, you're going to spend more money, but importantly on the other side of that, you're going to generate a much larger...

return. And so we fully expect to continue to generate some positive momentum in that effective rents as we recapture the space and capitalize on the spreads that we have. But, you know, it's not just one or the other. And by that I mean, we look at the alternatives of backfilling with the single tenant versus backfilling with multiple tenants.

and we hew towards that scenario where we believe we're making a better ROI decision. That's it for me. Thanks, guys. Bye. You bet.

We have reached the end of our question and answer session. I would now like to turn the floor back over to Stacey Slater for closing comments.

Thanks everyone for joining us today. We look forward to seeing many of you over the next few weeks.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.

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