Q3 2024 Brixmor Property Group Inc Earnings Call
Speaker Change: Ladies and gentlemen, good morning and welcome to the Brick's More Property Group Inc. So what a 20-24 earnings content is called. At this time, all participants are in a listen-only mode.
Speaker Change: and Jeff.
Speaker Change: As a reminder, this conference is being recorded.
Speaker Change: It is now my pleasure to introduce your host Samantha Strong from Invester Relations. Please go ahead, ma'am.
Samantha Strong: Thank you, operator, and thank you all for joining Brooke Svors, third quarter conference call. With me on the call today, our gym tailor, Chief Executive Officer, Brian Finnegan, President and Chief Officer, and Chief Gallagher Executive Vice President and Chief Financial Officer.
Samantha Strong: Mark Morgan, Executive Vice President and Chief Investment Officer will also be available for Q&A.
Samantha Strong: Before we begin, let me remind everyone that some of our comments today may contain forward looking statements that are based on fairness assumptions and are subject to inherent risks and uncertainties as described in our SEC filing. An actual teacher results may differ materially.
Samantha Strong: We assume no obligation to update any forward-looking statements.
Samantha Strong: 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 Change: Given the number of participants on the call, we kindly ask that you limit your questions to one per person. If you have additional questions, please re-queue. At this time, it's my pleasure to introduce Jim Taylor.
Jim Taylor: Thanks, Sam, and good morning, everyone. This third quarter was yet another quarter of outstanding performance, with increased expectations for 24, and importantly, excellent visibility on continued growth in 25 and beyond.
Jim Taylor: Collectively, these results that Steve and Brian will talk about in more detail reflect the momentum and durability of our proven plan, the transformation of our portfolio, and the strength of our team.
Jim Taylor: Our outstanding performance is reflected across every observable metric, from record occupancy and rate, continued strength in customer traffic.
Jim Taylor: sector-leading leasing spreads, continued delivery of accretive reinvestments, and a ramping external growth pipeline that continues to cluster our portfolio. While we efficiently harvest and redeploy capital from centers where we see limited upside.
Jim Taylor: We also have proven again, as Brian will discuss, our ability to capitalize on tenant disruption as an opportunity to drive value by bringing in better tenants at better rents.
Jim Taylor: And, of course, we continue to deliver strong bottom line FFO growth, which we expect to be 5% for the second consecutive year.
Jim Taylor: As noted in our earnings release last night, during the quarter, we implemented a regional realignment that combines our North and Midwest regions and moves Texas into our South region.
Jim Taylor: These changes enable us to realize the benefits of our clustering strategy and the efficiencies of scale across these markets.
Jim Taylor: while also investing in talent closer to the real estate. In conjunction with realignment, we recognize the one-time severance costs of about $2.5 million which we expect to more than offset in annual savings as we move forward.
Jim Taylor: We are very pleased with the acceleration of our capital recycling efforts.
Jim Taylor: Our patients over the last few years positioned us to now pivot and take advantage of our improved cost of capital and the dry powder we have built, including through 143 million of dispositions year to date.
Jim Taylor: During the quarter, we completed 64 million of acquisitions, with 81 million completed year-to-date.
Jim Taylor: In addition to Fresh Market Shops in Hilton Head, which closed during the quarter, we also closed on the acquisition of Acton Plaza, which is located in a very affluent suburb of Boston, and closed our portfolio there to seven assets.
Jim Taylor: Acton is anchored by a highly productive Roche Brothers grocer, and we are confident we can leverage our position in the market to drive NOI growth at that asset.
Jim Taylor: Importantly, we also have an additional $250 million of value-add acquisitions under control. Look for us to share more about these exciting acquisition opportunities in the coming quarters.
Jim Taylor: At the same time, we've continued our focus on driving value through accretive reinvestment.
Jim Taylor: delivering $33 million at a 10% yield in the quarter, with our in-process pipeline over $500 million at a 9% expected yield.
Jim Taylor: Importantly, these projects highlight our valuable tenant partnerships as we bring in and invest in our centers alongside thriving grocers including Trader Joe's, Whole Foods, Aldi, and Sprouts.
Jim Taylor: We are even more excited as we look to the future. Our signed but not yet commenced pipeline sits at $59 million, even with the commencement of $18 million of AVR in the quarter, of which we'll see the full benefit in the coming quarters.
Speaker Change: These stacking rhyme commandments
Speaker Change: of which we've commenced 47 million year-to-date combined with improving contractual rent steps, accretive reinvestment deliveries, a robust forward leasing pipeline, and of course our attractive rent basis.
Speaker Change: provide us unparalleled visibility on continued growth and value creation.
Speaker Change: and 25 and beyond.
Speaker Change: With that, I'll turn the call over to Brian for a more detailed discussion of our operating results.
Brian Finnegan: Thanks, Jim, and good morning, everyone. Our results this quarter once again demonstrate how our team continues to capitalize on a positive environment for open-air retail, our transformed portfolio, and industry-leading platforms.
Brian Finnegan: Supply remains as tight as it's ever been, while demand from a broad range of retailers to be in our centers remains strong.
Brian Finnegan: This supply, demand, and balance is enabling our team to not only drive rents across our portfolio, but to upgrade our merchandising mix with the best operators that are looking to expand their open-air footprint.
Brian Finnegan: But it's the unique combination of the low rent basis across this portfolio, and the track record of our team, that truly sets Brooksmoor apart, and is once again evident in our results.
Brian Finnegan: That begins with leasing as our team executed 1.1 million square feet of new and renewal leases at a blended cash spread of 22%, including record new small shop base rent of $31 per square foot.
Brian Finnegan: The new leasing activity, along with low move-outs, led to another quarter of record overall anchor and small shop occupancy at 95.6%, 97.7%, and 91.1% respectively.
Brian Finnegan: The best-in-class tenants that drove these results during the quarter included three new grocer leases, highlighted by Trader Joe's backfilling a former Bed Bath Box in suburban Denver, increasing our percentage of ABR from grocer-anchored centers to 81%.
Brian Finnegan: We also added new locations with Aldi, Burlington, Boot Barn, Sketchers, and Ulta Beauty, while continuing to capitalize on great demand from out-parcel tenants like Chase Bank, Fifth Third Bank, Shake Shack, and Caba.
Brian Finnegan: Thank you.
Brian Finnegan: The team is also well on its way to a creatively back-filling space we're in the process of recapturing, including from Big Lots.
Brian Finnegan: with seven boxes already resolved in markets like Nashville, Houston, and Fort Lauderdale at spreads of more than 50% with great tenants in the grocery, value apparel, fitness, and home furnishing segments.
Brian Finnegan: The recapture of these spaces has long been anticipated and a focus internally, and our team is welcoming the opportunity to upgrade merchandising and do it at much higher rents.
Brian Finnegan: And while we may see some short-term fluctuation in occupancy as we recapture this space, we're excited with the traffic driving tenants we'll be adding to our centers over the next several quarters, many of which we expect to start paying rent in late 25 and 26.
Brian Finnegan: Switching to reinvestment included within the 36 million dollars of new projects we added during the quarter was the expanded scope of the company's first Whole Foods redevelopment in the Philadelphia suburbs.
Brian Finnegan: where we were able to capitalize on that lease and a new Barnes & Noble that opened last month to add a new multi-tenant out parcel with Chipotle and First Watch driving rents in the mid-70s
Brian Finnegan: On the stabilization front, we were excited to open another Sprouts Farmers Market location in suburban Tampa in a former bed-bath box which we executed last year at close to three and a half times the prior rent.
Brian Finnegan: As we approach the end of the year, we remain as confident as we ever have in our business plan.
Speaker Change: The list of retailers that want to grow with us continues to expand, which not only gives us good forward visibility on growth, but acknowledges the work our team has done in transforming this portfolio. With that, I'll turn the call over to Steve for a more detailed review of our financial results.
Steve: Thanks Brian. I'm pleased to report on another quarter of strong execution across our platform as we continue to position the company for long-term sustainable growth. Nareed FFO was $0.52 per share in the third quarter driven by same property NOI growth of 4.1%.
Steve: Based rent growth, contributions to same property NOI growth accelerated from 380 basis points last quarter to 520 basis points this quarter, reflecting strong commencement activity, continued strong leasing spreads, and growth in build occupancy.
Steve: In addition, net expense reimbursements contributed 80 basis points driven by our growth and build occupancy.
Steve: As discussed on the last call, we expected revenue deemed uncollectible to be a headwind to same property NOI growth in the second half of the year due to lower out-of-period cash collections and the impact of current quarter bankruptcies.
Steve: Accordingly, during the quarter, revenues deemed uncollectible detracted 200 basis points from growth.
Steve: We still expect revenue deemed uncollectible to end the year at 50 to 75 basis points of total revenues, reflecting the continued improvement in credit strength of our tenants.
Steve: We continue to capitalize on the strong leasing environment as we end the quarter with a 370 basis point spread between lease and build occupancies.
Steve: A 30 basis point decrease from last quarter, despite commencing approximately $18 million of annualized base rent in a quarter.
Steve: Our signed but not commenced pools total $59 million, which includes $52 million of net new rent. The size of our signed but not commenced pool over the last year has provided a strong foundation for growth.
Steve: We expect that growth to continue into 2025 as this rent commences ratably over the next year at an average rent per square foot of $22.12 which is 27% higher than our current in-place rent.
Steve: From a balance sheet perspective, we took advantage of our improved cost of capital and transacted under our ATM for the first time since 2022, raising $20 million in equity at an average gross price of $27.92.
Steve: At September 30th, we had total liquidity of $1.7 billion and a debt to EBITDA on a current quarter annualized basis was 5.7 times, leaving us well positioned to execute on our business plan.
Steve: In terms of our forward outlook, we have increased our same property NOI growth to a range of 4.75% to 5.25%, comprised of a 450 to 500 basis point contribution from base rent.
Steve: In conjunction with the increase in our same property NOI expectation, we have raised our guidance for 2024 NARED FFO to a range of $2.13 to $2.15 per share.
Steve: Our continued outperformance has positioned us to raise our dividend to an annual rate of $1.15, an increase of 5.5% while maintaining a conservative payout ratio.
Steve: Looking forward to 2025, we expect same property NOI growth to exceed 4%, driven by the cumulative impact of 2024 and 2025 rent commencements.
Steve: embedded rent growth, and continued strong renewal spreads.
Steve: We are excited about the visibility we have into our future growth as our transformation has positioned us with a significant sign but not commenced pipeline and value accretive reinvestments that will stabilize in the coming year. And with that, I turn the call over to the operator for Q&A.
Steve: Thank you.
Speaker Change: Ladies and gentlemen, we will now be conducting a question and answer session. If you would like to ask a question, please press star and 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue.
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Speaker Change: Ladies and gentlemen, a reminder, we request you to restrict to one question and rejoin the queue.
Speaker Change: Our first question comes from the line of Juan Sanabria from BMO Capital Markets. Please go ahead.
Speaker Change: Hi, good morning and thank you for the time. Just hoping you could comment a little bit about the investments market.
Speaker Change: Raised some ATM, like you said, for the first time since 22. So, just curious if that is a sign that you're seeing more opportunities or just if you could talk a little bit more about the rationale for raising some equity at this point if it's not for future acquisitions. Thanks.
Speaker Change: Thank you, Juan. We do see an improving outlook in terms of external growth. As I mentioned in my remarks, we have about $250 million of assets under control that are accretive. Importantly, that further cluster our investments in our key markets.
Speaker Change: Yes, as far as the overall market, it's very healthy for open-air retail currently. You've certainly seen some core buyers stretch.
Speaker Change: into the fives for certain assets, but it doesn't really feel like they need that market.
Speaker Change: is well into the sixes, particularly for the assets that we've been looking and the assets that we've been transacting on. I think what's most striking about the market today is that you're certainly seeing a lot more institutional interest in open-air retail today, and I think that's really driven by the performance of platforms like Bricksmore over the last few years and the institutional investors.
Speaker Change: kind of missed the boat early. I'm hoping they're retailing and they're rushing in to try and get additional access, and I think that's very healthy for our space today.
Speaker Change: Yeah, and I think what's also important to recognize is the investments we're looking at really do leverage our platform to drive continued growth and outperformance.
Speaker Change: And so as we look at that, you know, we see some very creative opportunities, including through issuance under our ATM.
Speaker Change: Thank you.
Speaker Change: The next question is from the line of Greg McGinnis from Scotiabank. Please go ahead.
Speaker Change: Hello, this is Victor Fedivon with Greg McGinnis. I just wanted to ask a follow-up question on your sign-not-occupied pipeline contribution, and in general, whether tenants are pushing out their expected lease commencement.
Speaker Change: So, in terms of 2025, is this contribution from Sino not-occupied pipeline evenly distributed through 2025 or more back half-weighted? Thank you.
Speaker Change: Hey, this is Brian. First, I guess on the second part of your question, we're not seeing tenants really push things out. If anything, we're seeing kind of more demand, particularly in that box category in terms of store openings. 2025 is getting fairly full for tenants at this point. The deals we're talking about, which is really encouraging, are starting for 2026 on the box side. You look as it relates to the sign but not commence poll. It was 59 million at the end of the quarter, despite commencing 18 million dollars in the quarter. I mean that speaks to the leasing that we continue to add to that, and as Jim touched on, gives us really good visibility on future growth. So in terms of the overall environment and conversations with tenants, we remain really encouraged, but also good to see the growth in the sign but not commence poll.
Speaker Change: and Anakya Manspool.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: The next question is from the line of Todd Thomas from KeyBank Capital Markets. Please go ahead.
Speaker Change: Good morning. Hi, thanks. Hi, good morning. I just wanted to go back to the the questions around
Todd Thomas: you know, the investment environment and the ATM issuance. Again, I'm just curious, you know, should we expect.
Todd Thomas: The company to keep utilizing the ATM at current levels and then relative to the comments about having
Todd Thomas: $250 million tied up or in advanced negotiations. Should we assume an increase in net acquisition activity from a more balanced position that we've seen over the last number of years or should we expect?
Todd Thomas: you know, an increase in disposition activity to match those acquisitions as you further look toward, you know, your clustering strategy.
Speaker Change: Yeah, I mean, I think our primary source of funding for external growth will continue to be capital recycling. And we look to opportunities under the ATM to match fund acquisitions that we nonetheless believe will be accretive given our cost of equity.
Speaker Change: So, you know, it's going to vary quarter by quarter but expect over several quarters for us to be relatively balanced. Obviously, we've gone into the year being a net seller of about $150 million of assets with $80 million of acquisitions.
Speaker Change: but we do expect to see a ramp-up in acquisition activity that will be funded again through a mix of dispositions and, if appropriate, ATM insurance.
Speaker Change: Thank you.
Speaker Change: The next question is from the line of Jeff Spector from Bank of America. Please go ahead.
Jeff Spector: Great, thank you. Just one follow-up on the transaction market.
Jeff Spector: Potentially less cuts
Jeff Spector: going forward, do you think that puts a damper on the transaction market or, you know, has something really changed here that is sparking, you know, sellers to come to the market or, again, that buyer-seller gap, you know, has narrowed and you expect that to continue?
Speaker Change: As we build towards, for example, the December ICFC, you know, we're getting tons and tons of inbounds on get ready assets are coming. So I do think you're going to continue to see a pretty healthy investment market.
Speaker Change: going for, particularly for smaller assets, right? That's really where we've been able to take advantage of selling assets into the small asset market and recycling assets pretty tractably. So we're not really seeing a slowdown today in the market other than, again, that small post-economic election that we expected.
Speaker Change: Thank you. Thank you.
Speaker Change: The next question is from the line of Flores Van Dykem from Compass Point. Please go ahead.
Speaker Change: Thanks. Morning guys. Morning. My questions on capital raising has sort of been addressed a couple of times, but let me let me ask you a question on the leasing front and on the operations front.
Speaker Change: You obviously still have a pretty substantial S&O pipeline. Maybe you can talk about the split between the anchor and shop in that pipeline, and also where do you see...
Speaker Change: How much more room, everybody is pushing occupancy to record levels and beyond. How much more room do you see in your occupancy, particularly in your shop side, where your occupancy is probably a little bit lower than some of your peers?
Speaker Change: Yeah, Flores, thank you. We continue to see opportunity for upside in occupancy. I think a key differentiator of our growth strategy is that we're also driving spread. So we're bringing in a lot of...
Speaker Change: New ABR, not just simply through gain in occupancy, but by replacing lower rents with better rents and better tenants.
Speaker Change: That continues to drive, importantly, the momentum that we're seeing in the small shop space. And we fully expect that to continue to grow and have great visibility on its growth because of the drag of what we have in our reinvestment pipeline.
Speaker Change: You know, the other thing I would just highlight with respect to that snow pipeline...
Speaker Change: is, it's stacking growth. You know, as I mentioned in my remarks, we commenced 47 million.
Speaker Change: of new ABR in the first three quarters. We expect that trend to continue in the fourth quarter, which we won't see the full benefit of from a growth perspective until 25 and 26.
Speaker Change: So, you know, it's both elements. It's not only driving better occupancy, but even more importantly, driving better rate. It's part of what gives us confidence in being able to outperform over the long term, not simply through lease up alone.
Speaker Change: Yeah, Floris, and I would just add to your question on the breakout in the snow pipeline about 27 million of the 59 is an anchor. It's even more encouraging as those anchor rents at $16 a foot which would be a record in terms of where we signed those over the last year and is well in excess of the nine and chains that are anchors that are expiring without options over the next three years. So we remain encouraged in terms of that overall snow pipeline but even more so the quality of the tenants and the rents in which we're signing them at.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: and second question to that is that what is a sustainable level of the redevelopment pipeline going forward?
Speaker Change: Yeah, I'll let Brian take the first part, but the second part, you know, we see great visibility on $150 to $200 million of reinvestment over the next several years.
Speaker Change: You know, we have $500 million underway today, which is going to take us through a good part of 2026. But as Brian highlighted in his remarks, we're backfilling the pipeline with incredibly exciting reinvestment projects, such as the addition of Whole Foods at Barn Plaza.
Speaker Change: So, you know, we have several years of...
Speaker Change: reinvestment opportunity and that, as we've talked about many times before, is really driven by that Lee-Saxbury pipeline, which
Speaker Change: limits the amount that we can get at in any one year.
Speaker Change: Again, Key Ben, we're generally at 80%.
Speaker Change: pre-leased before we bring those projects on to the pipeline. It's even more encouraging as we brought some of these bigger projects on in the last year, like Naperville in the Chicago suburbs, Davis, California, Roosevelt, even on those larger projects, we've had them pre-leased with great tenants. So we've been really excited in terms of our ability to get those projects going and with the leasing activity to ultimately bring them forward.
Speaker Change: Thank you.
Speaker Change: The next question is from the line of Craig Melman from Citi. Please go ahead.
Speaker Change: Growth being above 4% for next year. I appreciate that you guys aren't giving guidance yet here, but that's a pretty You know if it's closer to 4
Speaker Change: then, you know, where you are today, kind of at 5%.
Speaker Change: It just feels like the market to anticipate and the acceleration for the group next year. Could you just kind of talk about the puts and takes at this point on maybe commencement timing and space coming offline that would keep you from at least kind of hitting the...
Speaker Change: where you are this year and maybe exceed that next year as the snow pipeline starts to deliver.
Speaker Change: Yeah, I mean, we expect to be above that. We're not going to give guidance for 25.
Speaker Change: But it just all points to the rents that are commencing, as you talked about, the reinvestment deliveries.
Speaker Change: the rev steps, and the occupancy gains we think put us above
Speaker Change: that long-term growth rate, which we've highlighted before, of 4% or better.
Speaker Change: We don't see any slowdown, if to the contrary.
Speaker Change: We see good strength and it's highly visible strength in terms of
Speaker Change: signed leases, redevelopments that are delivering, and the continued improvement in the intrinsic terms of our leases as we accrete those embedded rent steps. So when you look collectively, we feel pretty confident not just in our growth in 25, but in 26.
Speaker Change: and beyond, given these signed leases, given the pickup in occupancy, and given the better rents with better tenants.
Speaker Change: I think just the only thing to add, the other thing just to think about in there is bad debt.
Speaker Change: for the first nine months is well below our historical run rate of 59 basis points of total revenue. So right as you're thinking into 25, obviously that could prove to be a headwind depending on where we ultimately expect that debt to come out as well.
Speaker Change: Thank you. The next question is from the line of Alexander Goldfarb with Piper Sandler. Please go ahead.
Speaker Change: Thank you for your time. Have a great day.
Speaker Change: versus the 59, I think you said basically 60 BIPs year-to-date, and I think you said still expect, you know, the previous
Speaker Change: range, I think was 75 to 100.
Speaker Change: is the 200 just the year-over-year comp and it just seems like the tenant credit market remains healthy as ever. So just trying to understand better the 200 BIP headwind that's in the same store versus the comments that you just mentioned year-to-date, and then holistically as we think into next year.
Speaker Change: Is there really reason to think that, you know, bad debt would get back to the historic range, or that's really just sort of a plug, but right now on your watch list, you don't really see that happening.
Speaker Change: Yeah, I think the most important way to think about it
Speaker Change: bad debt as a percentage of total revenue. That takes some of the comparability from year over year out and as of 9 30 we're sitting at right around 60 basis points of total revenue. Our historical run rate and our expectations coming into the year was 75 to 110 right so well well south of that and as I as I said in my prepared remarks of we still believe that we would end the year at the 50 to 75 basis points that we updated on the last call. So I think that hopefully just helps frame like where we are within bad debt in the year and we are at you know historically lower levels than what we've seen. I think you're right on and when you think about the 200 basis points
Speaker Change: with two of the larger, sort of...
Speaker Change: items headed back all the way to the COVID period. So that really just created a difficult comp in that year. But, you know, so far, we're still very impressed with the overall credit worthiness of the portfolio. And then, you know, we'll, we'll update sort of our expectations on where we think that that'll end in 25 when we issue guidance next quarter.
Speaker Change: Yeah, I would just add, you know, we continue to see fundamental improvement in the credit quality of the portfolio, and the recent bankruptcies have really proven to be an opportunity for us to recapture space in one of the greatest demand environments we've ever seen.
Speaker Change: So it's a source of growth for us going forward.
Speaker Change: Thank you. The next question is from the line of Sameer Kanal from Evercore ISI. Please go ahead.
Sameer Kanal: Hey, good morning everybody. Maybe on this, sort of this preliminary 4% NOI growth.
Sameer Kanal: I know you gave some building blocks there, but help us understand the flow through of the 59 million of ranked commencements, how to think about that over the course of next year.
Speaker Change: Yeah, you know, I think Jim hit on earlier sort of the building blocks of and of where we think that growth is going to come in, right? It starts with your embedded rent growth in your existing leases.
Speaker Change: When you head into next year, you're going to see growth on top of that, along with the snow pipeline that's going to commence in that year, right? So, that's where you get the layering impact of that snow pipeline that's been higher for really about a year now coming into the contribution. So, that's why we feel really comfortable that, you know, we're going to be in excess of that 4%. And then, obviously, the significant redef pipeline that we have and the contribution that that provides as well into this line item. So, I mean, it's generally those pieces, the embedded run bumps, the snow pipeline commencing, and then the redef pipeline as well.
Speaker Change: Thank you. The next question is from the line of Dory Kirsten from Wells Fargo. Please go ahead.
Dory Kirsten: Thanks, good morning. You hit on this a bit in a few of your answers, but the rent on your 25 lease expirations is somewhat low versus the remainder of the portfolio, both on the anchor and the small shop side.
Dory Kirsten: Should that be setting you up for a particularly strong year for spreads next year or is there something idiosyncratic to that group of expirations to note?
Speaker Change: I would just say broadly, I mean, our team has consistently demonstrated.
Speaker Change: the ability
Speaker Change: 10%. You mentioned those expiries, we've been signing those anchor deals around $16 a square foot. And as we look out long term, we continue to see the ability to bring rents to market, not just next year, but going forward. And it really goes to not just the environment, but what we've done to this portfolio, the tenants that we've added to this portfolio, the percentage of grocers that we added to this portfolio, we're driving traffic at the top of the peer group. So you put all that together, as well as the work our team's been able to do in terms of capturing that upside, gives us really good visibility going forward, not just into 25, but beyond.
Speaker Change: Thank you. Thank you.
Speaker Change: The next question is from the line of Handel St. Just from Missouho Securities. Please go ahead.
Speaker Change: Hey guys.
Speaker Change: Good morning, good morning, good to hear you.
Speaker Change: So I guess my question is just stepping back and thinking about the...
Speaker Change: the near-term and intermediate-term opportunity within the core portfolio, right? So I guess...
Speaker Change: Here's how we should read some of the dynamics from the quarterly results here leasing was robust But a bit slower than prior quarters the snow pipeline is still sizable, but It's down a few quarters in a row here and your portfolio sitting here at all-time high, so I guess
Speaker Change: Curious how we should interpret this. This perhaps suggests that your core growth potential is perhaps
Speaker Change: Peaking this year and then on the 4% you mentioned for next year. Is that base case or more the low end of an expected range? Thank you. Yeah, so the 4% Hendel Thank you is not guidance and we we've said we expect to be better than that And we'll provide more detail as we provide detailed guidance
Speaker Change: But the bottom line is the business continues to fire on all cylinders and as you look at the leasing
Speaker Change: You would expect leasing volumes to moderate a bit as the portfolio approaches full occupancy, but the benefit of the leasing, importantly, is going to be felt in 2025 and 2026, as you look at the compounding effect of those stacking rent commitments.
Speaker Change: Over 18 million of new rent in the quarter. We've commenced over almost 50 million year-to-date You're going to see the full benefit of that plus the 50 million that we haven't signed but not commenced
Speaker Change: plus what we have in legal continuing to provide tremendous visibility along with the delivering reinvestment.
Speaker Change: that growth is not dependent only on growth and occupancy.
Speaker Change: and Octavio.
Speaker Change: So, we actually like how we're positioned and we like how we will continue to outperform.
Speaker Change: And I would just add, Jim alluded to it, that legal pipeline.
Brian Finnegan: It's close to a million square feet in new lease GLA today. It's the highest it's been in a year. And we're starting to address some of the boxes that we're taking back here at the end of the year. So to Jim's point, as occupancy approaches or continues to hit all-time highs, you would expect that new lease volume to moderate a bit. But with the activity that we see in that legal pipeline, we actually expect it to grow here over the next few quarters.
Speaker Change: Thank you. The next question is from the line of Caitlin Burrows from Goldman Sachs. Please go ahead.
Speaker Change: Hi everyone.
Caitlin Burrows: Good morning. I did have a just follow up on that last point. I think you were mentioning the term quote legal pipeline, which I'm not familiar with. So wondering if you could clarify that. But my real question was on if you could go through the acquisition of Acton Plaza, maybe some details on cap rate, the upside, how quickly you could achieve it and how competitive the process is.
Caitlin Burrows: was, how the deal was sourced, those sorts of details, and maybe what's specific to that property, or anything we could take for the broader market.
Speaker Change: Kaitlin, real quick, that's legal pipeline for us as leases that we have out for signature actual leases versus LOIs.
Speaker Change: And it continues to remain robust. Mark, do you want to talk about Acton? Yeah, sure. Acton. So we have an excellent operating platform up in Boston. We've come to the market. We have no of the outfits we'd like to buy in that market.
Speaker Change: This one was owned by a well-known institution. It came to market through a broker and we thought we had some unique opportunities to drive both near and long-term growth through the rents we saw there. And again, we're really leveraging a very excellent operating platform up in Boston.
Speaker Change: A market that is tight and it performs very well, so we did want to add some exposure there. That's really how it came from a competitive perspective. It was a competitively bought asset, ultimately one of the benefits.
Speaker Change: Why we think the seller went with us is because we are an all-cash buyer and that is a great benefit in the market because Buyers don't worry about us having to fund stuff through the CVS market or other otherwise and when we say we can close on a day We do
Speaker Change: And similar to our existing portfolio, a lot of low market rents that we believe we can capitalize on, as well as some opportunities to add density.
Speaker Change: Thank you.
Speaker Change: The next question comes from the line of Mike Mueller from JPMorgan. Please go ahead.
Mike Mueller: Yeah, hi. Good morning. With build occupancy moving higher, when do you think the least to economic occupancy spread can be at normalized levels? Do you think that's some point in 2026?
Speaker Change: I think so. It's out there a ways when you look at the delivery of what we've signed and are commencing. I think that's fair.
Speaker Change: Thank you.
Speaker Change: The next question is from the line of Paulina Rojas from Green Street. Please go ahead.
Paulina Rojas: Good morning. When talking about acting, you mentioned that you wanted to increase your exposure to Boston. So, as you think about your clusters, are there any markets where you'd like to increase your exposure?
Paulina Rojas: And related to that, have you found a common theme in the areas where you are seeing the most demand from retailers? Or is it largely homogeneous across geographies and formats?
Speaker Change: nearly all of our markets, and we continue to focus on
Speaker Change: clustering in those markets to capitalize on what we know the demand to be from retailers. You know, a common theme to our investment strategy is finding assets that are under-rented, under-leased.
Speaker Change: under reinvested in, but nonetheless very well located.
Speaker Change: where we can capitalize on the platform to drive real long-term values. So as you look ahead and think about some of the acquisitions we have under control, they're in markets that we have great presence in and know extraordinarily well, such as Florida.
Speaker Change: Coastal Carolinas, the Upper Northeast, California, and Texas.
Speaker Change: Thank you. We have a follow-up question from Caitlin Burrows from Goldman Sachs. Please go ahead.
Caitlin Burrows: Hi again. Just on the acquisitions and dispositions, sounds like you guys are expecting to generally be balanced going forward. So I was wondering, just from like a cap rate perspective and what it means for earnings impacts, do you think we're at a point where the acquisition cap rates can be higher than the dispositions? And if so, by how much? Or is the opportunity there more of like a longer term, higher growth from the acquisitions versus the dispositions?
Speaker Change: Well, I'd say, well, first of all, year to date, when you think about what we've sold, we have had a positive spread between acquisitions and dispositions, given that we sold Malt 163rd for an extremely low cap rate. So, year to date, it's been a positive contributor. As we look forward, what we really focus on is hold IRRs from an investment perspective. So, we really try to sell assets where we think
Speaker Change: The hold IRR is low and biasset for the hold IRR is higher. I would expect that maybe a slight cap rate difference between those two, but not a material one.
Speaker Change: So effectively, we look at that on a near-term basis as neutral.
Speaker Change: Thank you. Ladies and gentlemen, a reminder, if you wish to ask a question, please press star and one.
Speaker Change: The next question comes from the line of Alexander Goldfarb from Piper Sandler. Please go ahead.
Alexander Goldfarb: Hey, thanks for taking the follow-up.
Alexander Goldfarb: Brian, question on leasing and on store performance.
Alexander Goldfarb: You know, obviously, the past few years since COVID have been great for mark to market of rents and, you know, boosting of occupancy and retailer performance. But as we get into a more normalized environment,
Alexander Goldfarb: Do you see that the mark-to-market of rents...
Alexander Goldfarb: is more driven by just simply rolling old lower rents to where the market is today? Or do you guys have confidence in the store productivity such that tenancy
Alexander Goldfarb: This store is continuing to outperform, let's say inflation, such that we can continue to see healthy marks to market on rents.
Speaker Change: Alex, it's a great question and it's both.
Speaker Change: We do have a low rent basis across the portfolio that we expect to be able to take advantage of as we continue to deliver reinvestments, as we continue to add great traffic driving tenants.
Speaker Change: operators like Sprout and Aldi and Whole Foods and Trader Joe's, you look at the off-price operators which continue to have very strong performance, quick-serve restaurant operators.
Speaker Change: The expansion of wellness and how people think about wellness today and our fitness operators are very strong So you look at that on a whole and then you look at the traffic that we're driving to our shopping centers We expect to be able to continue to drive rent as our tenants continue to succeed
Speaker Change: But then we also have a very low rent basis to take advantage of as well. So you put that together, I think it puts us in a very good position going forward. Yeah, and you know what we're also really encouraged by from a productivity standpoint is traffic by banner, which we think compares very favorably across the marketplace.
Speaker Change: particularly when you think about the in-place rents. So as Brian mentioned, it's really both. It's the rent basis as well as the productivity of the tenants, which we're excited about driving even further productivity in the years ahead.
Speaker Change: Thank you. The next question comes from the line of Flores Van Dykem from Compass Point. Please go ahead.
Speaker Change: Thanks for taking my follow-up. Getting back to the capital allocation,
Speaker Change: you raised a tiny bit of equity in the quarter, you're still trading at a marginal discount to where we think your NAV is, but you're getting closer. As you think about
Speaker Change: You know, equity as a source of capital now, I think, you know, and your peers are in the same, some of them already exceeded NAB, by the way. But as you start to be able to consider equity,
Speaker Change: How much of an opportunity do you see for you to replicate what you've done to your own portfolio on new acquisitions and how big of a pipeline
Speaker Change: potential pipeline is there out there for you guys to to potentially acquire and would you get more constructive on some of that as as your share price continues to to move higher?
Speaker Change: You know, we always are very careful with our equity and recognize that it's precious.
Speaker Change: So when we think about the issuance of equity, it's really with the mind towards what you are saying, which we're seeing, which is...
Speaker Change: acquisition opportunities that can be accretive in terms of a net value add.
Speaker Change: And as we look at the pipeline going forward, we're encouraged by some of the opportunities that we're seeing that have been owned by platforms that don't have the redevelopment national accounts and leasing and operating.
Speaker Change: strengths that we have as a platform where, you know, we we see as we bring these assets into our platform we actually outperform our underwriting.
Speaker Change: those that we have under control, as well as what we see coming forward. Yeah, in terms of that pipeline, I think it's important to note that the vast majority of open-air retail is not owned institutionally. It's probably 80-85% is not owned institutionally.
Speaker Change: And so when we look at our current pipeline, for example, we're buying from two institutions that we think we can operate better than, clearly. And then we're also buying from two families that have held assets for a very long time that we think will generate some very interesting growth.
Speaker Change: because they've held them for a very long time and are not, you know, first-in-class operators. They were just great real estate buyers 50 years ago, so we're really excited about the future pipeline and believe we can continue to backfill acquisitions when we think the Gallagher mark is correct.
Speaker Change: Yeah, as we like to say, it's more coal for our growth furnace. So we're excited about what we see ahead. But again, Flores, to your point, equity is precious and we'll always be very disciplined.
Speaker Change: For more information, visit www.FEMA.gov
Speaker Change: Thank you. The next question is from the line of Corner Peaks from Deutsche Bank. Please go ahead.
Speaker Change: Hi, thank you. On the uncollectible income, it's been talked about plenty on this call, but if I could ask about the Big Lots specifically and how the announcement pertains to your portfolio and what you see going forward there. Yeah, Connor, it's a good question. We're very pleased with the activity that we've seen on the Big Lots spaces.
Speaker Change: These boxes are coming back at a time of historic
Speaker Change: box, low box vacancy across the entire industry as well as the portfolio. But we've got 10 that are gonna be in our possession by the end of the month. Seven of those are already resolved with great tenants.
Speaker Change: at rent spreads are, again, in excess of 50%. It kind of remains to be seen. Bankruptcy is a fluid process in terms of how many more we ultimately will get back. I would just say on the whole, though, we're seeing great demand from the boxes with tenants that we've continued to execute a lot of deals with in the specialty grocery, off-price apparel, fitness and wellness space. So, as Jim touched on earlier, this is an opportunity for us. The rents on those boxes are $7.50, and we've been signing anchors at $16. So, we're pleased with the progress that we're making out of the gate and look forward to being able to re-merchandise these boxes quickly with better tenants at higher rents. Yeah, and the team really has been playing towards this for a while. It hasn't been a surprise, which is part of why.
Speaker Change: We're already resolved on 7 of the 10 boxes. So we're excited about the potential to get back more because with that low rent basis we know we're going to deliver a lot of value and accretion.
Speaker Change: Thank you.
Speaker Change: As there are no further questions, I now hand the conference over to Samantha Strong for her closing comments.
Samantha Strong: Thanks everyone, we'll see you at NARIT and have a happy Halloween.
Speaker Change: Thank you. The conference of Bricksmore Property Group has now concluded. Thank you for your participation. You may now disconnect your lines.