Brixmor Property Group Inc.

Greetings and welcome to the Brixmore Property Group Incorporated second quarter 2021 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 during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Stacey Slater, Senior Vice President, Investor Relations and Capital Markets. Please go ahead.

Thank you, Operator, and thank you all for joining Bricksmoor's second quarter conference call. With me on the call today are Jim Taylor, Chief Executive Officer and President, and Angela Ahman, 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, an actual future result 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 for 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, Stacey, and good morning, everyone. We are very pleased to report yet another quarter that reflects the strength of our team, our well-located portfolio, and our value-added execution, execution that not only delivered sector-leading performance going into and through the pandemic, but also provides us with the momentum to outperform again as we emerge this year and into 2022 and beyond. In a few minutes, Angela will provide additional color on our results and our raise to guidance, as well as our continued growth in cash flow, liquidity, and balance sheet strength. As you dig into our results this quarter, even after adjusting for the recovery of prior period billings, which continued to accelerate, you'll observe that our base NOI is nearly fully recovered to 2019 pre-pandemic levels, and our traffic levels at our centers now exceed where they were in 2019. That recovery is truly striking, and it demonstrates the quality and resiliency of our open-air retail portfolio. But that recovery is not the most important takeaway. Rather, the key takeaway is how we will grow from here. In other words, how the very same momentum that drove our experience of the lowest negative impact from the pandemic will also drive our continued growth and outperformance, especially through a dynamic and evolving retail environment. I'd like to shed some additional light on that combination of factors unique to Bricksmore that we believe will continue to drive our outperformance for years to come. Those factors begin with rent basis. As you've probably heard me say before, if you're looking to drive growth in ROI and thereby deliver value, rent basis matters. We benefit from a portfolio of established, well-located, and highly trafficked shopping centers that attract the very best national, regional, and local tenants. tenants who drive healthy sales volumes and enjoy reasonable cost of occupancy. In fact, our grocers enjoy an average cost of occupancy of 1.5%. For us, this focus on rent basis is foundational. We've harvested those assets where we see limited upside in rents and have focused our investments where we see an opportunity to drive growth. That upside in rents is most evident in our new leasing spreads. which were 19.8% for the quarter, which I believe will lead the peer group, and they were 19.3% for the trailing 12 months. Again, likely well ahead of the pack, even through the height of the pandemic. If you look at our expiring anchor rents over the next three years, the average expiring rent is $8.78 a foot, which is significantly below the average new anchor rent we've signed of $12.60 a foot, over the trailing 12 months, that again included the height of the pandemic. That's a cash spread of 44%. The upside in our portfolio has clearly been battle tested over the last year, and it will be even more striking as the economy continues to improve. Two additional factors driving our visibility on growth are our executed leasing volumes and our forward leasing pipeline. Under Brian's leadership, during the quarter, we signed another 700,000 square feet of new leases at a record rent of $19.48 a foot. And with renewals, we signed a total of 1.6 million square feet of deals. We grew our lease occupancy another 30 basis points on a sequential basis and grew the balance of signed but not commenced rent at the end of the quarter to $42 million. Additionally, our forward leasing pipeline, that is deals and legal and underway, is comprised of another 2.5 million square feet or another 44 million of base rent. That's unparalleled visibility on our forward growth. What's also very exciting to me is the continued improvement in tenancy, including within the grocery segment, as we've capitalized on the disruption caused by the pandemic to bring in better tenants at better rents. Brian will cover that in a bit more detail during our Q&A sessions. This very same leasing activity has also driven our highly accretive reinvestment pipeline, a fourth key factor driving our growth, which now stands at $433 million of investment at an average incremental return of 9%. During the quarter, we delivered another $20 million of reinvestment projects at an average incremental return of 18%. To provide some perspective at those yields, These deliveries create as much value as over $200 million of ground-up development at much lower risk. We expect our total deliveries this year to be between $175 to $200 million at a very attractive average incremental return of approximately 10%. I'm really pleased here with the continued execution under Bill and Haig of our redevelopment and construction team. I'm also excited about how this reinvestment activity not only drives great ROI, And as I've talked about on previous calls, compression in cap rates for the centers impacted, but also for how it drives our momentum in our fifth key growth factor, the lease-up of our small shops. During the quarter, we drove an additional 60 basis point sequential increase in our small shop occupancy and set a post-IPO record average small shop rent of $25.15 on comparable new space. As we improve our centers through our reinvestment program and our enhanced operations, we see clear follow-on benefit in both rate and tenant quality in the lease-up of our small shop spaces, where we believe we have several hundred basis points of growth potential. From a capital recycling standpoint, we are seeing attractive opportunities for external growth, or to use an analogy, more fuel for our value-added BRX engines. such as the acquisitions of Bonita Springs and Champlain, which we closed this quarter. We're focusing our acquisition efforts on those opportunities for us to leverage our platform strengths for additional growth in ROI. Mark will provide additional color on our pipeline and acquisition market overall in the Q&A session. As always, expect us to remain disciplined in the allocation of capital as we always strive to be across all facets of our business. While the acquisition market has gotten increasingly competitive, we do believe there will be significant and attractive opportunities for us to leverage our platform for external growth. And as Angela will cover in a moment, we have over $400 million of cash and an additional $1.2 billion of availability under our line of credit, as well as growing free cash flow to fund those opportunities. In closing, I'd like to express my deep gratitude and appreciation for the entire Bricksmore team, which is the best in the business, for their continued commitment and amazing execution across all facets of our business, from leasing to operations to redevelopment to construction to investments to finance and accounting to legal, and finally and importantly, to talent. Your performance over these last 18 months has truly been phenomenal. Our first cultural tenet as a company is that great real estate matters, but great people matter far more. You prove that tenet each and every day. Well done. Angela?