Brixmor Property Group Inc.

Greetings and welcome to the Bricksmore Property Group first quarter 2022 earnings conference call. At this time, all participants are in a listen-only mode. A brief 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. It is now my pleasure to introduce your host, Stacey Slater. Thank you, Stacey. You may begin.

Thank you, Operator, and thank you all for joining Bricksmoor's first 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, 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, Stacey, and good morning, everyone. I'm pleased to report yet another strong quarter for Bricksmoor. It's a quarter that not only reflects the positive trends we're seeing in the open-air retail industry, with record levels of tenant demand, increasing customer traffic, and limited news supply, but another quarter of performance for Brixmore in particular that demonstrates a unique durability and momentum of our value-added plan. Ours is a business plan that outperformed through the last three years and which continues to produce fundamental growth beyond pre-pandemic levels. And importantly, it's a business plan that positions us to continue that outperformance in the future. Said differently, our value-added plan benefits immensely from the strong industry fundamentals we're seeing today, yet it's also durable enough to outperform in less favorable conditions. This quarter, we delivered 11.4% year-over-year FFO growth, driven primarily by same-store NOI growth of 8.4%. Those are strong headline numbers, certainly, but I think what truly stands out in the quarter is the strong growth before the impact of bad debt. We expect this fundamental growth to continue and accelerate well beyond the transitory benefits of bad debt recoveries, which do reflect well on the performance of our underlying tenancy, but which are finite in impact. Importantly, our performance metrics this quarter bring again into sharp relief the growth and transformative impacts delivered through the continued execution of our value-added plan. Consider, for example, the nearly 1.4 million square feet of new and renewal leases signed during the quarter at a cash spread of 18.1%, including 780,000 square feet of new leases at a comparable spread of 35.9%. That's a record level of Q1 productivity of incremental new rent on a portfolio that is 20% smaller in GLA than we began our plan. Or consider the all-time record small shop occupancy of 87%. which includes a drag of 120 basis points from in-process and future redevelopment, or consider the year-over-year growth and overall leased occupancy of 130 basis points, or the continued growth in average in-place ABR to a record of 1564 per square foot, or the significant growth in traffic levels over a pre-pandemic peak for this portfolio. In addition to underscoring the momentum of our value-added transformation has driven, Our metrics this quarter provide great visibility on continued growth, including $52 million of signed but not commenced ABR at an average rate of $18.92 a foot that we expect to commence over the next several quarters, as Angela will detail shortly, and an additional $50 million of ABR from new leases in our forward leasing pipeline at an average rent of over $18 a foot. This forward leasing activity provides us confidence in our outlook for base rent to contribute 4% to 5% growth, not only this year, but into 2023 and beyond. We are excited about our ability to continue to capitalize on our proven locations, our attractive rent basis, and our transformative value-added reinvestments to drive outperformance in the future. Speaking of reinvestments, I'm pleased to report that we delivered another $28 million of accretive reinvestment this quarter at an incremental return of 10%, delivering the same value creation as over $110 million of ground-up development before considering the additional value of cap rate compression on the centers impacted as we brought in better tenants at better rents. Simply put, our value creation engine continues to fire on all cylinders, not only delivering highly accretive returns, but also enhancing and transforming the assets impacted. To date, we've delivered over $720 million of accretive reinvestments, impacting over 30% of our portfolio. And our pipeline remains strong, with an additional $419 million of active reinvestment projects leased and underway at an average incremental return of 9%, as well as a shadow pipeline of nearly a billion of opportunities at compelling returns that we'll continue to convert to active over the next several years. We invite you to tour our assets with our regional teams in markets like Southern California, Texas, Chicago, South Florida, Philadelphia, and New York to not only see the transformation that has occurred, but the value to come as we continue to execute upon our disciplined strategy of capitalizing on attractive rent basis. You can also check out our progress via our at-the-center videos posted on our website and on LinkedIn. From an external growth perspective, we continue to find and execute upon attractive opportunities from our target list that further cluster our investments in our core markets. Importantly, these assets present significant value-add opportunities to leverage our leasing and reinvestment platform and to deliver significant growth in ROI from re-leasing and re-merchandising, lease-up of in-place vacancy, mark-to-market of in-place rents on rollover, densification including out parcel development, and accretive redevelopment. Recent examples closed subsequent to quarter end include Westview Marketplace in Houston, a highly productive Whole Foods anchored center across from our Braves Heights asset that presents near-term upside through re-merchandising and marking the shops to rents equivalent to what we're achieving right across the street, and Elmhurst Crossing in North Riverside Plaza. both grocery-anchored centers in highly dense, affluent suburbs of Chicago, just minutes from our regional office. Both assets have highly productive anchors at below-market rents, with near-term upside through the lease of a vacancy to tenants pre-identified by our national accounts team who desire to be at these highly trafficked centers, as well as the addition of pad sites and other accretive reinvestments. I'm pleased to report that our regional and national accounts teams have already driven new lease and LOI activity on our recently closed acquisitions at rents well in excess of what we originally underwrote, demonstrating the strength of our team, the conservatism of our underwriting, and the compelling nature of the value-added opportunities we've executed upon. In summary, I'm grateful for how this Brooksmore team continues to execute, delivering outperformance and tremendous value for our stakeholders, as we advance our purpose of creating and owning centers that truly are the center of the communities we serve. Now, I'll turn the call over to Angela to provide further color on our results, our updated guidance and balance sheet. Angela?

Thanks, Jim, and good morning. I'm pleased to report another strong quarter of execution by our team as we continue to deliver on our portfolio transformation while capitalizing on the strength of the current leasing environment. Nareed FFO was 49 cents per share in the first quarter, and same property NOI growth was 8.4%, reflecting approximately $8 million of cash collected on previously reserved base rent and expense reimbursement income. Base rent growth meaningfully accelerated in the first quarter, contributing 410 basis points to same property NOI growth, while percentage rents and ancillary and other revenues contributed 130 basis points on a combined basis. Net expense reimbursements detracted 30 basis points from same property NOI growth in Q1 due to the quarterly volatility of operating expenses experienced in 2021. I would note, however, that we do expect net expense reimbursements to be a positive contributor to growth for the full year due to prudent expense management and anticipated occupancy gains across the portfolio. The impact of our value-added strategy continues to be evident across all of our operational metrics. Billed occupancy was down only 10 basis points this quarter, defying normal seasonal trends, while leased occupancy was up 10 basis points, driven by a 30 basis point improvement in the small shop leased rate to 87%, a portfolio record. As a result, the spread between leased and billed occupancy for the entire portfolio expanded to 350 basis points, and the total signed but not commenced pool, which includes an additional 60 basis points of leases signed on space that will soon be vacated by existing tenants, increased to $52 million at a blended rate of nearly $19 per square foot, more than 20% above our portfolio average. And as our new disclosure on page 30 of the supplemental package highlights, we expect that over 70% of the signed but not commenced pool, or $38 million, will commence throughout the balance of this year. As Jim highlighted, leasing results in the first quarter were exceptionally strong, with new lease spreads totaling 35.9%, and renewal spreads accelerating to 12.1%, increasing our blended new and renewal spread by 360 basis points to 18.1%. Importantly, new lease productivity in the first quarter was 780,000 square feet, representing the highest first quarter total since 2018. In terms of the balance sheet, during the first quarter we utilized existing cash on hand to repay $250 million of floating rate notes upon maturity, And subsequent to quarter end, we amended our unsecured credit facilities, 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 in the coming year. As of March 31st, pro forma for the amendment, we have approximately $1.4 billion of available liquidity and no debt maturities until 2024. allowing us ample time and flexibility to opportunistically access the capital markets. Since last quarter's call, our credit rating has been upgraded to BBB flat by Fitch and has been placed on positive outlook by S&P. We are very pleased to see such recognition for the improvements that have been made to the balance sheet, the portfolio, and the platform over the last six years. Turning to guidance, we have revised our 2022 same property NOI growth expectations from 2% to 4%, to 3% to 4.5% due to the significant out-of-period collections of previously reserved amounts in the first quarter and an improvement in our outlook for revenues deemed uncollectible through the balance of the year. We now expect that for the full year, revenues deemed uncollectible will total approximately 60 to 100 basis points of total revenue, resulting in a detraction from 2022 same property NOI growth of approximately 100 to 150 basis points. NAREID FFO guidance has been revised to a range of $1.88 to $1.95 per share from the previous range of $1.86 to $1.95 per share. And with that, I'll turn the call over to the operator for Q&A.

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing restart keys.

One moment, please, while we poll for questions. Thank you. Our first question is from Craig Schmidt with Bank of America.

Please proceed with your question.

Thank you. I'm just wondering, I know that small shops have just reached a new high, but how much further can you push it? You seem to mention a drag that sounds like you are still working on additional lease-up of small shops.

Thank you for the question and highlighting the drag that I did mention. It is a drag of about 120 basis points for projects that are inactive or soon to be active redevelopment projects where, from a strategy standpoint, we're holding some small shop vacancy to benefit upon the redevelopment of the center to drive both rate and occupancy. But more importantly, when you think about what's been happening with this portfolio overall, we really clearly expect to continue to set new records in terms of that small shop occupancy and see it increase several hundred basis points above where it is today. And it's part of the value-add nature of what we're doing. Oftentimes, we're not including the follow-on lease-up that we see in these reinvestment budgets as we talk about the returns. But it's something we fully expect as we continue to improve the portfolio.

Great. And then just as a follow-up, are there any changes to the structure of back office space to tenants to better accommodate the last mile fulfillment needs?

Brian. Craig, hey, this is Brian. Tenants are certainly looking at how they're utilizing their store, not just to connect with the customer at the shopping center, but to your point, to be able to fulfill goods from the stores. Target just reported earlier this year that 95% of their sales are fulfilled from the stores. What's been interesting about it is that tenants have been able to integrate this within their current prototypes. And as we're working with tenants in terms of their build-outs and getting them open for stores both for this year and in 2023, they're certainly focused on how to integrate that into the store. And it's been interesting to see what the likes of Ulta and other tenants who are relying on the Omnichannel platform to do it. And it's also part of our curbside program. We've talked about on prior calls, how we've been very accommodating with large format retailers, and some of our junior boxes are doing more curbside really across the portfolio as well. And all that goes into making the store really the focal point of what they do to connect with the customer.

And if you think about it, Craig, it's also the most profitable logistics space for these tenants as they transfer a lot of the last mile costs to the consumer.

Great. Thank you. You bet. Thank you.

Our next question comes from Todd Thomas with KeyBank Capital Markets. Please proceed with your question.

Hi, thanks. Good morning. First question, I just wanted to ask about the investment activity in the quarter. It was a relatively big quarter and sort of year-to-date of net investment activity for the company. Can you talk a little bit about the pipeline and what might be on tap for both buys and sells in the near term and throughout the balance of the year, and maybe comment on whether your appetite has changed at all for new investments in light of the current macro backdrop.

Our discipline and focus, thank you for the question, Todd, has always been on those opportunities within our target list that we think present value-added return opportunities. What do I mean by that? Investment opportunities where we have significant visibility on near-term growth, and I highlighted some of the areas where we're realizing that on some of these recent acquisitions, including lease up a vacancy that our national accounts team has pre-identified to rolling rents to market, et cetera. So our appetite for value-added opportunities in this environment remains strong. We're pleased with what we've executed to date in terms of dispositions. We do have some more in the pipeline and expect that to pick up a bit over what we've done year to date. And, you know, we'll always remain opportunistic. That's really our discipline. You know, we're not trying to go into new markets. We're looking at opportunities on our target list where we think even in a low cap rate environment, which interestingly, given the volatility in rates, has remained pretty persistent, where we can get to returns that we can justify from a use of capital standpoint. That's really been our focus, and expect us to remain disciplined and continue to capitalize on what we think is a competitive advantage in terms of our leasing and redevelopment platforms. Particularly, Todd, in a universe that's still almost entirely held by private owners. Some of this interest rate volatility may shake loose some opportunities that we haven't seen in the past. you know, drive cap rates higher. It remains to be seen. But I think we're in a great position to continue to be opportunistic.

Okay. And just, I guess, following up on that, you know, are you changing your return hurdles at all as you evaluate new investment opportunities? And do you have a sense whether, you know, pricing is changing at all for new deals that might be coming to market?

You know, certainly where rates are and spreads impact are hurdle rates, no doubt about it, which just puts more emphasis on finding those opportunities again where we can clear those hurdle rates with highly visible growth. You know, in terms of, you know, what we're seeing in the market, as I alluded to, it's been pretty stubborn. And, Mark, you might comment on it, but cap rates remain pretty tight, perhaps in part due to that risk-free spread.

Yeah, I agree with you, Jim, that ultimately rates, you know, the rate environment will impact the cap rate environment, but we've continued to see very strong pricing in real time in the market today. We've seen very strong movement of institutional investment interest in our space, as they've really seen that strong tenant demand, the strong consumer traffic, and that's, I think, really showing them that open-air cash flows are quite durable. You mentioned earlier We continue to trade at a pretty large yield premium relative to other major asset classes. I think that wave of capital coming into the space is making cap rates somewhat sticky. I think the best example of that has been pricing on recent portfolios, where it appears to us at least that we've seen portfolio premiums, and it shows you institutional investors are paying up to get into the space, and there's strong demand to continue to access open-air retail cash flows.

Okay, great. Thank you. Thank you, Todd.

Thank you. Our next question comes from Michael Bileman with Citi. Please proceed with your question.

Hey, it's Chris McCurry on with Michael. Actually, just a quick follow-up on the external growth conversation and return hurdles. Any commentary you could give us for appetites on entering new markets or maybe appetites for larger portfolio acquisitions and just any insights to pricing you're seeing on some larger portfolios?

Hey, Chris, it's Jim. Great question. You know, in terms of new markets, we see ample opportunity in the markets we're in. And, you know, our strategy from the start has been to exit single asset markets or markets that we don't see as long-term core and cluster our investments as we've been doing in Florida, Texas, Chicago, in those sub-markets where We see great retailer demand where we're not having to guess what the rents are. We have properties there. And we also really understand through our national and regional accounts teams what the tenant demand is to be there. I think those are what present the best risk-adjusted returns for us versus going into new markets. And I'm sorry, I forgot the second part of your question.

Yeah, just commentary around appetite for larger portfolio acquisitions and just pricing insights you're seeing into some of the larger portfolios on the market.

Mark? Yeah, as I mentioned before, there's been a variety of portfolios I have traded, and we do think they've traded at a premium relative to the underlying asset-by-asset cap rate, showing that real strong demand to be in the space. So while we've looked at those portfolios, we have remained disciplined with respect to our return hurdles, and we think we've gotten better values in the one-off market. A good example from a recent deal we just announced with Virginia, if you look at that asset, we purchased it at 81% occupied. As Jim mentioned, the local team and our national accounts really saw strong tenant demand to be at that asset. The first couple of weeks, we brought in a large lease that's going to increase the yield there by about 110 basis points and drive occupancy by about 10%. which we think is a really great return at that asset, and we'll see more growth beyond it. When we've seen the assets come in portfolios, we've seen a lot less growth. So we've been really pleased to end with the one-off execution and the pricing we think we can get there on their terms and we think we can achieve over time.

Yeah, when you couple that a portfolio naturally isn't going to be consistently value-added with the fact that portfolios are attracting a premium right now, it just makes it difficult for us to be competitive.

Yeah, makes sense. And then could you just walk us through some of your capital plans? Following the Fitch and S&P announcement, any appetite for tapping the debt capital markets this year? Or could you just give us an outline of some of your capital plans?

Yeah, with the amendment of the credit facility, what you see in the supplemental is the 2023 maturity has now been pushed out to 2026. So we don't have any remaining debt maturities until 2024, which gives us a lot of time to monitor the debt capital markets in particular and pick a point that makes sense and feels opportunistic for issuance. So I'm glad we have a lot of flexibility and runway really reflects all of the capital raising we did throughout the pandemic, putting us in a position to be a little patient and pick the best window.

Thank you. Thank you, Chris.

Thank you. Our next question comes from Juan Sanabria with BMO Capital Markets. Please proceed with your question.

Hi, good morning. You referenced the kind of record small shop space occupancy. Just curious on how you think that could evolve or what you're forecasting in your model for the balance of the year and ultimately the target and confidence level to get there?

Yeah, so Angela will kill me if I give guidance as to where we think the small shop occupancy is going to be over, you know, the next few quarters. But it is a significant growth lever for us. And it's a growth lever in part because of the value-add strategy that we've been executing upon. So as I mentioned earlier, we do expect that level of small shop occupancy to continue to accrete, not just from an absolute occupancy standpoint, but importantly also from a rate standpoint. And we're not driving just to get to occupancy. We're driving to get to both rate and occupancy. And so, as I mentioned, in time, I won't give specific guidance, we do expect to be several hundred basis points above where we are today, kind of market neutral, given the execution of our plan. When you bring in a vibrant new specialty grocer into a center that didn't have such a tenant before, As you can imagine, the follow-on leasing and what happens to the small shops as part of that is highly accretive. And as I alluded to in my remarks, we're now a little over five years into the execution of our plan. We've invested over $720 million into our portfolio, close to a 10% incremental return. And importantly, we've impacted about 30% of our centers. when you consider the $420 million of active and leased reinvestment that we have underway, and importantly, the pipeline behind it, we really have, I think, unparalleled visibility in terms of how are we going to drive that. And it's a key component of, I think, what differentiates our plan from others in that this isn't a recovery play. This is a value-added play. And it's part of what drove our outperformance in the three years that just passed, but it's also what gets us excited about how we're going to perform going forward in grade market, which gives us tailwind in a neutral or even a more challenging market. We like how we're positioned from a visibility on growth standpoint.

Thanks, Jim. And then just following up on the rate side of the equation, Could you give us any sense of how, unlike for like space that maybe hasn't had the benefit of redevelopment, how rents are trending for leases you're signing today versus a 2019 benchmark just to get a sense of the true pricing power?

Yeah, another great question. I mean, we're seeing the benefit of the low rent basis we have across the entire portfolio, not just the assets that we're accretively reinvesting in. That upside in rate oftentimes opens up the opportunity for additional reinvestment, but it's not always required. And, you know, you can see that in the consistency of our quarterly spread numbers that Brian and team continue to generate.

Yeah, and you can also see it in terms of the rates in which we're able to sign small shops. This quarter we signed small shops at the highest rates that we ever have across the portfolio, which indicative of everything that Jim had talked about, the investments that we're making in our centers, the improved operations, the capitalizing on the anchors that we've been putting in, and then just a really strong environment in terms of the depth of demand for space, whether that's in the health and wellness category or the QSR restaurant category. We're just seeing some really great tenants that we've been able to attract to our centers, and again, at the highest rents we've ever signed. So we've been really encouraged by it, and to Jim's point, we see a long runway for growth.

Thank you very much.

Thank you.

Thank you. Our next question comes from Keebin Kim with Truist. Please proceed with your question.

Thanks, John. Good morning. Good morning. Good morning. If you think about those macro concerns and even the retailer equity prices versus the kind of strong commentary that you have on leasing volume, you know, there's a disconnect. And when you think about that, can you help us bridge that gap and At what point do you think retailers' confidence could start to wane?

I think it's going to be driven ultimately by the consumer, right? And the consumer continues to shop at these retailers. The consumer continues to buy groceries. And, you know, with the inflation that we're seeing today, the retailers have largely been able to pass that on to the consumer, perhaps in no small measure because of wage inflation. The other thing to think about that's going on and maybe a broader background theme is how the retailers themselves in an inflationary environment are more sort of disciplined and strict about assessing the profitability of different channels. And the store remains the most profitable channel for them to get to the customer. So, and Brian, please comment, but what we're seeing real time continues to underscore the strength of that leasing environment that we're seeing where tenants really do want to get stores open sooner. They want to, you know, fill their pipelines not just for 22 but 23 and beyond.

Yeah, and I would just add, keep in to Jim's point, we still do have retailers that are looking for 2022 openings this year. We talked about the record start that we had this year or the best start that we've had since 2018. But our forward leasing pipeline has also grown 15% since last quarter. So we're seeing more deals come to committee. We're seeing the strength of our core tenants, new tenants to the portfolio, like the mall native brands that we continue to attract to our centers. So from that standpoint, we're encouraged by it. And as we continue to make these investments, we're seeing more competition for space than some type of pullback. So overall, again, we've been really encouraged by what we're seeing to date.

But, you know, Keevan, maybe more broadly to your point, and it was something that I tried to highlight at the opening of my remarks, ours is a business plan because of our attractive rent basis that can outperform in a less robust demand environment, particularly as tenants are increasingly focused on the profitability of their various channels. That attractive rent basis is a huge, huge advantage.

Got it. You guys had pretty good operating results this quarter, good leasing volume, good spreads, and more active on the capital deployment. You know, I would have just thought high-level your FFO growth guidance would have been a little bit higher than just one penny. I was also just curious if there were other line items that might be weighing on kind of the full year FFO guidance.

Yeah, hey, Keven, it's Angela. I'd say a few things. I think it's important to step back and think about the context of our original guidance, and this is part of the reason for us giving so many components of the same-store property guide last quarter as well. So when we initiated our guidance on the previous call, with our NOI guide at 2% to 4%, that embedded top-line guidance, so the contribution from base rent of 400 to 500 basis points. which would be materially in excess of any number that the portfolio has ever produced. And really reflected, I think, the strength of the current environment. You know, certainly we have had this quarter wins on bad debt, and that certainly was reflected in the improved same property NOI guidance and the improved FFO guidance, particularly at the low end of the range. But I would just say, you know, we came out with guidance that was pretty strong to begin with and certainly reflected the strength we were seeing in the environment last quarter. and that we delivered on this quarter. As we look across other line items, certainly we're cognizant of the environment as it relates to inflation and interest rates across a number of line items. But again, I would say that didn't really affect the guide. It was really a reflection of the strength in top line that we believed we would see last quarter and that we continue to see this quarter.

Thank you. Thank you.

Thank you. Our next question comes from Greg McGinnis with Scotiabank. Please proceed with your question.

Hey, good morning. I just wanted to go back to the lease spreads and rent growth. How much rent growth have your different geographies experienced since 2019? And separately, what is the current market of the portfolio?

Thank you for the question. And I love that you're looking backwards because I think that's important to understand the full scope of the outperformance. If you look at, you know, what kind of growth we've produced over the last three years, we're at the top of the sector while still delivering growth this quarter at the upper end. And, you know, our spreads and growth have been pretty consistent, albeit over the last few quarters. We've seen a accelerate a little bit, which has been some nice additional tailwinds. Brian?

Yeah, just to add on that, Greg, I mean, we're now three consecutive quarters of new lease growth, over 25%. We're really encouraged by the renewal growth, and you saw that continue to increase over the course of the last year. And again, for a number of the reasons that we've continuously mentioned during this call, the improved operations, the demand to be in our centers, And the team's doing a great job capitalizing on that demand to really continue to drive rates. So you may see some fluctuations in a given quarter, but overall it's been pretty consistent, and we're confident in our ability long-term to continue to bring rents to market.

Okay. And just any sense for maybe what the current mark-to-market would be for the in-place portfolio? Yeah.

Yeah, I mean, look, we're at 15 and change today, and we've been signing those leases between kind of $17 and $20 a foot across the board. So we feel that there's continued upside. I mean, then if you look at our anchor space, over the next three years we've got anchors expiring at less than $9 a foot. We've been signing those over the last year at $14. So, again, we kind of have visibility into that growth. And with the supply-demand dynamics, the overall appetite for new stores for tenants, we're pretty confident about our ability to capture that.

Okay. And I guess just one more follow-up on those kind of below-market rents on the anchor spaces. Are those generally being re-signed by the in-place tenant at the higher rates, or are you having to backfill with the different tenants?

It's been a mix in terms of those rates. I mean, we just had the benefit of this older, well-located portfolio, and some of these leases are starting to roll, and we're able to bring those rents significantly to market, but also the fact that we've been reducing options across the portfolio so that we do have the opportunity either to bring a tenant to market that we want as part of the merchandising mix or to be able to re-merchandise that with a specialty grocer or with a strong value apparel operator. It really gives us that flexibility that we've kind of seen across the board, and that's why you're seeing this both in our renewal rates as well as our new lease rates.

And importantly, you know, and it's reflected in the returns we report on an incremental basis, those low rents allow us to, you know, replace a tenant profitably if we think that is the right outcome and direction for a center. You know, if we were sitting at higher rents, that would be a tougher economic decision.

Right. And sorry, just one more if I could. Given inflation and the improving portfolio quality, have you been able to push escalators at all? I'm just curious where you happen to be signing new lease escalators at.

Yeah, that's something we've been very, very focused on. Last year, 97% of our leases declined. With five years or more, our long-term leases had rent growth throughout those. Oftentimes now we're seeing, particularly with local and regional retailers, we've been able to push those 3% and into 4% across the portfolio, across the entire portfolio. It's around 2% that we've been able to achieve. So we continue to see that. And, again, the competition for space is really leading to some good economic results so we can start to achieve more of those metrics across the board in our leases.

The biggest impact is always going to be what you achieve upon a new lease or renewal. That's where you're going to get your largest growth. As Brian highlighted, we've been focused on intrinsic growth for the last six years. Every capital decision we've made has always been with the backdrop of rising rates and different costs of capital than what persists today. you know, making sure that we get good intrinsic growth, that it's widely distributed across the portfolio has been a real focus of ours, not just the last 12 months, but the last five years.

Great. Thank you. You bet. Thank you.

Our next question comes from Mike Muller with J.P. Morgan. Please proceed with your question. Yeah, hi.

I'm curious, what are the characteristics of the assets where you've seen cap rates actually back up over the past couple of months compared to, say, the characteristics of the ones where they've remained steady and haven't backed up?

I think it's really clear. I mean, it's all about growth.

So when the assets have strong inherent growth, that's where you're seeing stickiness in the cap rate.

But even – yeah, it's interesting, Michael. with assets with less growth. And we've passed on hundreds of millions of dollars of more core-like assets, some of them in portfolios, where the cap rates have been incredibly strong. And I think part of what you're seeing right now in our sector, as Mark alluded to before, is this wall of institutional capital looking at acceptable asset classes and judging the durability and resilience of retail and, frankly, the spread to the risk-free rate as highly attractive relative to some other asset types, and you know where the cap rates have gone across the board, or assets that might be struggling more from a fundamental standpoint. So it just forces us, again, to be disciplined and focus on those opportunities where our national accounts team knows the tenant that's going to backfill the vacancy. We know where the rents are because we're already in the market. We understand how we can add density to the site. That's really where we're able to underwrite and be competitive. But we haven't seen cap rates back up much yet. That's not to say that it won't happen. It's just we haven't seen it.

Got it.

That was it. Thank you.

Thank you.

Thank you. Our next question comes from Handel St. Just with Mizzou. Please proceed with your question.

Hey, good morning. Good morning.

So question first, Jim, I guess on retention. Looks like it was 71% by number or count in the quarter, 81% by GLA, which seems a bit below peers. Is that because you're strategically opting not to retain certain tenants, giving the opportunity to raise rent or maybe some other explanation? And maybe what's your expectation for tenant retention as your agency picks up here and you move forward. Thanks.

Yeah, I mean, we're certainly leveraging this moment in time from a demand and fundamental standpoint to drive the best terms and rate. You know, we're not trying to, you know, drive retention as much as we're trying to drive growth and ROI. So if we can't get to an appropriate renewal rent, we will take the vacancy. We will suffer the retention diminution and drive to a higher return. And you can see it particularly in not only our spreads, but in that growing spread between build and lease. And we are encouraged in this environment by what we see as generally higher renewal and retention rates. But we do want to make sure we're getting to good value.

Yeah, and hey, this is Brian. I would just add that at close to 82% on the GLA, we're almost 300 basis points of where we were ahead of where we were at this point last year and 100 basis points ahead of where we were in 4Q19. The number in terms of the actual count, that includes some short-term deals that we did kind of first quarter, second quarter of last year. I would say overall, though, you look at the move-out trends, they're close to the historic lows. I mean, our build occupancy dipped. historically from the end of the year to the first quarter was 50 basis points. You only saw that down 10 basis points. Our move outs are down considerably from where they were in 2019 and 2020 and also down from where they were last year. So those trends have been exciting. But what's also exciting is that we've been able to renew the tenants that we want to renew at very high rents, which continues to get better as we continue to invest in our portfolio. So overall, we've been pretty pleased with the trends, and we expect them to continue to improve.

Got it. Thank you for that. One follow-up. I guess overall, Jim, I'm appreciating your comments on the clustering and increasing the focus of the portfolio. I guess I'm curious, maybe some updated thoughts on how you think about the sizing of the portfolio here today. 380-ish assets down from over 500 plus just four or five years ago. Are you a size that you're generally happy with, or should we generally expect dispositions to maybe play a role in funding redevelopment going forward? Thanks.

We're always going to be – love the question, Hendel. We're always going to be disciplined from a hold IRR perspective. So for certain of assets, particularly in our non-core assets, which there are a few that remain, where we may be releasing or repositioning, earning some nice accretive returns, we do look to ultimate dispositions in some of those markets. From a scale perspective, I think we're at a great size. I think we're at a great scale, and we leverage that competitive advantage in terms of the market share that we capture from our core tenants that are growing. And each year, our national and regional accounts team, I think, do a phenomenal job if XYZ retailer is opening 80 stores, we weigh out index our share of what those new store openings are given the scale of our portfolio, but also the relationships that that scale has allowed us to build with tenants. So as we look forward, you know, having the advantage of scale, we're going to continue to look at opportunities to cluster in our core markets, which likely will have us trending higher from account perspective. But, you know, I don't think we feel tremendous pressure to do that because I really like what our intrinsic growth profile is. So as we assess external growth opportunities, you know, we really are going to remain disciplined and make sure that, you know, we're seeing the growth and the upside opportunity. Again, in markets where we already own assets, we're not – excuse my language, having to pay a dumb tax for moving into a new market.

Great color, guys. Thank you, and see you at ICSC in Newry.

Look forward to it. Thanks, Handel.

Thank you. Our next question is from Anthony Powell with Barclays. Please proceed with your question.

Hi, good morning. Maybe a follow-up. How do you think about your acquisition capacity? You seem to be in that acquire year-to-date. I know you have some assets you're selling, but What's kind of the most you could do in any given year? Do you target any specific number? And how do you look at funding deals? Do you use the ATM this quarter? I'm curious how you look at ATMs versus debt versus dispositions.

I'll let Angela comment on this a little bit, but more from the opportunity side, it's going to be opportunity-driven. And so, you know, if we're not seeing assets that meet our return requirements where we believe we can accrete both ROI and NAV, we're going to be less active. If we see opportunities and you can't control the timing of external growth that meet our requirements in an environment where our hurdles have gone up, you'll see us do more. But what I like about our position is that we're not in a place where we have to make acquisitions to continue to outperform from a growth perspective. So that allows us to remain disciplined. And then we're always going to look from a funding perspective at first free cash flow, then dispositions, and then as appropriate and warranted by the opportunity, potential ATM issuance.

All right. Thank you. You bet.

Thank you. Our next question comes from Paulina Rojas-Schmidt with Green Street. Please proceed with your question.

Good morning.

Good morning.

My question is about the same property or the comparable pool for your releasing spread. If I look at the new leases you sign in the quarter, only about 35% are considered comparable. And that subset got the 36% of rent releasing spread disclosed during the quarter. So my question is, why is this subset different? considered comparable, so small relative to the total. And here I don't think we're on a wire at all relative to peers, but I am intrigued. Is it because of redevelopment or is it more because of space being vacant over a year? And if it were the latter, are the economics of these leases that had a longer vacancy similar to what we're seeing for the comparable pool?

Yeah, thanks, Melinda. It's Angela. What I would say is that I think it was 37% of the new lease activity in the quarter was considered comparable. That's pretty close to what it was in Q4 and really over the last several quarters. It really does reflect sort of the one-year look-back period for the most part. And I think the glossary we have in the sub gives lots of detail on sort of what the comparable definition really is. But that's the biggest reason for deals that we're reporting from a productivity standpoint not being in the comparable pool. From an economic standpoint, I would say generally when we look at those deals, it's very comparable in terms of activity. And given the weight of new leases overall to the blended number, if you were to include a longer look-back period or no look-back period at all, the total blended spreads would move materially higher.

Okay, thank you. And then I know you said in your guidance that you expect net reserves to be between 100 or 60 basis points of total revenues. But when thinking only about prior period collections, can you please remind us how much that was during the quarter affecting the same property pool and how much you're contemplating at the high end of your same property NOI growth guidance?

Sure. In terms of prior period collections in the first quarter, It was about $8 million, and that's detailed on page 11 of our supplemental there at the top of the page. We try to give good visibility on prior period collections of base rent and expense reimbursement. So it was about $8 million during the quarter. The width of the same property range and the width of the revenues deemed uncollectible guidance that you mentioned, that 40 basis points, translates into about a $4 million delta in the total amount of revenues deemed uncollectible at the low end of the range versus the high end of the range. From a guidance perspective, our methodology continues to be that the low end of the range really does not assume any additional out-of-period collections. The top end of the range, as a result, would not include anything more than, at the most, $4 million of out-of-period collections. That's the total amount of variability in the range. The high end, you certainly could get there without $4 million of out-of-period collections continued improvements in the collection rate from cash basis tenants as we progress through the year. But I think given the components we've given here, you can see sort of the total variability in that line is about $4 million. Yes.

Thank you very much.

Thank you. Great questions.

Thank you. Our next question comes from Sameer Kunal with Evercore. Please proceed with your question.

Hey, Angela, maybe just going back to the previous question, you know, on page 11, there's that $42 million of rent that's uncollected, which we've talked about before. Maybe walk us through how those conversations are going with the tenants as we sort of model out our own sort of view on collectability here.

Sure. You know, I'll make a couple points about those numbers. So as you mentioned, page 11 of the supplemental, you know, we really detail the total amount throughout the pandemic that's been accrued for but uncollected. That total amount is about $48 million. Of that, about $42.5 million has been reserved for. So that's really the amount of prior rent that's available to be positive or additive to the income statement going forward should it be collected. That breaks down into two pieces. It's about $29 million related to amounts that are not subject to an existing deferral agreement. So they were uncollected. We continue to talk with the tenants and work through those balances, but they're not subject to a payment plan right now. And about $13.6 million, almost $14 million, that is subject to a payment plan where we have some bigger visibility, at least in terms of expectations of when that might be collected. To go back to the total, $42.5 million, I think one other way to break it down is just to note that about $23 million of that 42 relates to tenants that are still active in the portfolio, still occupying their spaces, whereas the remainder, about $20 million, relates to tenants that have vacated the portfolio. We still see prior period collections, even from tenants that have vacated the portfolio, but certainly if you're probability weighting it, I would put a lower probability on that $20 million, and I would acknowledge that it usually takes us longer to collect those amounts. Overall, our conversations from a collection standpoint continue to be very strong. I think it's noted by the fact that we're on our fifth or sixth quarter, a pretty significant out-of-period collections. The team continues to work very hard on collecting those prior balances. Things like eviction moratoriums burning off in certain jurisdictions like New York and California continue to help as well. So we feel good about continuing to collect some degree of additional amounts. It's just very difficult to predict how much. and more importantly, when we might see those collections come in, which is why we've taken a relatively conservative posture and guidance.

That's great. Thank you, Angela. Sure. Thanks, Samir.

As a reminder, if you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue.

Our next question is from Tammy Feek with Wells Fargo. Please proceed with your question.

Thank you. Good morning. Hi. I guess this question is for Angela. I'm just wondering, you know, the six and a half times leverage level today, I guess, is that in line with the long-term target for the company? And, you know, is the current environment having an impact on how you were thinking about that going forward?

Yeah, thanks, Tammy. We're at 6.4 times on a current quarter annualized basis. That's down a touch from where we were in the fourth quarter. Our long-term target continues to be six times. And we believe as we continue to execute on the strategy and continue to harvest the mark-to-market, we'll naturally work our way down to that level over the, you know, sort of near to medium term. You know, feel good about that continuing to be the right level. As we've always said six times to us for this portfolio, feels like the right number given that significant mark-to-market embedded in the portfolio. On a look-through basis, you're at six times now if you include kind of that mark-to-market, and certainly once realized, you know, you could even be below that level. So that's kind of how we think about the six times and the time frame over which we see getting there.

Okay, great. Thanks. And then understanding you don't really need to access capital today, but that you may remain opportunistic with acquisitions. You know, where do you think you could issue unsecured debt in the market today?

Yeah, I mean, it's certainly been a bit of a moving target of late. And, you know, I am glad that we've executed as much as we did over the last couple of years to put us in a position where we don't necessarily need to be active in the market. You know, spreads have been relatively volatile. You know, based on our read of the market, I think you'd be in the you know, high 100 range, kind of approaching 200, depending on where the base rate is. I'm talking about a 10-year issuance here. So, you know, that puts you kind of all in in the high fours, almost 5% range in terms of new issuance. And, you know, as I mentioned, I think we're in a very good position to watch the market closely. to be opportunistic if something presents itself and it makes sense to move forward with probably some liability management and continuing to extend duration across the balance sheet. But certainly no need for us to do anything right now, given that we've got several years before a debt maturity.

Okay, thanks. And then maybe one more. You mentioned that fallout is lower versus historical levels. But wondering, you know, where you are seeing fallout today. I mean, is it in more of the mom and pop shops, or how would you characterize the tenants that are falling out or leaving the portfolio today?

Tammy, hey, this is Brian. I wouldn't point to one thing in particular. I mean, over the course of the pandemic, the portfolio certainly, from a credit quality perspective, has stabilized. We did see a lot of riskier tenants move out in 2020. So now really what you're seeing is just kind of that normal course of seasonal move outs, but at a much lower rate than what we have seen historically. And I think judging by the fact that we've now raised small shop occupancy two years in a row coming off those seasonal move out, that seasonal move out period, you can see that our team's really getting ahead of a lot of those move outs. And oftentimes we have a lease kind of ready to go or in place. I wouldn't point to anything kind of in particular from a category perspective, but more just the seasonal nature of what you're seeing.

Yeah, and, Tammy, one of the interesting things that no one really considered going into the pandemic, but which certainly revealed itself to be true, is that the credit profile of our tenancy actually improved. You know, the major tenants were able to access liquidity. They were able to fortify their balance sheet. And so we saw several tenants that were historically on the watch list move off. We also, interestingly, in the small shops, particularly for second-generation space, utilized some of the turnover to bring in better capitalized local operators. And so it's interesting and not exactly intuitive that through the disruption of the pandemic, we actually saw the average credit quality of our tenancy improve. We're quite pleased with that.

Great. Thanks. That's really helpful. You bet. Thank you.

There are no further questions at this time. I'd like to turn the floor back over to Stacey Slayer for any closing comments.

Thanks, everyone. We'll see many of you at ICS DNA Read over the next few weeks.

Thank you this concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.