Hello, and welcome to the Brixmor Property Group second quarter 2022 earnings conference call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Stacy Slater. Please go ahead.
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 and President, and Angela Aman, Executive Vice President and Chief Financial Officer, as well as Mark Horgan, Executive Vice President and Chief Investment Officer, and Brian Finnegan, Executive Vice President, Chief Revenue Officer, who will be available for Q&A. Before we begin, let me remind everyone that some of our comments today may contain forward-looking statements that are based on certain assumptions and are subject to inherent risks and uncertainties as described in our SEC filings and actual future results may differ materially. 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.
Thank you, Stacy, and thanks to each of you for joining our second quarter call. Our results this quarter once again underscore the transformative and accelerating impact of our value-added plan, as well as the outstanding execution of the Brixmor team. Our progress is evident in nearly every observable metric, including our robust leasing volumes and spreads. Under Brian and the leasing team's leadership, we executed nearly 2 million sq ft of new and renewal leases at a cash rent of $18.79 and a blended spread of 14.6%, including 870,000 sq ft of new leases at a comparable spread of 34.3%. We continue to attract the very best retailers to our centers at growing rents, which Brian will provide some commentary on in our Q&A session. It's also evident in our continued growth in ABR.
Our activity this quarter drove another post-IPO record for our overall average in-place ABR, which increased to $15.90 a ft. Importantly, we remain disciplined with capital as we achieved an average net effective rent of $16.91 a ft on our new leases. Our progress is evident in our sequential and year-over-year growth in both build and leased occupancy. We set yet another record for small shop occupancy for the portfolio of 87.7%, and overall occupancy grew to 92.5%, just 30 basis points shy of our all-time record. There's a lot more room for us to run there as we deliver our value-added pipeline, which currently drags our overall occupancy by 150 basis points. Importantly, it's also evident in our strong same-store NOI growth and bottom-line FFO growth.
While we continue to realize the benefit of strong prior period collections, it's important to note that most of our growth was driven by our top-line revenue growth of 4.3%, which reflects the accelerating momentum of our value-added plan. Now, those are indeed fantastic results, as is our increase to guidance for the balance of the year that Angela will cover in a minute. What about 2023 and beyond? As we look forward and consider the natural moderation of prior period collections as well as the potential for economic disruption, we remain very pleased and confident in our strong visibility of continued growth, as reflected in our $53.8 million of ABR and leases signed but not commenced that will commence through 2024. Our forward new lease legal pipeline of $50 million of additional leases under negotiation.
Our real-time volume of new deals coming into our leasing committee for commencement in 2023 and beyond. Our current and ongoing discussions with tenants to accommodate their store plans in our centers as retailers try to grow their most profitable channel. It's reflected in the continued real-time growth in our traffic to our centers versus 2019, which has averaged in the mid to high single digits, relative growth that I believe leads the sector, but importantly reflects the strength of our centers. In addition to these visible growth drivers, we continue to deliver tremendous value through the ongoing execution and delivery of our reinvestment pipeline, as evidenced by another $30 million of reinvestment delivered during the quarter at an incremental return of 11%. Parenthetically, our gross returns are much higher.
We're pleased that we have another $400 million of reinvestment underway at an incremental 9% return. Phenomenal execution by Bill Brown, Haig Buchakjian, and the redev and construction teams to continue to deliver these projects on budget, even with supply chain disruption. As highlighted in the past, these investments generate follow-on value beyond their ROI through increased occupancy and market rates at the centers impacted. In fact, for our stabilized redevelopments, small shop occupancy has increased over 600 basis points versus one year before project start, and the in-place market rate increased over 20%. Our value-add strategy, which demonstrated its resilience and outperformance through the pandemic, positions us very well to outperform not only in stronger market environments, but weaker ones as well. From an external growth standpoint, we continue to source centers where we can drive strong returns through leveraging our value-add platform.
Those opportunities include Lake Pointe Village, a Whole Foods anchored asset in Houston, which with our Braes Heights centers, represents the 1 and 2 volume Whole Foods stores in the entire Houston MSA. Importantly, Lake Pointe Village also presents highly visible growth opportunities through the lease up of small shop vacancy, which the leasing team is already driving, as well as the addition of highly accretive outparcels. Great job by Mark and team. In the coming months, given the volatile capital markets, we expect to be a net seller as we found strong demand for our smaller non-core assets. We also plan to keep our acquisition powder dry should the volatile capital market conditions lead to even more opportunistic pricing of assets that fit our value-add strategy.
In that regard, I'm pleased that we have over $1.2 billion of liquidity, including a $200 million undrawn term loan, and we have no maturities until 2024. Great job by Angela and team managing our balance sheet. As I said at the outset, I'm grateful for how this Brixmor team continues to execute and deliver upon our purpose of creating and owning centers that truly are the center of the communities we serve. As we detail in our recently published corporate responsibility report, we are executing our plan in a manner that is environmentally sustainable and socially responsible. With that, I'll turn the call over to Angela for a more detailed discussion of our results, our outlook, and our liquidity.
Thanks, Jim, and good morning. I'm pleased to report on another strong quarter of performance as the transformative nature of our value add strategy continues to result in record operational results across our portfolio. Nareit FFO was $0.49 per share in the second quarter, driven by same-property NOI growth of 6.7%. Base rent growth contributed 430 basis points to same-property NOI growth this quarter. Excluding the impact of lease modifications and rent abatements, base rent growth contributed 370 basis points, representing a 90 basis point acceleration from last quarter, reflecting continued growth in leased occupancy and re-leasing spreads over the last year. Revenues deemed uncollectible contributed 150 basis points, and ancillary and other revenues and percentage rents contributed 120 basis points on a combined basis.
Importantly, the positive contribution from revenues deemed uncollectible this quarter was due entirely to improvements in current period collections from cash basis tenants, as collections of previously reserved amounts totaled $10.3 million, down slightly from the $10.6 million collected in the prior period. Net expense reimbursements detracted thirty basis points from same-property NOI growth in Q2 due to the quarterly volatility of operating expenses experienced in 2021. We continue to expect that full year operating expense growth will be approximately 3%, and that net expense reimbursements will be a positive contributor to growth for the full year due to prudent expense management and occupancy gains across the portfolio. Our operational metrics continue to reflect the strength of the current leasing environment despite macro headwinds and the continuing successful transformation of our portfolio.
Build and leased occupancy were both up 40 basis points this quarter. The anchor lease rate now stands at 94.8%, up 40 basis points sequentially. As Jim highlighted, the small shop lease rate now stands at 87.7%, up 70 basis points sequentially, reflecting a new portfolio record. The spread between leased and build occupancy remains 350 basis points, and the total signed but not commenced pool, which includes an additional 70 basis points of GLA related to space that will soon be vacated by existing tenants, increased by $2 million this quarter to $54 million at a blended rate of $19.20 per sq ft, more than 20% above our portfolio average ABR per sq ft.
I'd like to underscore that the total size of the signed but not commenced pool and the blended rate on the pool both grew this quarter, despite leases representing more than $15 million of annualized base rent commencing during the period, reflecting exceptionally strong leasing activity. We expect that over 50% of the current signed but not commenced pool, or $27 million, will commence throughout the balance of this year, with another $26 million slated for 2023 and beyond, establishing a strong foundation for growth in the coming years. As discussed with you last quarter, we amended our unsecured credit facilities in April, improving pricing, adding a sustainability linked feature, and extending the maturities of our revolver and $300 million term loan.
In addition, our amended term loan has $200 million of additional capacity, which may be utilized by the company at any point through April 2023. As of June 30, we have over $1.2 billion of available liquidity and no debt maturities until mid-2024, providing valuable financial flexibility. Turning to guidance, we have increased our 2022 same-property NOI growth expectations from 3%-4.5% to 5.5%-6% as a result of the significant out-of-period collections of previously reserved amounts recognized again in the second quarter, and an improvement in our outlook for revenues deemed uncollectible, ancillary and other revenues, and percentage rents. Consistent with our prior methodology, the bottom end of our same-property NOI growth guidance range does not assume any additional collections of previously reserved amounts.
Nareit FFO guidance has also been revised to a range of $1.93-$1.97 per share from the previous range of $1.88-$1.95 per share. With that, I'll turn the call over to the operator for Q&A.
Thank you. We'll now be conducting a question-and-answer session. If you'd like to be placed into question queue, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For participants using speaker equipment, please press star one on your telephone keypad at this time. Our first question today is coming from Craig Schmidt from Bank of America. Your line is now live.
Thank you. You know, it's clear that the leasing year-to-date continues to really drive the company. I'm just wondering, are you still seeing leasing appetite in the third quarter, unchanged despite the inflationary pressure?
We are. You know, as I mentioned in my remarks, we're very encouraged by what we're seeing not only under negotiation, but also what we're seeing in our weekly leasing committees. Brian?
Yeah, Craig, in coming out of ICSC, we were very encouraged by the conversations, the portfolios that we've had since then. You can really see it. Jim mentioned that forward leasing pipeline. Despite all that we signed during the quarter, that's up 17% from where we were a year ago, and traffic continues to exceed pre-pandemic levels at our center. We're really seeing our core retailers, those in the value apparel, mass merchants, specialty grocery, QSR restaurant space, more mall-native tenants that we continue to do a lot with. You saw it again during the quarter with Bath & Body Works and Claire's and Rally House. The depth of demand has been pretty strong, and we continue to be encouraged by it for retailers that, again, as Jim mentioned, are looking to open stores in both 2023 and 2024.
Brian, if there's anything you can say regarding the appetite for the small shops, the mom and pops, the locals as opposed to the national?
Yeah, we continue to be encouraged by that as well. I think the pandemic created an opportunity for really strong local tenants, particularly in that restaurant space. We've seen over the course of the past 18 months, good quality operators, multi-unit operators that are coming in and taking second-generation restaurant space. The team has really capitalized on the investments that we've made in our centers, the better anchors that are driving more traffic, that are helping attract those. Local tenants are still roughly about 17% of our ABR. What I would tell you, Craig, is the strength of those local operators, we're really encouraged by, and the team's done a really nice job in their particular markets, driving strong local tenants to our centers.
Another trend that we talked a lot about during the pandemic and which has continued is we are seeing a lot of small shop demand from national and regional players as well. It's been an interesting evolution in the composition of our small shop tenancy.
Great. Thank you.
Thank you. Next question is coming from Alexander Goldfarb from Piper Sandler. Your line is now live.
Hey, good morning. Morning down there. Jim, question about the shopper. You know, it seems that, you know, when I've asked this question of peers, everyone seems to be stating that basically all shoppers, not just the core diehard shopper that drives retailer sales, but, you know, all the shoppers are pretty much hanging in there and engaged. Last night on Simon's call, David spoke about, you know, sort of the teen shopper, the value shopper being pinched, you know, in some of their categories, but overall, you know, the consumer being strong. How would you characterize your shopper base, and what are the tenants saying? Is it strength across everywhere? Are you seeing any cracks? Just curious, a little bit more perspective.
Well, you know, you have seen, you know, really strong traffic levels, which have continued and which we find to be very encouraging. At the same time, you know, our tenants are reporting strong sales across the board. In fact, you noticed that we picked up some percentage rent in the prior quarter, reflecting the strength of traffic and the sales volumes that our tenants have been achieving, including tenants in the value segment. So, you know, if you take a step back and you think about our centers more generally, grocery-anchored, necessity-based, value apparel, those categories have all remained pretty strong. Certainly, you've seen within the earnings reports of some of the tenants, some shifting in consumer habits and what consumers are spending money on. But what I'm most encouraged by, Alex, is the continued real-time demand of tenants to open up new stores.
You know, they understand very well where the consumer is and are investing more in their most profitable channel, which is the store. You know, as you think about our traffic levels, as you think about the tenant demand, as you think about the forward leasing pipeline, and you think about the consumer hanging in there, you know, we feel pretty good.
Okay. Thank you.
You bet.
Thank you. Next question is coming from Juan Sanabria from BMO. Your line is now live.
Hi. Good morning. Just hoping you could tease out a little bit about your comments on maybe being a net seller for the back half of the year and any quantum around that and where asset values are for the stuff you're looking to sell.
You know, Juan , we've always been hesitant to provide specific levels of guidance because we do wanna continue to be opportunistic. Much as we're being right now, as we find good demand for some of the smaller non-core assets, we're really not seeing a lot of very compelling product in this period of capital markets volatility that would interest us. From an investment perspective, that could certainly change, and we're certainly on the front of our foot watching to see how that market responds in our core markets. You know, we do expect, given what we have in the near term pipeline to be net sellers over the coming months, and, you know, continue to have importantly, the acquisition dry powder to pivot, should great opportunities present themselves.
Any color on where you've seen cap rates or how you've seen cap rates change as a result of uncertainty in the economy and some volatility on the rate side?
Mark?
What's been surprising is, we've seen a continued relatively strong market for grocery-anchored assets that have growth and value creation potential, certainly like the assets we've recently purchased. I think when you look at assets that are more commodity based that really don't have growth, those cap rates likely have drifted up a bit, certainly nowhere in lockstep with the rise in the risk-free rate. I do think it's important to look at what cap rates have done over time in the open-air sector. They've actually proven to be pretty sticky. I do think that relative stickiness in cap rates for open-air retail, and frankly, the proven performance that we're seeing through some challenging times over the last few years will continue to attract capital to the sector and keep values somewhat sticky.
Thank you very much.
Thank you.
Thank you. Next question is coming from Todd Thomas from KeyBanc Capital Markets. Your line is now live.
Hi. Thanks. Good morning. Jim or Angela, maybe the you know, there's been a little bit of volatility in your current same-store NOI growth results just given the out of period collections. Jim, you commented that, you know, you're excited about the future 2023 and beyond. Base rent growth is expected to pick up a bit from the 4.3% year to date based on your revised guidance. Call it ending the year in the mid- to high-4% range. Is that a realistic growth rate to anticipate moving forward into 2023, sort of an appropriate level of minimum rent growth upon exiting 2022 and looking ahead?
Well, without giving guidance, we expect the rent growth to continue to be strong and continue to reflect that accelerating momentum as we continue to deliver our value-added reinvestments. You know, what gives us confidence in that forward look, assuming, remember, that prior period collections are definitely gonna moderate, right? You got to remember that. As you look forward to kind of the base period, and you look past the noise of the prior period collections, the engine's firing on all cylinders. You know, what we're particularly encouraged about is, again, that not only the signed but not commenced pipeline, but the forward legal leasing pipeline and the conversations that we're seeing that allow us to capitalize and continue to capitalize on our attractive rent basis to drive more accretive reinvestment projects and more fundamental growth in ROI. We like the trajectory.
We like how the business plan is delivering. You know, honestly, I think it gives us a little bit of a differentiation versus a business plan that's just modeled on a steady state of replacing tenants and backfilling when you've got, you know, rents that may be at or above market. That's the nice thing about our plan, is it allows us to look several quarters forward. You know, again, we're doing business today for 2023 and 2024.
Yeah. I'd just add just make one comment on the out of period collections. It is certainly, as Jim said, a headwind as we head into next year from an organic growth perspective. We recognized a little over $10 million this quarter, about $10 million last quarter as well. While that is a Finite Pool, and as Jim said, those are naturally gonna moderate as we move forward, and we have addressed, you know, at this point, a lot of the most likely to collect amounts. There should still be some as we move forward. But if you think about the collections just, you know, year to date, I think it says something really positive about the strength of the underlying tenancy. Over 80% of what we collected in the second quarter was related to tenants who are still active in the portfolio today.
The fact that they are, you know, coming current on some of those legacy amounts from the pandemic, I think says something really positive about how they've recovered and how their businesses are positioned right now.
Okay. That's helpful. Just a follow-up. Would you expect, Angela, I think you commented on net recoveries in the back half of the year. You know, looking forward, would you expect net recoveries to become sort of a greater contribution to same store NOI growth just given the increase in occupancy rates? Or is there likely to be some continued volatility, you know, impacting margins?
Yeah. There's certainly volatility this year, you know, to your point, related to the timing of expenses in 2021 and the fact that they were much more back-end loaded, particularly in Q4. While we do expect net recoveries to be a positive contribution for the full year, which does reflect the growth we're seeing in build occupancy this year, it is negative at this point in the year, and that will revert as expenses kind of normalize or as you get into some easier comps in Q3 and Q4. You know, as you look forward to next year, certainly, I think we can continue that momentum based on both prudent expense management and, you know, continued growth in build occupancy. We've done a great job at continuing to navigate the inflationary environment and aren't seeing a tremendous amount of pressure on margins related to that.
Okay, great. Thank you.
Thank you.
Thank you. Next question is coming from Craig Mailman from Citi. Your line is now live.
Everyone, just wanted to follow up on the $50 million pipeline lease that's under negotiation. Could you just give us a sense of how much of that is renewal versus new and, you know, what that can mean for kind of small shop occupancy if the majority of that, you know, actually signs?
Okay, this is Brian. That's new. That's the new lease pipeline that we have, and we're very, like we've said, encouraged by it, particularly because of how much GLA that we've signed year- to- date. Like, what it means for small shop occupancy, as Jim mentioned, we see continued runway for growth. We've got about 150 basis point drag in both overall and small shop occupancy from that redevelopment pipeline. As the teams continue to deliver that, as we continue to bring anchors in that are driving a lot of traffic to our centers, we expect that to continue to grow. We've been very encouraged by the growth to date, and we still see a lot of runway going forward.
Okay. Maybe another way to ask it then, I guess, is how much of that is kind of same store space versus maybe leasing up some of the value add?
I think it's broad across the portfolio. I mean, I would say from the most part, we're not seeing. I mean, we definitely see an impact when we do a reinvestment. I would say broadly for the portfolio, our centers look a lot better today. The operating teams have done a fantastic job managing them. We're seeing gains really across the portfolio. In particular, when we do make a reinvestment, we're seeing significant small shop occupancy gains of about 600 basis points. I'd say that leasing pipeline is fairly broad-based, but we're encouraged by the gains that we're seeing across the board.
Yeah. I would just, you know, point out, obviously, all of our reinvestment projects remain in the same property pool. The same property pool represents, I think, over 90% of the total portfolio.
Oh, thank you for the clarification. Just one for Angela real quick. You kind of broke down the commencements of the $54 million between 2022 and 2023. If we think about it from, I guess, an FFO impact perspective, should we think about, like kind of 50% of that $27 million hitting in the back half of the year, 50%-75% of that $26 million hitting in 2022 plus the other half of the time-weighted 2022 commencements?
Yeah. I can give a little more color there. We do in the supplemental provide a breakdown between 2023 and then 2024 and beyond. You know, it's as we talked about on the call, $27 million in 2022, a little bit Q4 weighted, but not substantially so. As you get into 2023 is about $19 million of the remainder, and then 2024 and beyond is about $8 million of what's left. That's kind of how it breaks down.
Perfect. Helpful. Thank you.
You bet.
Thank you. Next question is coming from Ki Bin Kim from Truist Securities. Your line is now live.
Thank you.
Hey, there.
Hi. Hey, Jim. Wanted to go back to the $50 million of ABR that are in negotiation, so not the signed but not open, but under negotiation. You know, obviously there are leases that are going into that bucket and some leases that are being converted to signed. That number is the same as last quarter, $50 million. Like I just said, it's obviously dynamic. Can you just talk a little bit more about that math and the real-time demand you're seeing?
Yeah, Ki Bin, it's about the same number. Consider, I mean, we signed 900,000 sq ft of leases during the quarter, so we've added more to that pipeline. In terms of the real-time demand, as I mentioned, we were very encouraged by the conversations at ICSC, which were on the heels of retail earnings reports. We continue to have great discussions with portfolio reviews following up. What we're hearing from our core tenants and from new tenants to the portfolio is still a desire to expand their open air footprint. They're looking to fill their slots for 2023 and 2024. They're making long-term decisions because they see, as Jim mentioned, that this is the most profitable way to deliver goods to the consumer, and they're looking to expand their touch point with the consumer.
As you look at what we've done at our centers, the centers look a lot better. Our traffic drivers continue to keep traffic up at our centers versus pre-pandemic levels. We've been really encouraged by the demand and particularly the demand that we've been seeing over the last 6 weeks-8 weeks.
I appreciate the question, Ki Bin, because as Brian highlights, we're constantly backfilling that pipeline. You know, we delivered over $15 million of ABR from what was in legal last time as we signed it for $17 million, excuse me. You know, we continue to see activity not only with what we're in negotiations on, but in the very front end as we're signing LOIs or we're talking to tenants about their needs. Those activities remain very robust, which I think reflects the quality of our centers. It also reflects the general environment where you're not seeing a lot of new supply.
You know, we're seeing, in a lot of circumstances, multiple tenants competing for the same space, which is, you know, a great way to drive better terms, better growth, and better outcomes.
Okay. I had a kind of specific accounting question. I'm looking at page 30 in your leasing metrics. You guys cite about $1.77 of tenant-specific landlord work in 2Q. I was just curious if that's a fully loaded number. Meaning if you do work on like HVAC or roofing that, where the useful life extends beyond the tenant's lease term, is that CapEx included in that $77 or excluded?
It's those are the tenant-specific costs for, you know, work related to the space that, you know, we're doing generally when we have kind of larger TAs for tenants. It would have some of that TI work that's included in that's typically performed by the landlord.
Yeah. The typical base building work is usually excluded from those numbers, Ki Bin. You'll see that show up in maintenance CapEx.
Okay. Thank you.
Thank you.
Thank you. Next question today is coming from Greg McGinniss from Scotiab ank. Your line is now live.
I think they're talking about me. Good morning. I just wanna go back to your comments on transaction market in terms of not seeing compelling product during this period of market volatility. Does that mean there's no product available to buy, or sellers are just not adjusting cap rates despite increases in borrowing costs? Just a wider bid-ask spread issue.
There's a couple points in there. One, there's certainly less assets on the market today, particularly on the grocery-anchored side. The ones that are coming to market, as we mentioned, the pricing has been pretty sticky, stickier than we would've expected. I think there's just less assets on the market from that perspective. From a bid-ask perspective, I do think where you're gonna see that wider bid-ask is on larger deals, as we mentioned, or as Jim mentioned or remarked. Smaller deals have a much wider buyer pool. They've got a lot of financing options. That market, you know, is somewhat liquid. But the larger assets, we see less of those trading today. I do think there's probably a wider bid-ask spread there.
That certainly could be some of the opportunity that Jim mentioned as we look at the rest of the year going into 2020, into next year. That's how I would categorize the market today.
Okay. Thanks. Separately, just a point of clarification. On the 150 basis point occupancy drag that you've cited from the redevelopment pipeline, does that mean that assets are currently repositioning and space just can't be filled because there's work being done, or is that occupancy that you expect to gain after new anchors and PSAGs or new tenants?
No, it's not occupancy. It's vacancy in those assets undergoing reinvestment, which we do expect to fill as we deliver those reinvestments. It's the impact of assets under reinvestment from an occupancy standpoint to the pool overall.
Okay. That's the active development pipeline creating that drag, right? Not the billion plus of-
Correct.
Additional investments you plan on making. Okay. All right. Great. Thank you very much.
You bet.
Thank you. Our next question today is coming from Haendel St. Juste from Mizuho. Your line is now live.
Hey, good morning.
Hey, Haendel.
Good morning, Jim. Maybe a first one for you, Jim. You guys have done a great job getting to your new rents on time, even faster than anticipated. I've been hearing some comments about potential store opening delays given labor shortage and supply chain concerns. Maybe you can discuss how you're able to successfully get to your rent so consistently and ahead of schedule. Are you starting to see any of those delays or have any concerns about the potential delays as we look forward? Thanks.
It's something that Brian and Haig and our leasing and operations teams and our tenant coordinators have been very active in managing, and I think you see our success in terms of our ability to deliver ahead of schedule. You know, to get there, it's really a multi-pronged approach. You know, you're working with tenants to adjust scopes. You're working with tenants to defer certain items. You're getting the tenants to accept existing conditions, because the tenant wants to get open, too. You know, at the same time, you're going ahead and getting permits early in the process.
You're doing a lot of other things to try to manage that as best you can because it is against the backdrop, Haendel, of supply chain disruption, you know, permitting delays that occur, particularly during the pandemic as some permitting offices were shut down. You know, I just think the team has done a really good job of proactively managing that and delivering better than expected. You know, hats off to Brian and the leasing team for having the trust with the tenants to work with them and negotiate scope. In fact, we've had with many of our major tenants off-site meetings to talk about how do we hit schedules and to partner with tenants on that. Of course, Haig and the operations team are doing a phenomenal job.
That's great. Thanks for that, Jim. A follow-up maybe for Angela on the balance sheet. Yeah, I understand that you have great liquidity, no near-term maturities until 2024, but your debt EBITDA is in the mid-sixes, and I imagine that will somewhat limit your ability to be opportunistic. You talked about being a net seller in the back half of the year. I guess I'm curious, is this a level you're overall comfortable with, especially as we enter a slow economic period here? And maybe you could talk a little bit more about your balance sheet philosophy today, as well as your target leverage and timeline getting there. Thanks.
Sure. Yeah. We're very pleased with where we stand overall today. We spent a lot of time on this call talking about how powerful that signed but not commenced pipeline is. As we deliver that space, you're naturally gonna see EBITDA growth, and you're naturally gonna see the debt-to-EBITDA number work its way down. You know, we generate great free cash flow. We're using free cash flow to fund the vast majority of the redevelopment effort, which continues to create that EBITDA growth going forward. I do think you'll naturally trend down, you know, into the low 6x range probably as we get into next year, but it will be pretty organic in nature.
Great. Got it. Low six is where you are comfortable being overall in that type of environment we're looking at?
Yeah. We really are, and it's informed by the fact that the portfolio continues to have a very significant mark-to-market opportunity. I think, you know, it's what the right, the quote-unquote right debt-to-EBITDA number is, should always be informed by what the basis of the portfolio is.
Where EBITDA is going.
Where EBITDA is going. If we thought that the portfolio were above market, we would have a different leverage target. If we thought it were at market, we may even have a different leverage target. With a continued substantial mark to market in the portfolio that we're demonstrating quarter after quarter in the executed spreads, we believe you're gonna continue to see that EBITDA growth and naturally see the debt-to-EBITDA number trend lower over time. 6x does feel right in this environment. Absolutely.
Okay. Thank you for the time.
Sure.
Thanks, Haendel St. Juste.
All right. The next question is coming from Anthony Powell from Barclays. Your line is now live.
Hi, good morning. It's a question on revenues deemed uncollectible. You mentioned that we expect to see prior collections moderate, but you're also seeing stronger current year collections. As you look at that line item going forward into 2023, can we expect that line item to be, you know, either flat or positive in 2023 as you continue to collect prior period earnings and as your collections get better?
Yeah. It's a very difficult question to answer because of that prior period collection piece. We've been very pleasantly surprised by our ability to continue to collect some of those legacy amounts. As you step back and think about it, most of what we're talking about relates to 2020 revenue. We're now two years sort of into trying to collect some of those amounts. What's left to collect is heavily weighted to some of those categories that were more significantly impacted during the pandemic, like restaurants, fitness, entertainment. While I think the team has done a phenomenal job of continuing to realize collections on those amounts, we should naturally all expect that that's gonna trend down and eventually really dissipate. We give disclosure on this in the supplemental.
It's about $39 million remaining of revenue throughout the entire pandemic period that has been accrued for, but uncollected and reserved for. That's really the number that in total would have the ability to be positive to the P&L, positive to revenues deemed uncollectible over time. Only about $18 million of that relates to tenants that are still in occupancy in the portfolio, that are still active tenants with us. That's our highest likelihood of collection. As I mentioned earlier, over 80% of what we collected in the current quarter was related to active tenants. And those are great trends and say something really, I think, fantastic about the wherewithal of those tenants at this point in time. The granularity of that pool has continued to increase. We did have one larger settlement in the current quarter.
You know, looking forward, the average balance we're trying to collect from individual tenants is in the $20,000-$30,000 range. It makes it very difficult to predict the total amount that might come in or the timing of that. Putting all of that aside, you know, I would say as we look at the watch list in general, just continued to trend down. As we look to 2023, we're certainly mindful of the overall current environment. We do continue to see improvements in the collections rate from cash basis tenants as we move forward.
At this point, you know, I would expect that, putting aside the impact of prior period collections, we look at reserve numbers for next year that probably are more in line with our long-term historical levels of 75 basis points-100 basis points. Again, that's with a big caveat on not really being able to predict what those out-of-period amounts might be.
All right. Thanks for that detail. One more on Lake Pointe in Sugar Land. You talked about the underwriting there, the cap rate going in. Is that a full redevelopment or more just a, you know, some leasing up opportunity there?
It's really both. You know, we have vacancy in the small shops, which we've already begun backfilling above what we have underwritten, as well as some additional pad sites and density that we believe we can add to that highly trafficked asset. Mark.
Yeah. We're really excited about that opportunity. We really bought that asset at a low point in the asset's occupancy history. The asset's currently 87% occupied, 82% occupied in small shops, both of which are well below our portfolio average. We really do see near-term growth in that asset. From a cap rate perspective, it was just below a 5 cap, and we do have, as I said, leases that we really had in hand that would drive it well above that here in the near term.
Thank you.
You bet.
Thank you. Next question is coming from Floris van Dijkum from Compass Point. Your line is now live.
Morning, guys.
Hey, Floris.
Thanks for taking my question. Hey, Jim. I wanted to if you could remind us again where your peak occupancy was in your portfolio, knowing that that's probably maybe not a relevant statistic as you've put significant capital into your properties. Where do you think that can go? And also maybe talk about what that does to your NOI margins. I noticed that, you know, you've got still a pretty healthy pipeline of signed-not-open, presumably as those your margins improve as well. Well, do you think I mean, you know, where do you think your NOI margins can go to once you get your portfolio even further occupied?
You know, as we've talked about and Brian highlighted as well, we've got about 150 basis points of drag in our reinvestment pipeline, which we think will outperform the portfolio as we deliver it, portfolio average. If you think about it, we sit at 92.5% today. Our previous all-time high was 92.8%. We believe as we continue to execute, that we'll continue to go above that. And that will be accretive to our margins as well. You know, I'm not gonna give you an exact basis point, but, obviously, as we continue to drive the build occupancy, that continues to accrete to our NOI margin.
Thanks, Jim. Maybe my follow-up is in terms of. I'm curious to see, you know, with all of the cell phone data, you guys have really clear information on traffic levels. What does a typical redevelopment do to traffic levels in your view? I noticed. I saw online your Mamaroneck Centre, which I haven't been to in a couple of years, but it looks a lot nicer now than it did previously. But maybe if you can use that as an anecdote, what has happened to traffic, you know, at a center like that, you know, post redevelopment?
It's quite significant. I mean, it's, you know, high double digit kind of growth rate in what the traffic is. It depends on the nature of the redevelopment and reinvestment, certainly. You mentioned Mamaroneck, you know, the traffic growth there has been exponential because we had a we had a dark A&P box and a shop space where we, you know, were able to add a bunch of shops, replace the grocer with a great specialty grocer, and, you know, drive exponential growth in that. To, you know, the addition of outparcel, for example, in Rockland, where, we added a very productive outparcel there. Traffic has increased at the center, by, you know, 15%-20%.
It depends on the nature of what we're doing, but we're seeing great growth in traffic. I think, you know, when you take a big step back and you look at our relative growth in traffic overall versus 2019, you'll see that we stand apart. The strategy is what's driving that differential, right? It's coming through in our traffic numbers as we replace the tired, old, oversized box with a specialty grocer, a fitness use or a value apparel retailer, or we add an outparcel. What's exciting for us is, you know, we've now impacted over 130 of our properties. We have another $400 million of it largely leased and underway, which will continue to accrete to the traffic levels that the assets impacted. We have a pipeline behind it. It's great to see it in those traffic numbers and you know and to see that type of overall growth.
Thanks, Jim.
You bet.
Thank you. Our next question today is coming from Linda Tsai from Jefferies. Your line is now live.
Hi. Good morning. Angela, you mentioned earlier success in managing expenses. Can you give more color on what that entails?
Yeah, I mean, it's just very proactive efforts across all of our property management team, across all of the regions in terms of really working with vendors, utilizing the benefit of scale we have for certain things, you know, trying to find more efficient ways to operate and more efficient ways to procure certain things. It's a very broad-based approach. I think the team's done a fantastic job of really looking for every opportunity across all of the expense line items to proactively manage inflationary pressures across the portfolio.
Thanks. Then in terms of revenues deemed uncollectible being a headwind to 2023, are there other items we should think about for next year in terms of, you know, impacting growth?
Yeah, no, I mean, I think Jim framed it up very well in his prepared remarks, which, you know, was to say, yes, the prior period collections are, without question, gonna be a headwind as we head into 2023. We know what that headwind looks like on a year-to-date basis. To the extent we have additional out-of-period collections in the second half, that creates an even larger headwind as we get into 2023. You know, certainly the health of the tenancy feels very good today. We're hopeful that continued improvements in the collections rate from cash-basis tenants will help to mitigate some of that. Without question, it's a headwind.
You know, the offset to that, and in a more important, significant way, the fundamental growth piece, meaning the signed but not commenced pipeline coming online is really gonna be the primary driver of growth as we get into next year, both as we increase occupancy, which we've highlighted has an important impact on overall margins and recovery rates across the portfolio. You know, we're just really excited about the opportunity to continue to drive that forward.
Thanks.
Thank you. Next question is coming from Paulina Rojas- Schmidt from Green Street. Your line is now live.
Good morning.
Good morning.
You're obviously seeing very strong leasing demand despite having a slowing economy. How rare is this retailer behavior in your experience versus what you have seen in other cycles? Is it unique or down the road, we could realize that it was, in hindsight, in line with the usual lagged reaction from retailers to changes in the economic scenario?
Well, I think you have to frame it up in terms of where we've been for the last couple of years. You know, the retailers navigated through a pandemic quite well, and through the process of doing that, really, I think, further solidified their own views as to the importance of the store in serving the customer. The importance of the store from a profitability standpoint. You know, while you're certainly seeing some headlines around inventories and shifting consumer patterns, traffic is still strong. You know, retailer sales are still up. You know, you're seeing, I think, what is a very rational, forward plan for these retailers who are thinking not just about the next couple of quarters, but from a store perspective, the next couple of years, where they see white space to expand their brand and be profitable.
You know, that's why you always hear me say, rent base matters. The retailers aren't gonna go into a store that they believe is not gonna be profitable to them from a four-wall EBITDA perspective. You know, they're better than ever before, Paulina, at estimating what the productivity of a store is gonna be, not only within the four walls, but also what they expect that store to drive in additional online revenue. You know, those models are utilizing all the data and current real-time traffic patterns and understanding of consumer patterns as well. You know, this continued strength in retailer demand feels very fundamental to us and in support of their long-term profitability.
Thank you. Very helpful.
You bet.
Another question. Your assets are on average located in areas that serve consumers with a lower household income than your peers. Can you talk about what are in your mind the implications of this, given the low growth scenario we're in?
Well.
Understanding, of course, the type of product found in strip centers?
You know, our centers are in phenomenally strong locations from a national perspective. I think we're demonstrating that in terms of the fundamental growth that we've been delivering, the relative traffic growth to the centers, and the real-time tenant demand to be in our centers. We like how this portfolio is positioned. You know, there's some assets that might bear higher demographic profiles, but have rents that are at or above market. That's not a long-term way, in our opinion, to drive value or drive ROI. We like how we're positioned as a portfolio. We like where our rents are. We like that rent basis, particularly in light of where we're signing new rents and particularly in light of the fundamental tenant demand and real-time traffic patterns.
We think in that way we're somewhat differentiated in that we haven't chased demographics just for the sake of demographics. We're looking to invest capital where we see strong tenant demand and where we believe we can drive great performance from an ROI perspective.
Thank you very much.
You bet.
Thank you. Next question is coming from Michael Mueller from JP Morgan. Your line is now live.
Yeah. Hi. Curious, how did the return expectations for your new and planned reinvestment projects today compare to, say, projects you started a year or two ago?
You know, they remain really strong. It changes based on mix. You know, typically the out parcel projects will be more accretive from a return perspective than a larger scale redevelopment. But you know, we're getting great incremental returns and importantly, Mike, also great gross returns on the capital that we're putting to work. You know, today that pipeline that we have underway is just a little bit under $398 million at a 9. You know, I like how that's positioned. It's a substantial spread to you know, not only where cap rates are today, but where they might move in the future. We believe you know, we're creating a tremendous amount of value there.
Got it. Okay. That was it. Thank you.
Thank you, Mike.
Thank you. We reached the end of our question and answer session. I'd like to turn the floor back over for any further closing comments.
Thanks everyone for joining. Enjoy the rest of your summer.
Thank you. That does conclude today's teleconference. You may disconnect your line and have a wonderful day. We thank you for your participation today.