Why don't we get started? This is the first panel for me here. Welcome to the Brixmor roundtable. Happy to have Brian Finnegan with us this morning, who is the CEO of the company. Brian, why don't you, we have a big group here, maybe introduce the team?
Yeah, sure.
Maybe provide some opening remarks.
Yeah, sure. Samir, thanks for having us. Good seeing all of you today. Joining with me here are Mark Horgan, our Chief Investment Officer, Steven Gallagher, our Chief Financial Officer, and Stacy Slater, our Head of Capital Markets, IR, and Strategy. Thanks again for being here today. Look, from our standpoint, the strategy continues to be accretive reinvestment in our portfolio. My focus for the last 18 months in coming into the seat is not a shift in the strategy. We spent 10 years transforming the portfolio. It is really to accelerate everything that we have been doing.
It has been a tremendous environment for open-air retail. Our retailers are performing. Traffic continues to go up at our shopping centers and across the sector. But in particular, the work that we have done to our portfolio has really allowed us to capitalize on that environment. We are signing rents at the highest level that we ever have. We are continued to deliver growth at the top of the sector, and we are delivering that more efficiently with lower CapEx, with retailers taking on more of that work.
What we show all of you is the visibility on that growth that is really unparalleled in what we own and control today. We are not banking on external growth to grow. We have a signed-but-not-commenced pipeline of $70 million that is contractually obligated. It has been around that level for the past couple of years because we continue to backfill it as we have been commencing $15 million- $20 million a quarter. As we look out, our plan is to continue to do what we can to accelerate that.
We have invested $1.5 billion in the portfolio to date, but we are even more excited about the opportunity set that we have going forward. We have got $1 billion in reinvestment just in our active and future pipelines that we show all of you. Projects like the half a dozen that we have with Publix in Florida. Things like in metro New York, suburban Philadelphia, suburban Houston as well. The pipeline continues to be strong. While external growth is really additive to what we do, we have found opportunities to put the platform to work.
Close to half the acquisition activity that we have done as a public company has been in the last two years. There is a common theme across all of those acquisitions in that they have a growth profile that aligns with the growth profile of the portfolio that we have today, and they are in markets that we know very well. We were very excited about what we see within the space in terms of how our tenants continue to perform, but even more excited about how we are positioned to capitalize on that going forward.
You mentioned after coming into the role and you talked about accelerating kind of everything you have done here. Maybe diving into that a little bit, where do you find the biggest opportunity to improve the business?
I think it is that, Samir, if you look at where we've kind of taken rents in a couple of different ways. Just in operations alone, we've taken rents from $12.50- $19 across the portfolio. We're signing those at $25 today. We're at three years running of renewal growth that's in the mid-teens. Our retailers are able to pay higher rents because they're performing in our shopping centers. We think there's continued room to run there from just a rent growth perspective in the existing portfolio.
It's really continuing to capitalize on that, whether that's the 3.5 million square feet of space that's expiring, anchor space in the next three years that we control at rents that are $11, and we're signing those at $18. Or whether that's in our existing bumps in the portfolio, which were a record at 2.8%. That's in the initial operation to continue to drive rate in the portfolio and do that more efficiently. I mentioned reinvestment. Getting those projects started. We've been delivering larger projects across the country recently.
You think about Davis, California, Block 59 in suburban Chicago or in Orlando, the projects that we have in suburban Philadelphia, bringing those forward and getting those commenced. You will see us start to bring a number of those Publix projects online next year and in the years to follow. You should expect a steady cadence of that future reinvestment pipeline coming on to the active pipeline as well. An area that I'm sure we'll touch on, we have been very forward-thinking in terms of our deployment of technology.
For us, it's very result-oriented. What's the time that we're saving? What's the value that we're creating? I mentioned a few things in our first earnings call earlier in the year. Areas like legal leasing, things that Mark is doing in terms of property underwriting as we're looking at acquisitions, and then tenant health across the portfolio, which we're seeing even more improvement there as well. That's been a big focus for us, too.
This is more of the AI and sort of data tool.
I'd say AI and data across the portfolio.
And you're seeing results already there?
Absolutely. Look, we cut our outside legal expenses in half. If you think about the time it takes to review a lease, the time it takes to dig into a lease clause to figure out what you need to do to reinvest in that. We've shaved that time down dramatically. So one of the things we measure is time to open, from when we have that first conversation to when we get those tenants open. We've cut our time in legal by 15% over the past two years. So that's something where we're seeing real tangible efforts. If you're able to take that time and have that individual now work on a few more leases, just think of how many days of rent you're able to pull forward.
What about on the underwriting front as you think about acquisitions?
From a technology perspective, it's two things. It's speed. It's allowing you to get through the data much quicker. If we get an inbound from a broker, we can get it into our model and compare it to our existing portfolio. That used to take a day or two from an analyst. It's kind of done in 10 minutes, and you can kind of rank your rent sales performance against the entire portfolio. It's much, much faster. The other piece is, as Brian mentioned, it's a cost perspective as well. We were cutting about $50,000 out of every acquisition just from a legal perspective. We're getting that work done cheaper and faster, which has been great.
Maybe just shifting to the consumer, there's been a lot of conversation on the macro. Talk about, I know you briefly touched on traffic and tenant sales, but talk to us kind of the trends you're seeing, you saw through the summer. Any changes in tone from retailer conversations that you've seen over the last few weeks or several months here?
We remain very encouraged. If you look at our back-to-school traffic was up significantly over last year. We've been up in traffic every month this year. Interestingly, our back-to-college traffic, we have a great college town portfolio. Where we were seeing, call it 3%-4% growth year- over- year, we saw 8% growth in Ann Arbor, Michigan. We saw high single digits growth in the centers of Texas A&M . We have about 10% of the portfolio in college towns, and we saw significant growth there. I'd say we're seeing the consumer be maybe more intentional with their spend. I think across the income spectrum, they're looking for value.
You heard that on a number of the earnings calls with the off-price tenants. I think they're still spending on health and wellness, and health and beauty. You heard that from Ulta, you heard it from a number of the fitness tenants as well. I think there has been a mixed bag, I think, on some of the grocery results across the board. If you think about the traditional grocers that went several years without opening new stores, like Kroger, invested millions of dollars in that fleet. And who we've been growing with on the specialty side, like Sprouts and Trader Joe's and Whole Foods.
We're still seeing strong demand there. I think from our standpoint, we serve two customers, right? We serve our retailers, and then we serve the customers that shop at our centers. From a retailer perspective, when they're making 10-year decisions and they're looking at various economic cycles during those 10 years, they're doing that today with more data than they've ever had on those consumers to make those stores as productive as possible.
How much in a given environment are they shipping from that store? How much is getting picked up? And being able to connect with the consumer wherever the consumer wants to meet them is important. I do think the consumer is being intentional with their spend. You certainly heard that from a number of retailers, but they've been incredibly resilient.
Anything on the watch list, right? As we think about the back half of this year and into next year. You've heard grocery earnings here, right? Whether it's Kroger or some of those reports. How do you think about the watch list going into the next 12- 18 months here?
I would say the underlying tenancy of this portfolio is the healthiest it's ever been. And I'd ask anybody in the room to compare our top 20 from five years ago to where it sits today. And what you'd see in the top tenancy is growth from Trader Joe's. You'd see growth from Sprouts, growth from Barnes & Noble, growth from Publix, and look at those operators that have left. I think as you think about categories that could be closing stores, right? We expect drugstores to continue to marginalize their store base. It's 80 basis points of our rent.
And even the nature of that exposure for us, they're generally older, in-line locations. Think of the former Eckerd or the former Longs in California. We've been filling those spaces with Trader Joe's and Ulta. We've leased every one of our Rite Aid that we got back over two years. Office Supply will continue to close stores. We've cut that exposure in half. We've been signing the bulk of the off-price deals that we've been doing have been in a number of those boxes at rent spreads from 40%-50%. I do think you'll see them potentially slow down because they've almost closed too many stores.
They're certainly not going to open new ones. Then you look at the rest of the exposure. It has been a good summer for movie theaters, but it's 1% of our rent. I don't think we've invested in a new theater in seven years. I think overall, the health of the portfolio, even on that small shop tenancy, the signatures that we were able to get on those leases over the past five years are dramatically improved from where they were pre-pandemic.
You see that coming through in the bad debt trends. You see that coming through in the move-out trends. You see that coming through in those retention rates as well. So we feel pretty good about the watch list going forward. I think there are always inevitably some categories that will close stores, but just leave you with the health of the tenancy is as strong as it's ever been in the portfolio.
I think, look to the retailers. Their reports have been very strong, right? So even where you may have some stock price performance, that is different than ultimately the sales that they're generating from the actual locations and how they're growing their store fleet. So I think sometimes, don't always focus on what an individual stock is doing. Really look at what they're doing out of the stores.
I know you guys recaptured some space in the second quarter. Maybe give us an update kind of where you are with that space.
Yeah. I think one of the reasons we wanted to signal that we potentially see some occupancy noise in the second quarter was that things have been really good. I think folks are pointing at any potential negatives. Part of our strategy is going to continue to be capturing the value in under-market space. Just the nature of the roll this quarter, we expected to take some space back, specifically on reinvestment assets in North Jersey and Orlando.
We knew it was going to come through. It came through, and we had a handful of the Painted Tree boxes that we took back and still only had a 30 basis point dip. Also raised guidance during the quarter as well, so you did not see it impact us in terms of our growth rate for the year. The boxes that we did take back are effectively all leased at this point both with [Ren] and with The Pantry, again, with off-price operators, with health and wellness operators.
That positions us for even better looking forward in terms of the improved rent and the improved traffic on those, getting those back filled pretty quickly. We do not give occupancy guides because there are going to be times, and you saw our term fees pick up last year, and they are a little bit elevated this year, where we are going to take space back in an environment like this, sometimes get paid to do it. But we do expect occupancy to get back on a growth trajectory in the back half of the year.
Right. It sounds like, I think during the second quarter earnings, you said that there was six of the eight boxes you had taken back had been-
Yeah, effectively, and more effectively, either signed or at lease with them on all of them.
The rents were up like 40% or something.
Yep.
Yep. Okay.
I think, Samir, that is just a good window in terms of the supply environment. Back to what we are hearing from retailers, we are hearing that there is not enough good boxes and great shopping centers. That is why you are seeing when there are some level of vacancies in boxes like that is why they are getting absorbed very quickly. They are getting absorbed quickly with tenants that are driving traffic and continuing to produce in their stores.
You have hit a record of, I think it was $70 million of ABR as you look at SNO pipeline.
Yep.
Help us understand the rent commencement of that, and when does that hit the financials as we think about the next 12 months.
Yeah. We expect about $30 million to hit the remainder of the year. Then as you look into next year, the vast majority of that should hit into 2027. Just like we've talked about consistently over the last couple of years, that stacking of rent commencement really gives us the visibility into growth. Like you're seeing in 2026 with the midpoint of our same property NOI being at 5.25%. But also as you go into 2027, and then additionally into 2028, you'll see that continued stacking of rent commencements out of the SNO pipeline. I think importantly, the rents in place on them are about 25% higher than our in-place rents that we see across the portfolio.
I think the other thing that's helpful, just seeing that visibility and the size of that pipeline, I'd point to two things. It has remained in that $60 million-$70 million range for some time. That's because as we've been commencing, call it $15 million-$20 million a quarter, we've been backfilling that with new leasing. I think the other thing that maybe historically was a knock on the portfolio was, well, what's coming out the back door, right? Well, we have small shop move-outs that are record lows for the portfolio, retention rate that's nearing all-time highs. So from just a move-out trend perspective, you're seeing much more of that growth being additive going forward with, again, the tenancy being as healthy as it's ever been and continuing those strong retention rate trends.
On the leasing side, you've hit, it seems like every quarter is a record for small shop leasing and occupancy. Where can you take shop occupancy, you think, at this point?
We continue to take it higher. If you were to look at that future reinvestment pipeline, the 60 or some odd projects that are on there today, they trail portfolio average by about 400 basis points. If you were to ask where some of the non-structural vacancy is, it is there. Call it, is that 100 basis points? Is that 150 basis points? We also have the spread, so back to that SNO perspective, there is a 400 basis point spread in terms of that small shop occupancy coming online that is obligated and baked. That is visibility on growth. Then overall, is it probably a similar volume? We are 80 basis points below prior peak occupancy. That is by no means a cap on the portfolio. If you figure another 50 basis points- 100 basis points on top of that.
Brian, you mentioned in your remarks doing what you can to accelerate the SNO. Can you just talk about what levers you are able to pull to maybe bring forward some of that commencement and how timelines have been trending?
Sure. I mentioned first on the legal side, so it is cutting down the time that we are in lease. You will hear coming up, we had a number of anchor tenant deals that we got signed in under a month. We are back to setting new records in our time with our off-price operators who we are doing a lot with, getting that timeframe down. We used to take, call it four to six months, it is now taking one to three. That is number one. Number two, retailers have been much more willing to take on the work and take on existing conditions themselves.
Basically, what that allows us to do is give possession sooner. It is obviously cheaper for us to do it and allows them to get open a lot quicker. There are also times, and we just did this in Westchester County, where we are doing tiered delivery schedules. What I mean by that is we will get a certain amount of work done so that the retailer can get in and start, and then come back and maybe do the parking lot or maybe do the loading dock after that where we are doing some work.
Then also where we do have these partnerships, we are willing to go at risk in terms of the entitlement spend because a tenant has got a committee-approved deal, and we know they are going to move forward. It is the relationships that we have with municipalities in certain jurisdictions that we are able to get that work started faster. All of that added is combined is allowing us to start to pull some of these dates up.
And then the constant look at the portfolio with somebody like Publix, if you will notice, we added two new Publix centers to the active pipeline last quarter. It is not like we bought those shopping centers, but we are constantly in front of these retailers understanding if they have had shifts in a market. We are doing one of their first new prototypical re-demises in suburban Atlanta. It is an area where typically they are tearing down stores in Florida.
As they start to get stores on a vintage of 25, 30, 35 years in the Carolinas, it is just not as advantageous for us to tear those locations down because those sales may go to a competitor versus going to some of their other stores in Florida. So they are testing out the first one with us, so there could be another pipeline there as well. It is also constantly in front of tenants and understanding where they may now be willing to pursue a reinvestment in the portfolio.
I will just pause for a second. I do not know if there is any questions from the audience. Okay. Just wanted to switch to external growth here. You have been active in acquisition in the second quarter. Maybe give us an update of kind of what you are seeing on the transaction market side, right? A lot of capital entering the space. Talk about pricing and talk about your ability to find acquisitions that sort of meet your return thresholds here. Want to take that, Mark?
Sure. You are absolutely right. As we have been talking about for a couple of years, we are seeing the return of pension fund capital, core capital, back into retail. When we talk to that capital, like, "Why are you coming into our space? You told us for years it was not an investable business for you." They are kind of saying back to us as they compare open-air retail to the other major food groups, kind of putting aside the technology type sectors. They are saying this is the most investable sector for them today. It underwrites the best based on everything that Brian has been describing with the tenancy, with the lack of supply.
They think the returns are there. What is happening is that they are driving cap rate across basically every asset type, grocery, power center, unanchored net lease. That has been interesting. On one hand, we can take advantage of that when we're selling some assets to prices that we're very surprised about. From a cap rate perspective, what that means is you're seeing folks price even power centers below 6% in certain cases, which was somewhat surprising in our opinion. You're seeing core grocery price in that mid-5s, and you're just seeing really big bid lists.
How can we compete in that market? I'd step back and say we're not depending upon external growth to grow earnings here. We really have the stuff we lay out in our investor deck that we don't require earnings, external growth to drive earnings. It should be out of everything we're doing. Our ability to find those deals are really going through our existing footprint, our portfolio, and developing the relationships with the families that we want to buy assets from.
The deal we bought in College Station, Texas, last quarter, that's the deal we've been chasing since 2018. We wanted to buy it. We knew exactly what we were going to do with it. It came with very synergetic value-added opportunity with outparcel development that they've kind of put in all the infrastructure for. But we're going to be able to put the tenants in really cost efficiently. So that's how we're going to find opportunities. But again, since we're not really reliant upon external growth to drive earnings, it's something that's always going to be very opportunistic for us, despite it really being a very strong capital market today for retail.
What's been interesting to me, just to add on what Mark said, despite the uptick in rates, you're still seeing significant demand, and we haven't seen really cap rates widen.
Yeah.
If anything, we've seen them tighten in markets that you may be a bit surprised in college markets in the Southeast, for example.
What is that spread? I know you said power centers below 6%, but that is only selective power centers, right?
Not necessarily. That center is in Greensboro, North Carolina, right? That center is in Columbia, South Carolina. I think what you are seeing is it is an asset class where you can get positive leverage. Go ahead.
Positive leverage, but it is not every power center. I agree with you. You are seeing cap rate compression across that entire quality spectrum in that space. Why are investors, I think, driving to that space? Because they are seeing the same thing we see. Those rents were set 25 years ago. There is real true rent spread here.
There is really great tenant demand for these type of centers. Certain investors have said, "Great, I want to lean into that because I am seeing what the public guys have been doing. That is exposure I want to get to." I think they really are coming around to where we are, that we are going to see good rent growth from older leases. Lease rent basis really matters, and I think that is where you are seeing some folks lean into that.
I think opportunistically too, we no longer have the non-core overhang of the portfolio. There is not a, "Hey, what do you need to sell?" As any prudent capital allocator, you would expect us to take advantage of opportunistic sales where we have maximized NOI. Selling grocery anchored locations in Houston, Texas, where grocer may not be reinvesting heavily in those stores that we are getting mid 6% caps on, right?
Smaller grocers in Kansas City on a site where we did not see a significant amount of growth, getting a low 6% cap on, and being able to recycle that into capital in places like suburban Denver and Southern California, and like Mark mentioned, in College Station, where we see compelling growth profiles. We are doing that pretty creatively.
Yeah. You actually raised a really good point, Brian. We're seeing that historically you've seen folks just invest in certain core markets. Given the pricing we've seen in the Southeast and Southern California, Texas, we've seen some major investors move out into the Midwest searching for yield and compressing pricing even in Midwestern assets. It's been a very healthy market currently.
I know one of the deals you did also used OP units for acquisition. I guess just stepping back, how meaningful of a tool is this going forward, and does this sort of open up sellers you couldn't potentially reach before?
I think there are a couple of important takeaways. One, I think if you'd asked us or if you'd asked an investor seven years ago if they'd take OP units in Brixmor, it's not something they would have gone to. So I think it's a real endorsement of the platform that you have private investors saying, "I want the exposure to your platform going forward for my family." There is going to be a change of ownership as long-term owners of these assets seek to figure out what their tax planning strategies will be over the next 10 years.
So we think it's an interesting opportunity set. Those deals take a very long time, so we're in discussions with families pretty much constantly on those opportunities. They do tend to be a very emotional discussion because it's kind of a life event discussion they're having. While we're having those discussions real time, they can play out over years, not months.
Anything as it relates to the disposition pipeline? Because given you've talked about the cap rates being pretty low here in certain cases, would you accelerate your sort of dispositions and maybe try to-
Again, for us, it's more of strategically, Samir, where have we maximized value, and is it time to recycle the capital versus saying, "Hey, there's a portfolio here that we want to exit." We have curated the portfolio over time. We're in the markets that we want to be in. We're clustered in those markets. So for us, it's where we do have some pockets, and you can look at a map where you'd say, "Wait a second, there's only one or two assets there." We're okay. Are we in a position where we've maximized value there so we can recycle the capital? So expect us to do that, and we're encouraged by what we see in the environment to get some attractive pricing on those when we do.
What about in terms of acquisition? There's some bigger portfolios out there right now. What's the interest level at this point?
I'll let Mark take it. We think of it the same way we've looked at any acquisition. It's ultimately is what we're adding complementary to the growth profile and the business strategy of the company. We've looked at, and as I would think investors would expect us to look at other opportunities that have been out there. We'll continue to look at them. To date, we haven't found them to make sense. But I think that's how we would approach them from both a growth perspective and does it align with the strategy of the company today.
Yeah, I think, Brian, you said it well. We have internal growth opportunities with our redevelopment program. We are going to fund that with our free cash flow. That is going to be our first dollar out the door. As we look at bigger portfolios out there, we are going to compare them just like we compare any one-off deal. Does it add value to the company? Is there a way that we can apply our platform to that portfolio to drive outsized growth? We will look at that. Heretofore, they have been hard to find. We are going to be disciplined because we do not feel like we need to grow to grow. We need to grow to drive earnings, drive value.
I think importantly, we worked really hard to get our balance sheet to where it is today in the low 5x , debt to EBITDA. It is not something that we are going to give up to for any of these sort of transactions.
Maybe on the balance sheet, talk about in terms of expirations coming up. I know you have about $400 million that is coming up in the market next year. Current thoughts on timing and structure refi there. Any color would be helpful.
Yeah. Our next maturity is $400 million in March. I think as we have done, we have all the options available to us in the capital markets, and that is really due to all the hard work we have done on the balance sheet side. Obviously we still have six months to get out in front of that. Our line is fully undrawn. Stacy and I and the team will work to address that as we get a little bit closer and when there is a window that makes sense for us.
In terms of maybe, given that it's September and people are starting to look forward into the next year. As you think about the path forward here, and you think about FFO growth in the next year, talk about the swing factors as we think about what gets you that 5% or + 5% FFO growth.
Well, we put the long-term target out there for a reason, because we wanted folks to see the embedded growth within the portfolio coming from reinvestment, from rent market, from those embedded bumps, and we're still highly confident in that. We remain very encouraged with the leasing environment. As I mentioned earlier, the tenancy is in the strongest position it's ever been. So we're excited about the growth prospects for the portfolio going forward without getting into the specific guidance ranges for 2027. We continue to drive things like our specialty income as well. We continue to improve our recovery rate. So I think as we move forward, whether it's 2027, 2028, 2029, we feel like the portfolio is well positioned to continue to drive growth.
What's the biggest driver there? Is it the reinvestment pipeline?
It will continue to be. It's going to continue to be our collapsing. If you look at that $70 million. That spread between leased and build. We expect it to remain wide for a little bit as we get into next year and start the collapse as we get into the end of 2027. But the discussions that we're having with tenants today, Samir, are not just for 2027. There are 2028 openings at this point. A lot of our anchors, they're still signing up deals for next year, but they're now starting to look at 2028 going forward. So for us, it's back to that question that we had earlier. We talked about is what we can do to accelerate and pull a lot of those things forward.
Okay. Any questions?
Do you think any differently maybe about that longer-term leverage target, just given where you're talking about some of these assets are trading at, cap rates that seem to be really low. See if that holds or not, but does that change the calculus at all if you look at maybe funding something with an asset sale at a really good price versus refinancing at potentially similar type of cost?
Yeah, I think when we look at our leverage, you think about a lot of the things we've talked about and the stability of cash flow that we have. Low rent basis. So our ability in multiple market scenarios to still accretively reinvest into the portfolio. Long-term leases with high credit quality tenancy just gives you, when you look at that go forward stream of cash flow versus five years ago, it's a lot more stable today than it would've been.
That's why we think being in this low 5x as the growth comes on, we're still going to see that additional, just like we've naturally de-levered, you'll have that ability to naturally de-lever as you can. I think what you see maybe out of the peer group is you did see some peers go more into the 4x, and ultimately what they're doing is now levering back up in order as they look for opportunity for growth. I think it's a balance of how to really be in that middle area. You've seen even S&P Global Ratings put us on a positive outlook as they really reflects all of the hard work we've done to get to where we are today.
I know we've got a minute or so here, and we've got a couple of rapid-fire questions.
Fire away.
The first one if long-term rates stay higher for longer, what has the biggest impact on sector, I guess, sector earnings? Higher refinancing costs, lower transaction activity, or less new supply?
Less new supply.
Second one. Over the next three years, will third-party capital become a more important source of growth for public REITs than balance sheet capital? Yes or no? Choose one.
Yes.
And the third is for your sector, will 2027 same store NOI growth be higher, the same, or lower than 2026?
Higher.
Okay.
All right.
Thanks a lot, everybody.
Great. Thanks, everybody. We appreciate the time.