Welcome to the Brixmor Property Group Second Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the call over to Stacy Slater, SVP of Investor Relations and Capital Markets. Thank you. You may begin.

Thank you, operator, and thank you all for joining Brixmor's second quarter conference call. With me on the call today are Jim Taylor, Chief Executive Officer; Brian Finnegan, President and Chief Operating Officer; and Steve Gallagher, Executive Vice President and Chief Financial Officer; Mark Horgan, Executive Vice President and Chief Investment Officer, will also be available for Q&A. Before we begin, let me remind everyone that some of our comments today may contain forward-looking statements that are based on certain assumptions and are subject to inherent risks and uncertainties as described in our SEC filings, and actual future results may differ materially. We assume no obligation to update any forward-looking statements. 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. Given the number of participants on the call, we kindly ask that you limit your questions to one or two per person. If you have additional questions regarding the quarter, please re-queue. At this time, it's my pleasure to introduce Jim Taylor.

Thanks, Stacy, and good morning, everyone. Before speaking to our results and continued execution, I'd like to begin by congratulating Brian, Steven, Kevin and Helane on their well-deserved promotions. Simply put, well done. As a company, our foundational cultural tenant is that great real estate matters but great people matter even more. At Brixmor, we are blessed with the best team in the industry, a team that continues to deliver outperformance quarter in and quarter out, as we execute our balanced value-added plan. Speaking of records, we achieved record occupancy and record new and renewal spreads in the quarter. Once again, highlighting the flywheel effect of our portfolio transformation and our ability to capitalize on the embedded mark-to-market opportunity. In fact, we average rents of $23.82 a foot versus our average in place of $17.25. Importantly, we also commenced an additional $17 million of ABR in the quarter, ahead of expectations, while our signed but not commenced ABR, replenished to $65 million. Again, providing excellent visibility on continued top line growth as those leases commence paying rent over the next several quarters. Overall, that top line revenue growth drove most of our same-store performance of 5.5% in the quarter as growth in operating margins, driven largely by increased occupancy and penetration of fixed CAM delivered the balance of that growth. That same-store growth, in turn, drove bottom line FFO growth of nearly 6% in the quarter when you exclude the prior year gain on debt extinguishment. Even with expectations of higher levels of bad debt and lower prior year recoveries as Steve will detail further in a moment. This outperformance led us to raise our FFO guidance to a range of $2.11 to $2.14, an increase of $0.03 at the midpoint. On the reinvestment front, we continue to make excellent…

Thanks, Jim, and good morning, everyone. I'm pleased to report another quarter of outstanding operating results delivered by the Brixmor team as demand to be in our centers from a wide range of high quality operators shows no signs of slowing down. The well-capitalized tenants we are attracting and the rents we are achieving demonstrate not only the continued transformation of our portfolio but the unmatched strength of the Brixmor platform. Our leasing activity during the quarter allowed us to achieve records once again in overall anchor and small shop occupancy with small shops growing sequentially for the 14th consecutive quarter to 90.8%. Record occupancy levels are also enabling our team to push rental rates higher in both new and renewal leases, which was also evident in our results as we achieved record renewal growth of 19% across 195 renewal leases executed in the quarter to pair with the over 50% growth in our comparable new leases, which Jim highlighted. As encouraging as these results are, what's even more encouraging are the tenants we deliver them with. Tenants like Ulta, HomeGoods, Rally House, Skechers and Boot Barn, along with the company's first new lease with Wayfair in Greensboro, North Carolina, yet another online retailer that is recognizing the importance of having a physical store footprint. We also continued to grow our grocery-anchored percentage during the quarter. Adding another Sprouts Farmers Market to proactively backfill a Conn's location in Knoxville, Tennessee at close to triple the in-place rent, demonstrating once again the opportunity that we have in our below-market leases and the speed at which our team can capitalize on them. The Conn's boxes are among the few that are expected to come back to us at a time when box vacancy is at historic lows for the portfolio. And our…

Thanks, Brian. I'm pleased to report on another very strong quarter and improved forward outlook, reflecting the strength of our business plan execution and the compelling growth opportunity within the Brixmor portfolio. NAREIT FFO was $0.54 per share in the second quarter, driven by same-property NOI growth of 5.5%. Base rent growth contributed 380 basis points to same-property NOI growth this quarter, reflecting continued strong leasing spreads, growth in build occupancy and improved retention rates. In addition, net expense reimbursements contributed 140 basis points driven by the growth in build occupancy and a decrease in real estate tax expense primarily due to reduced bills in our Chicago market. Revenues deemed uncollectible contributed 20 basis points to property NOI growth due to higher collection rates and lower tenant disruption. We are very pleased with the continued execution by the entire Brixmor team as we ended the quarter with a 400 basis point spread between leased and build occupancy, and our signed but not commenced pool totaled $65 million, which includes $55 million of net new rent. The size of the pool decreased only $3 million despite commencing approximately $17 million of annualized base rent in the quarter. We expect the vast majority of ABR and signed but not commenced pool to commence over the next 18 months. From a balance sheet perspective, we repaid $300 million of our 3.65% bonds that matured in June 2024 with the proceeds from our January bond offering. At June 30, we had total liquidity of $1.7 billion, and our debt-to-EBITDA on a current quarter annualized basis was 5.6x, leaving us well positioned to execute on our business plan and with the flexibility to opportunistically access the capital markets. In terms of our forward outlook, given the continued strength in the portfolio, we have increased our same-property NOI growth to a range of 4.25% to 5%, comprised of a 425 to 475 basis point contribution from base rent as commencements from the signed but not commenced pool accelerates base rent growth in the second half of the year. Additionally, the improvements to the credit quality of our tenants and strong payment trends continues to drive outperformance in revenue deemed uncollectible. We now expect revenues deemed collectible to end the year at 50 to 75 basis points of total revenues versus the prior range of 75 to 110 basis points. In conjunction with the increase in our same property NOI expectation, we have raised our guidance for 2024 NAREIT FFO to a range of $2.11 to $2.14 per share. I would like to thank Jim and the Board for the CFO opportunity as well as the larger Brixmor team who supported me along the way. And with that, I'll turn the call over to the operator for Q&A.

Thank you. At this time, we’ll be conducting a question-and-answer session. [Operator Instructions] Our first question has come from the line of Todd Thomas with KeyBanc Capital Markets. Please proceed with your questions.

Hi, thanks. Good morning, and congrats to everyone on their promotions. First question, I just wanted to ask about acquisitions. I’m wondering if there’s any change in view around acquisitions and the company’s position toward capital recycling and/or capital raising at all here as we move forward, just either given some of the changes in the C-suite and/or given the improvement in the company’s cost of capital more recently?

I think, Todd, it’s Jim. I think the big change has been, honestly, the opportunities that we’re seeing. So we’re always going to be opportunistic and direct our activity to those that we think can create huge value for the company. And we’re pleased with what we’re seeing out there in the transaction market, particularly in our core markets where we’ve successfully clustered investments, for example, we mentioned the acquisition of the Fresh Market in Hilton Head, which further grows our presence in that coastal Carolina market. So we’re pleased with the opportunities that we’re seeing and our ability to execute on.

Do you anticipate being a net acquirer in the second half of the year? And can you talk about sort of the going in yields that you’re seeing for acquisitions that you’re underwriting today?

Yes. Look, as Jim mentioned, we’re always going to be opportunistic with respect to acquisitions. And we’re certainly seeing a much more active market over the last few months. Frankly, what’s most interesting about the transactions market today is that sellers really appear to be more interested in kind of quiet direct conversations with folks like Brixmor that aren’t relying upon external joint venture capital or, frankly, even the debt market to source deals or finance deals. Those ramp activity that you’re seeing us with a couple of acquisitions we made this year really is leading to a more active pipeline on the acquisition side. So we do expect to be a bit more acquisitive here in the second half. But as Jim has mentioned over the years, we will always be balanced in discipline with respect to our capital allocation on acquisitions. With respect to yields, year-to-date, the deals where we bought is in the high-6s as we look at our forward opportunities from going in perspective, they are in the same yield, so that high-6 cap rate range. But also when you think about our cap recycling, what’s important to realize is we are a whole IRR type investor. So we look at assets we sold we’re seeing a pretty big spread between those IRRs on what we’re selling and the IRRs for the assets that we’re acquiring.

Okay. That’s helpful. And Steve, real quick, in terms of the net recoveries related to the lower property taxes in the quarter that you mentioned, how much of that was sort of one-time in nature versus what might be more recurring as we think about lower property taxes potentially going forward?

Yes. I think when you look – think about the total impact of the quarter, about $1 million of it related sort of the way Chicago builds is in arrears related to 2023. So that’s sort of the non-recurring aspect. But about $0.5 million will recur in the year and then recur going forward. And I think the important thing to remember with that is, ultimately, it’s lowering our occupancy cost to our tenants and will allow us to push rent on those renewals in the future.

Okay. That’s helpful. $0.5 million in the year or $0.5 million in the quarter an annualized basis…

It will be a $0.5 million in the year.

$0.5 million in the year. Okay.

Yes.

All right. Got it. Thank you.

Yes. Todd, the only other thing I would highlight there is, we’re benefiting also from higher recovery rates as our occupancy, our build occupancy moves up. So while we did benefit in the quarter from the favorable tax assessments, you should expect is as we continue to drive build occupancy, recover more and generate better margins.

Thank you. Our next question comes from the line of Dori Kesten with Wells Fargo. Please proceed with your questions.

Thanks. Good morning. Again, congrats on the promotions. Can you give us a sense of any incremental G&A that may come along with those two?

On balance, we don’t expect incremental G&A as we look for other efficiencies.

Okay. And then on Conn’s and Big Lots, what kind of retailers have shown interest in those spaces and where may rent spreads pencil out? And just anything irregular to note about potential TI or timing to backfill?

Dori, hey, this is Brian. Just as it relates to the Conn’s first, it’s a pretty low exposure for us about 30 basis points. And as I talked about, these boxes may come back to us in the tightest supply environment that we’ve seen. And the types of tenants that we’re backfilling them with are the types of tenants that continue to expand in the open-air space like those in the value apparel segment, sorry, in the specialty grocery segment, like the first Conn’s that we proactively took back where we were able to put Sprouts in and tripled the rent. As it relates to the Big Lots rents, in particular, those rents are just below $8 a foot. We’ve been signing those – we’ve been signing anchor leases around $16 a foot over the past year. And you can expect a similar level of upside, maybe not double, but particularly, we got a significant amount as it relates to those Big Lots spaces. So we feel very encouraged as again, we’re not getting a lot of box spaces back and is the tightest box supply environment that we’ve seen in terms of our ability to quickly address them to the extent we get a few boxes back this year.

Okay. Thank you.

Thank you. Our next question has come from the line of Craig Mailman with Citi. Please proceed with your questions.

Hey, good morning, and congrats again, everyone, on the promotions. Jim, I just want to go back to your kind of the end of Todd’s questioning on NOI margins there. I know you guys ticked up to about 76%, but you guys are getting, every quarter, it seems like another record on leased occupancy for anchors and small shop. Just as the portfolio continues to grow, you guys pushed through some fixed CAM, you get some better outcomes on tax appeals. Where do you think NOI margin should shake out for your portfolio over the next year or two as this new pipeline commences? Like what’s a good normalized level to think about?

Rather than giving you a specific guidance on a margin, I think we’ve got a few hundred basis points of room. And I think you’re going to see us continue to realize that, as you point out, as our build occupancy grows because there is a 400 basis point difference between leased and build. So as that occupancy delivers, obviously, we’re going to be recovering a higher and higher percentage which, as you also mentioned is augmented by the increased penetration of fixed CAM that we have in the portfolio. So I do expect to see continued growth in margin I think we have more than a few hundred basis points of room I’d rather not give you a specific number for guidance.

And Craig, I would just add, our team has been very intentional in terms of improving CAM clauses in our leases eliminating CAM caps, eliminating carve-outs. You mentioned fixed CAM. We’ve been very intentional with that as well where we’ve been deploying that across the portfolio. We’ve been – we have a good understanding of where the expense trajectory is at those properties. We’ve been growing that at 4% across both small shop and anchors. So in addition to everything we’re doing on the base rent front, our team has been very intentional in terms of improving those CAM clauses, which is really helping with margins as well.

And Craig, the last thing I would add is we look at acquisitions, the whole – when we think about acquisitions, we do buy from a lot of folks who are not large institutional owners like we are, they don’t have the ability to hit some of those margin topics that Brian’s hitting on. So we think that’s also a piece of the growth in deals that we buy on the acquisition side.

That’s helpful. And then maybe sticking on the acquisition side on Mark or Jim, it sounds like more of the kind of pipeline you guys have gotten recently is off market or softly marketed deals. Is that – am I reading into that correctly and you guys are kind of less of the buyer for the fully marketed deals, and that’s where you’re going to get kind of the better opportunities to not compete with maybe some of the high net worth guys or other people who are just all cash buyers and have been paying kind of bigger prices more recently?

We continue to see a mix of deals marketed and off-market. I think Mark’s point, though, is that we are a preferred buyer in this capital markets environment given our liquidity, given our presence in the markets that we’re focused on, and that gives us an advantage position. And we’re also pleased by the just growth in the overall pipeline of opportunities that we’re seeing that meet our return hurdles.

Great. Thank you.

You bet.

Thank you. Our next question is come from the line of Greg McGinniss with Scotiabank. Please proceed with your questions.

Hey, good morning. So leasing obviously remains quite healthy, but there are certain tenant categories facing some pressure like home goods and art, pet and office supply. Are you still renewing tenants in that category? Or how are you handling those expirations when they come up?

Yes. Greg, hey, this is Brian. I mean, we look at these on an individual basis. Our – for instance, our office supply exposure overall has dropped considerably. There still are office supply locations that are doing very well that are four-wall EBITDA positive in our portfolio. So some of those do renew, but if you think about some of the Staples locations in particular that we’ve taken back proactively and backfill with the likes of Ross and Grocers and other folks that we’ve been doing a lot of business with. So it's really going to be center specific. We've got a number of our pet store locations that continue to do very well. And I think in this environment, we're going to continue to be opportunistic where we see weaker tenants really in any category to be able to upgrade those spaces at higher rents. And then particularly on the anchor side, where we do have a lot of demand. We also have a very low rent basis in terms of what's expiring over the next few years. We've got rents on those spaces expiring at close to $9, and we're signing them at $16. So it really depends on the situation, but where we do see weaker tenants in any category, we're going to use the opportunity to upgrade.

And so for specific boxes, how do you go about evaluating kind of their productivity, do you get sales information from them or Placer data? How are you going about kind of deciding if their higher risk location or not that you might need to be backfilling or proactively filling?

We get both. I mean, we get sales for the majority of the portfolio, and we do get traffic for all our tenants. That's certainly helped us be a lot smarter. The other thing is we've got great relationships across our platform, particularly on the national account side, where – even where we don't get reported sales, we'll often get a number of those volumes in the conversations with our tenant, and that's because of the trust our team’s built. So we do utilize the tools that you're talking about, whether that's Placer or whether that's other tools related to traffic, but we also get sales from the bulk of our tenants. We're also adding sales reporting when we have renewals coming up and some in leases where we're not getting that today. And then again, the relationships that we have with these retailers really shows the trust where we're able to get some of those sales volumes as well.

Yes. We're – go ahead.

No, no, please.

We're in a great supply-demand environment that allows us to drive the optimal outcome for space as it comes due. And you see it in the spreads. You see it in the renewal spreads as well as the new leasing spread. So we're not only taking this opportunity to upgrade the portfolio and continue to upgrade tenant quality, we're also using it to drive true organic growth, and it's in the numbers.

Okay. Thanks. And just one final point on that is, Brian, how many of the stores or what percentage of the big box stores are you getting individual store sales on?

We get sales from about 70% of the portfolio today. We get it for almost all of our grocers and that's 70% across all size ranges. So I don't have the particular anchor number today. But again, that percentage of tenants that are reporting sales has improved as we've been able to add sales reporting as renewals come up. So we've been very intentional about that, and I expect that to continue to grow.

And as Brian alluded to, our national accounts team is held accountable to understand productivity where sales reporting isn't required. So when you supplement that with the Placer AI data in terms of traffic, which is a great proxy for sales productivity, you have a pretty good view, which not only helps you understand the health of the underlying tenant but also how you best drive the economics upon renewal.

Thanks, James. Thanks, Brian.

Thank you. Our next questions come from the line of Alexander Goldfarb with Piper Sandler. Please proceed with your question.

Hey, good morning and [indiscernible] on the promotions all around. Just two questions, I guess, one question and one follow-up. On the – going back to the tenants, clearly, McDonald's out with their news on consumer pushback. It's been sort of a common theme for other, especially in the food area. Just an update on what you're seeing across your retail portfolio. Are you – are retailers really talking and concerned about changes in consumer shopping and purchase patterns or is this just people reallocating a little bit within each of these different categories. And overall, it's really not affecting the business in any way that affects their leasing.

The leasing decision is a long-term decision and not certainly driven by quarterly performance. As the retailers are looking at their pipelines out to 2025, 2026 and beyond and they're committed to the stores. As we look at our real-time traffic data, we're actually very pleased with how traffic at our centers and our major tenants within those centers continues to improve as we execute our strategy. And in terms of are we hearing it from tenants, really quite to the contrary. The tenants still are in a posture where they're trying to get their store opening plans filled and they're being very aggressive to do that.

Okay. And then just a follow-up is, looking at your leasing the signed but not yet commenced, the wider gap is with the small shop, the under 10,000 square feet. And presumably, that's the more lucrative economics for you guys. Steve, can you just give a sort of how we should think about the impact to earnings from a 100 basis point increase in occupancy from small shop versus a 100 basis point increase in over 10,000 square feet. Just trying to get a sense of the impact to FFO because have to believe that it's much more advantageous to the boost from the smaller shops and the bigger shop as your occupancy increases.

Yes. I mean I don't know that I can quantify the exact input, but I think your general thesis is correct, right? The smaller shop tenants are going to pay a higher rent and have a higher contribution to recoveries than you would on the anchor side.

And that follows through when you look at the average rents we're achieving both on the anchors and the small shop, your point is correct that there's a greater multiplier that's part of that $65 million of signed but not commenced rent.

[Operator Instructions] Our next questions come from the line of Caitlin Burrows with Goldman Sachs. Please proceed with your questions.

Hi. Good morning everyone. Maybe just another pickup on the impact of occupancy improvements. You had a good pickup in build occupancy in the quarter and talked about how the snow pipeline is still quite large. What's your near to medium-term expectations for build occupancy, can the sort of pace of openings and rent commencements continue or maybe even accelerate from what we saw in the quarter?

Caitlin, this is Brian. You normally would expect build occupancy to continue to trend higher in the back half of the year as we have kind of the bulk of those openings happening in the late third, fourth quarter, particularly with anchors. Now depending on if we get a few store closures back, you may see a dip in that. But that would be the normal course billed occupancy trajectory as we head into the end of the year. And again, we just talked about the spread between leased and build, particularly on the small shops. We'd start to have a number of those shops coming online at year-end and even in the balance as we get into next year. And the pipeline continues to be very strong. We're very encouraged just with the depth of demand and the size of the illegal pipeline despite the fact that we're raising occupancy to these levels. So – but overall, the trajectory you should expect to see that to rise as we go through the balance of the year.

Got it. Okay. And then just another one on pricing. So I mean, your new lease spreads have been very strong for a very long time, and this quarter was record level, the renewal pricing is also really strong. I guess on the option side, is there anything you can do to limit kind of the drag from the impact of options? And is that anything you can do near term? Or is it more related to leases you signed today and the eventual options they may or may not have in the future?

Since we began, our focus has been on giving fewer options, and we've been very successful, Brian and team as we've been executing the plan to do that. And so not only not giving options but giving fewer options and situations where they're otherwise required. And that's really how you impact that. It's something that occurs over time as you execute fewer and fewer options across the portfolio.

And Calin, I would just add, too, that we're making incremental progress. You only have to give an option, right? In this environment, where maybe those option increases in the past with anchor tenants were 10%, and our team is pushing them to 12.5% or 15%. To Jim's point, maybe you're eliminating anchor number of anchor options from, say, four to two. The other thing that we've done is we've introduced the fair market value concept that was pretty much a California phenomenon into other parts of the country where we've had to give those primarily with national tenants. We're giving almost no options with local tenants. And to Jim's point, it's something our team is very focused on. If you were to sit in a committee on a Friday and here our head of leasing, David Gersenhaver. He's asking that question. as deals come into committees, do you have to give that option. Can you reduce those options. So it's something we're going to continue to remain focused on, but something we've been doing for a while.

Great. Thanks.

Thank you. Our next questions come from the line of Juan Sanabria with BMO Capital Markets. Please proceed with your questions.

Hi. Thanks for the time. Just a question with regards to the same-store NOI guidance. Obviously, there's a slowdown implied in the second half. Can you just give us some color or details around what's driving the slower assumed second half? And what are the key variables within the guidance range?

Yes, I think the first thing you got to think about when you think about the same-property NOI is just the gross and base rent, right? Because ultimately, the growth in same-property NOI is going to be largely dependent on that growth. And – for the first half of the year, it was 380 basis point contribution to the same-property NOI. And you'll see implied in our base rent guidance of $425 million to $475 million basis point contribution, you really see that starting to ramp up sort of what Brian was talking about within the signed not commenced pool. Obviously, in the first half of the year, bad debt as a percentage of total revenues was 20 basis points. We talked on our last quarter call that did benefit from just the timing of real estate tax collections and we expect that to be a headwind to the back half of the year as we get back to that, what we’re expecting to be a total run rate of 50 to 75 basis points. So I think that deceleration in the bad debt is sort of offsetting a lot of the acceleration that you’re seeing in the base rent line.

Okay. Great. Thanks. And then just on the acquisitions pipeline. I think you mentioned $200 million in the prepared comments. Just curious on the types of assets or the larger assets or smaller kind of more traditional neighborhood grocery-anchored centers. Just curious on where you’re seeing the opportunity set with regards to kind of what’s in the pipeline today?

Yes. That pipeline is larger – the assets are larger than what we bought in the first half of the year, in part because of what we bought in the first half of the year was smaller. So it’s really truly assets that look a lot like the meat of our portfolio. And importantly, there are assets where we see the ability to drive strong growth they sit within our footprint, and we have been targeting a bunch of those for acquisitions for quite some time. So we’re excited about the opportunity we’re seeing in the existing pipeline. And frankly, beyond the existing pipeline as we continue to try to dig out deals across the country.

And maybe just one more if I can be a little greedy here. You talked about foot traffic being solid and having increased amount of data points on retailer sales. But given the comments that Alex made about the more cautious comments by both luxury and low-end retailers, are you seeing any slowdown in retail sales from your retailer base across the portfolio?

We’re not.

Okay. Thanks.

Thank you. Our next questions come from the line of Floris Van Dijkum with Compass Point. Please proceed with your question.

Good morning, guys and congrats on the new titles. So following up on that acquisition pipeline. Maybe if you can talk a little bit about what you’re seeing in terms of pricing? And maybe switch the question a little bit more. Are you targeting value-add acquisitions? Or is it mostly complementary or infill acquisitions, just like what you’ve done in Hilton Head next to existing centers.

I’ll let Mark handle the broader pipeline for us. But we really are looking at kind of core plus value-added type opportunities where we can bring our better platform to bear to drive better outcomes in rent and NOI growth, additional asset densification, et cetera. So you’re not seeing us playing on the core side, but we’re – the encouraging thing is that we’re finding really attractive opportunities within our core markets to further cluster infill type investments, where we understand where the market rents are, we understand what the tenant demand is to be in that particular center and we believe we can generate above-average growth.

Yes. I think it’s well said, Jim. And when we look at acquisitions, we’re also thinking about those dispositions, I think it’s important. I said it earlier, when we’re selling assets – we’re selling assets where we really maximize value and maximize that IRR going forward. And when we’re looking at that pipeline, we’re just seeing much better higher IRR mine versus what we’re selling, which we hope will contribute to the long-term growth here.

Great. And presumably, those the acquisitions and dispositions are they going to be similar type cap rates?

Yes, it’s interesting. When we look at our – what we’ve done year-to-date, as we talked about last quarter, our blended cap rate for what we sold year-to-date is into the 4s we’re buying today into the high 6s. I think that will even out over time.

Great. And then maybe my follow-up question on, I noticed, obviously, great new leasing spreads, but you’re spending a lot of money to achieve some of those spreads. I think I calculated $205 a square foot in lease costs this past quarter. Maybe talk – I suspect it has to do with some of the cons boxes or some of the other boxes that you’re transitioning to Sprouts or other grocers but if you could talk a little bit about how long will those elevated leasing costs persist in your view? Or do you think that that’s going to slow down at some point and have or go even lower?

Floris, this is Brian. I’m not tying to the $206 a foot. But I would just point to the fact that net effective rents were a record for the portfolio this quarter. We show you the net effect of rents, so you can ultimately see the impact of cost there. They’re coming off a record from last year. What you’re seeing in terms of the leasing CapEx, it was somewhat elevated last year versus historicals, and it will be remained at that level this year in terms of the TIs. That’s just because of the fact that our team has leased so much of the space that we took back last year and leased it very quickly. I’d say on average, the box backfills that we’ve done. We’ve talked about in the past we averaged around $50 a foot for the Bed Bath spaces. That’s consistent with what you’re seeing, where we are spending a bit more like the Sprouts example that you gave, we’re getting it back – we’re getting it back in rent, certainly. I’d say just for CapEx overall, though, we have been very prudent in terms of where we’ve been spending. You see our maintenance CapEx, now it was down last year versus 2022. It’s trending down again and will be down by year-end, really reflective of the changes that we’ve made and the improvements that we’ve made across the portfolio and that leveling off. Our reinvestment spend, we’ve talked about that being $150 million to $200 million a year. We’re going to be at the high end of that range this year as we bring on some of these really strong projects like those that Jim and I have both highlighted. But to your point, as occupancy increases, and there continues to be demand. Our team is leveraging that demand to have tenants take more existing conditions, tenants are getting much more flexible in terms of the age of the roof, the age of the HVAC. So you’d expect that to moderate. But I think – on the whole, why you’re seeing some of the leasing costs somewhat elevated is just because our team has addressed so much of that space so quickly.

Great. Thanks guys.

You bet.

Thank you. [Operator Instructions] Our next questions come from the line of Haendel St. Juste with Mizuho. Please proceed with your question.

Thank you for taking my question. I wanted to go back to Big Lots for a moment. You have more exposure there than cons, I think it’s 27 boxes, 70 bps of APR. I’m curious what you’ve heard on how many of those stores they might be looking to close in your portfolio. And we’re hearing that they may be looking at subleasing some of their own space directly to third parties. So I’m curious if you’re seeing any of that and if you expect that to perhaps limit your opportunity to get back some of those boxes and benefits in the re-leasing yourself. Thanks.

Haendel, this is Brian. So just as it relates to Big Lots, we reduced our exposure again by 30% since prior to the pandemic. We signed leases with the likes of Aldi and Sprouts and Ross here recently – recently recaptured big lot spaces. We did have four stores that were on the initial closure list. Two of those are already leased, one with a great fitness use and one with a great off-price operator. So as we look – and we don’t have any additional color in terms of the number of stores that we will get back or the timing as it relates to anything announcing additional store closures. What I could say though is we have Big Lots boxes in markets like Philadelphia and Dallas, and we’re – we’d be taking some of the space back in the tightest box supply environment than we’ve ever seen. So we feel really good about the demand we’re seeing for that space. We were very opportunistic early in the Bed Bath discussions, too, about taking space proactively and we’ll look at that as well because we want to ensure that we control our own destiny, but we’ll be prudent with those decisions as we assess them center by center.

And are you hearing anything on the re-leasing of the boxes themselves to third parties?

Yes. I think, look, they probably see the same value that we do – and again, we’re going to – we showed up at the auction. We were for Bed Bath. We were able to get control of one of our boxes that we’ve already leased in New England. So we’ll assess that as they come along. And I would say, look, our team has already been very proactive. Again, there were four stores on a closure list that just came out, two of them are already leased. So we’ve been getting ahead of a number of these names, particularly when we hear of potential store closures or potential weakness and feel really confident in our ability to capitalize on them and we’ll be opportunistic as it relates to proactively recapturing that space.

Got it. Thank you. And then just a follow-up, you mentioned Bed Bath. The new anchor lease spreads were very high in the quarter. I’m curious if any of that included any of the Bed Bath backfills. And remind us again of the timing of the cash flow impact that you expect from the Bed Bath.

Well, just starting on the cash flow. That’s already started to come online. We do expect the bulk of that to come online next year. We’re effectively finished with those boxes. Interestingly, it didn’t really include the Bed Bath because we had already leased all those boxes in the quarters prior to this. And I think what this shows you is the low rent basis that we have and the opportunity that we have across the portfolio, not just with one tenant or one part of the country, it was fairly broad-based where we saw that this quarter. But ultimately, we’re thrilled with how quickly our team is really addressing any space that we’ve been getting back in this environment and expect us to continue to do that.

All right. Thank you and congrats on the promotion.

Thanks again.

Thank you. Our next questions come from the line of Jeff Spector with Bank of America. Please proceed with your questions.

Hi, this is Andrew Reale on for Jeff. Thanks for taking our questions. West Center is about 99% leased. What’s the lease rate at Fresh Market Shoppes? And can you just talk more about the opportunity set at the two assets, if there are any larger expirations in the near-term and what mark-to-market opportunities look like?

Sure. So at West Center that if you looked at that on the site plan, it’s really an adjacency to the center wheel behind they called three villages. And that’s really unlocking the opportunity to figure out what the overall plan is for three villages when you include that outparcel. So that vacant box you mentioned is the one at West, I’m sorry, Village Center behind West Center, which is early but really exciting steps here in the first couple of months of ownership. With respect to Hilton Head, it’s 100% occupied and what we see there is an asset that’s been under managed and under-rented, and we’re very excited about the opportunity to drive low risk, high growth there.

Okay. Thanks. You also spoke to adding a few more repositioning and redevelopment projects to the pipeline this quarter. Just curious if it’s becoming any easier to find these types of opportunities. Any color on your opportunity set to retouch assets and how that’s trending would be helpful. Thanks.

Yes. It’s really the advantage our platform brings. As a team, we look at acquisition opportunities and we really are viewing them through the lens of a value-added investor where we have the opportunity to raise rents but also reposition, densify and add necessary uses to the acquisitions. So – the nice part about our strategy is that we’ve successfully harvested a significant amount of opportunity in our existing portfolio. Importantly, a significant amount of opportunity remains several hundred million that we expect to execute over the next couple of years. And then we continually add that as we’ve demonstrated in South Florida, as I think we’ll demonstrate in some of these more recent acquisitions the opportunity to add value through incremental reinvestment.

Thank you.

You bet.

Thank you. Our next questions come from the line of Samir Khanal with Evercore ISI. Please proceed with your questions.

Hey, Brian. Good morning. I guess, I mean you talked about the Conn's boxes, the Big Lots boxes. I mean this as we think about the setup into next year. What does that tenant exposure sort of that watch list look like, I guess, for the next six to 12 months? Thanks.

I’d just start by saying that the credit base of this portfolio is as strong as it’s ever been. We put in a rigorous underwriting process coming out of the pandemic with our financial asset management team. And that has really paid off. And you can see you pay it off in record low move-outs for the portfolio. You can see it paying off in terms of the renewal growth that we’ve been able to drive because we’ve got better tenants in there that are driving more traffic. Again, as it relates to those two specific situations, we have a very low exposure with Conn's at 30 basis points. We’ve already leased one of the boxes. The other boxes are in places like Raleigh, Houston and Atlanta which are great markets. And ultimately, as it relates to Big Lots, we have consistently been lowering our exposure there and backfilling them with better tenants at higher rents. So I think it’s encouraging that we’ve already got leases on some of the stores that they’ve announced. And as we think about it ultimately into next year, we are looking to see how we can use this as an opportunity to continue to position ourselves to upgrade these spaces.

Okay. Got it. And I guess, Jim, just shifting over to you. You clearly have occupancy that continues to go up, spreads are strong. It looks like acquisitions maybe even picking up your leases we saw in the quarter. I mean, I guess what’s the biggest risk to the portfolio or the sector at this time you think? Thanks.

I think we’re really well positioned even for a slowdown given where our rent basis is. And it’s a point I’ve made many times that in a strong environment such as the one that we’re in, we’re positioned to outperform largely because of that rent basis. Should you see a slowdown in retailer demand, which we’re not seeing any signs of, again, retailers are doing business out to 2025 and 2026 but where we do, we think we’re particularly well positioned given the transformation of the portfolio given our rent basis and given our overall execution. So I don’t see any major risks as we look out ahead beyond general economic trends and cycles. But even given that, I believe we’re really well positioned. I’m also very proud of how we’ve handled our balance sheet, how we continue to drive improvements in overall debt to EBITDA, how we continue to capitalize in this environment on demand for our fixed income paper to continue to term out our balance sheet and put us in a position where we have $1.7 billion of liquidity and no need for external capital to fund our business plan for the next several years. So when you think about, again, rent basis, conservative capital structure, upside, the reposition of the portfolio, I think it’s an all-weather plan. I think it’s one that positions us particularly well whatever the economic climate is.

Thank you, Jim.

You bet.

Thank you. Our next questions come from the line of Linda Tsai with Jefferies. Please proceed with your questions.

Hi, Linda. Can you check if yourself muted, please? Operator, we can put her back in the queue.

Oh, oh, sorry. Actually can you hear me?

There are you. Hey, Linda. [Indiscernible]

Hey Linda.

Yes. Sorry about that. Just with the closures taking a touch higher in the second half, reverting you to the historical bad debt run rate from where you sit today, could bad debt range 75 to 110 bps for 2025?

I think one – it certainly could. I think what we’ve been pleased by is the overall improvement in credit quality within the portfolio and how that’s coming through in terms of the bad debt performance. We do expect a greater amount of revenue deemed uncollectible in the second half of the year, as Steve alluded to. And I don’t want to give guidance yet on 2025. But I would frame it against the overall improvement in the portfolio.

And then would you expect just given the strength in your overall portfolio, what’s kind of like the longer-term same-store run rate in your portfolio over the next few years?

I think we’re well positioned to achieve that same-store growth in the four plus percent range over the next several years.

Thanks.

You bet.

Thank you. Our next questions come from the line of Mike Mueller with JPMorgan. Please proceed with your questions.

Thanks. Hi. Just a quick one here. We know the redevelopment pipeline is sizable, but are you evaluating any new ground-up development opportunities as well?

We’ve been approached by developers. We’ve been approached by certain tenants regarding ground-up development opportunities. And to date, they haven’t penciled. You’ve got a higher risk, lower return, and it just doesn’t compare favorably to the opportunities we have to reinvest in our existing assets. So I do think it’s going to take a while to see new ground-up development of any meaningful amount, not only because of the higher risk and lower returns, but also because it’s just a difficult environment in which to finance that type of activity. So we’ve seen some, but I don’t expect a material increase in the next couple of years.

Got it. Okay. Thank you.

You bet.

Thank you. Our next questions come from the line of Ki Bin Kim with Truist Securities. Please proceed with your questions.

Thanks. Good morning. Just a couple of follow-ups. You added a couple of new projects to your redevelopment pipeline. Can you just remind us how you define the yields, the 9% yields that you’re getting and if that includes landlord work? And second, if you look at the trend on rents and construction costs, does the next batch of potential redevelopment projects. Is that yield potential – has that increased over the past year? Or as it or relatively stable?

Yes. That return is the incremental rent over the project level costs and the total project level cost. As we look out in the pipeline, because of the strong demand environment we’re seeing – we’re actually seeing positive upward pressure in some of those returns. As you saw in terms of the overall portfolio of reinvestment growing from an average of 8% to 9%. So we’re encouraged by what we’re seeing looking forward.

Okay. Thank you. Thank you.

You bet.

Thank you. Our next questions come from the line of Omotayo Okusanya with Deutsche Bank. Please proceed with your questions.

Hi, yes, good morning. Let me add my congratulations to the whole team. A quick question on Kroger, Albertsons and kind of the latest developments with again, the court case getting accelerated to September. Just curious what you guys are hearing, whether it kind of changes how you guys are thinking about your exposure to those two grocers.

Omotayo, this is Brian. We don’t have much more to report outside of what’s been in the news. We were encouraged by the fact that none of our stores were on the initial divestiture list. We feel good about our fleets in really either scenario. We’ve got great stores that have been reinvested in for both Kroger and Albertsons, the markets where we do have some overlap are in a very tight supply environment, some of the tightest supply that we have in markets like Dallas and Southern California and Denver. So we have said and continue to believe that a merger would be good for both companies and have been watching this very closely, but feel really good about our fleet. I mean these stores produce higher sales volumes than the over $700 a foot that we’re getting from grocers across the portfolio. So – and we’re really encouraged by the fact that they have been invested in here over the last few years.

Thank you.

Thanks.

Thank you. We have reached the end of our question-and-answer session. I’d like to turn the floor back over to Stacy Slater for closing remarks.

Thanks, everyone, for joining us today. Enjoy the rest of your summers.

Thank you. This does conclude today’s teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.