Brixmor Property Group Inc. Q2 FY2022 Earnings Call

Hello and welcome to the Brixmor Property Group Second Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Stacy Slater. Please go ahead.

Thank you, operator, and thank you all for joining Brixmor's second quarter conference call. With me on the call today are Jim Taylor, Chief Executive Officer and President; and Angela Aman, Executive Vice President and Chief Financial Officer; as well as Mark Horgan, Executive Vice President and Chief Investment Officer; and Brian Finnegan, Executive Vice President, Chief Revenue Officer, who will be available for Q&A. Before we begin, let me remind everyone that some of our comments today may contain forward-looking statements that are based on certain assumptions and are subject to inherent risks and uncertainties. As described in our SEC filings and actual future results may differ materially. We assume no obligation to update any forward-looking statements. Also, we will refer today to certain non-GAAP financial measures. Further information regarding our use of these measures and reconciliations of these measures to our GAAP results are available in the earnings release and supplemental disclosure on the Investor Relations portion of our website. Given the number of participants on the call, we kindly ask that you limit your questions to one or two per person. If you have additional questions regarding the quarter, please requeue. At this time, it's my pleasure to introduce Jim Taylor.

Thank you, Stacy, and thanks to each of you for joining our second quarter call. Our results this quarter once again underscore the transformative and accelerating impacts of our value-added plan as well as the outstanding execution of the Brixmor team. Our progress is evident in nearly every observable metric, including our robust leasing volumes and spreads. Under Brian and the leasing team's leadership, we executed nearly 2 million square feet of new and renewal leases at a cash rent of $18.79 and a blended spread of 14.6%, including 870,000 square feet of new leases at a comparable spread of 34.3%. We continue to attract the very best retailers to our centers at growing rents, which Brian will provide some commentary on in our Q&A session. It's also evident in our continued growth in average base rent. Our activity this quarter drove another post-IPO record for our overall average in-place ABR, which increased to $15.90 a foot. Importantly, we remain disciplined with capital as we achieved an average net effective rent of $16.91 a foot on our new leases. Our progress is evident in our sequential and year-over-year growth in both billed and leased occupancy. We set yet another record for small shop occupancy for the portfolio of 87.7%, and overall occupancy grew to 92.5%, just 30 basis points shy of our all-time record. There's a lot more room for us to run as we deliver our value-added pipeline, which currently drags our overall occupancy by 150 basis points. Importantly, it's also evident in our strong same-store NOI growth and bottom line FFO growth. While we continue to realize the benefit of strong prior period collections, it's important to note that most of our growth was driven by our top-line revenue growth of 4.3%, which reflects the accelerating momentum of our value-added plan. Those are indeed fantastic results, as is our increase to guidance for the balance of the year that Angela will cover in a minute. But what about 2023 and beyond? As we look forward and consider the natural moderation of prior period collections as well as the potential for economic disruption, we remain very pleased and confident in our strong visibility of continued growth as reflected in our $53.8 million of ABR and leases signed but not commenced that will commence through 2024, our forward new lease legal pipeline of $50 million of additional leases under negotiation, our real-time volume of new deals coming into our leasing committee for commencement in 2023 and beyond, our current and ongoing discussions with tenants to accommodate their store plans in our centers as retailers try to grow their most profitable channel. It's reflected in the continued real-time growth in our traffic to our centers versus 2019, averaging in the mid to high single digits. Relative growth that leads the sector, it also reflects the strength of our centers. In addition to these visible growth drivers, we continue to deliver tremendous value through the ongoing execution and delivery of our reinvestment pipeline, as evidenced by another $30 million of reinvestment delivered during the quarter at an incremental return of 11%. Parenthetically, our gross returns are much higher, and we're pleased that we have another $400 million of reinvestment underway at an incremental 9% return. Phenomenal execution by Bill, Haig, and the redevelopment and construction teams allows us to continue delivering these projects on budget even with supply chain disruptions. These investments generate follow-on value beyond their ROI through increased occupancy and market rates at the impacted centers. For our stabilized redevelopments, small shop occupancy has increased over 600 basis points versus one year before project commencement and the in-place market rate increased over 20%. Our value-add strategy, which demonstrated its resilience and outperformance through the pandemic, positions us to outperform not only in stronger market environments but weaker ones as well. From an external growth standpoint, we continue to source centers where we can drive strong returns through leveraging our value-add platform. Those opportunities include Lake Pointe Village, a Whole Foods-anchored asset in Houston, which, along with our Braids Heights centers, represents the number one and two volume Whole Foods stores in the entire Houston MSA. Importantly, Lake Pointe Village also presents highly visible growth opportunities through the leasing of a small shop vacancy, which our leasing team is already driving, as well as the addition of highly accretive outparcels. Great job by Mark and the team. In the coming months, given the volatile capital markets, we expect to be net sellers as we have found strong demand for our smaller non-core assets. We also plan to keep our acquisition powder dry should the volatile capital market conditions lead to more opportunistic pricing of assets that fit our value-add strategy. I'm pleased that we have over $1.2 billion of liquidity, including a $200 million undrawn term loan, and we have no maturities until 2024. Great job by Angela and the team managing our balance sheet. At the outset, I'm grateful for how this Brixmor team continues to execute and deliver upon our purpose of creating and owning centers that truly are the center of the communities we serve. As highlighted in our recently published corporate responsibility report, we are executing our plan in an environmentally sustainable and socially responsible manner. With that, I’ll turn the call over to Angela for a more detailed discussion of our results, our outlook, and our liquidity.

Thanks, Jim, and good morning. I’m pleased to report on another strong quarter of performance as the transformative nature of our value-add strategy continues to result in record operational results across our portfolio. Nareit FFO was $0.49 per share in the second quarter, driven by same-property NOI growth of 6.7%. Base rent growth contributed 430 basis points to same-property NOI growth this quarter. Excluding the impact of lease modifications in rent abatements, base rent growth contributed 370 basis points, representing a 90-basis point acceleration from last quarter, reflecting continued growth in billed occupancy and releasing spreads over the last year. Revenues deemed uncollectible contributed 150 basis points, and ancillary and other revenues and percentage rents contributed 120 basis points on a combined basis. Importantly, the positive contribution from revenues deemed uncollectible this quarter was due entirely to improvements in current period collections from cash basis tenants. Collections of previously reserved amounts totaled $10.3 million, down slightly from the $10.6 million collected in the prior period. Net expense reimbursements detracted 30 basis points from same-property NOI growth in Q2 due to the quarterly volatility of operating expenses experienced in 2021. We continue to expect that full-year operating expense growth will be approximately 3%, and net expense reimbursements will be a positive contributor to growth for the full year due to prudent expense management and occupancy gains across the portfolio. Our operational metrics continue to reflect the strength of the current leasing environment, despite macro headwinds, and the continuing successful transformation of our portfolio. Billed and leased occupancy were both up 40 basis points this quarter. The anchor lease rate now stands at 94.8%, up 40 basis points sequentially. As Jim highlighted, the small shop lease rate now stands at 87.7%, up 70 basis points sequentially, reflecting a new portfolio record. The spread between lease and billed occupancy remains 350 basis points, and the total signed but not commenced pool, which includes an additional 70 basis points of GLA related to space that will soon be vacated by existing tenants, increased by $2 million this quarter to $54 million at a blended rate of $19.20 per square foot, more than 20% above our portfolio average ABR per square foot. I’d like to underscore that the total size of the signed but not commenced pool and the blended rate on the pool both grew this quarter, despite leases representing more than $15 million of annualized base rent commencing during the period, reflecting exceptionally strong leasing activity. We expect that over 50% of the current signed but non-commenced pool of $27 million will commence throughout the balance of this year, with another $26 million slated for 2023 and beyond, establishing a strong foundation for growth in the coming years. As discussed with you last quarter, we amended our unsecured credit facilities in April, improving pricing, adding a sustainability-linked feature, and extending the maturities of our revolver and $300 million term loan. In addition, our amended term loan has $200 million of additional capacity, which may be utilized by the company at any point through April 2023. As of June 30, we have over $1.2 billion of available liquidity and no debt maturities until mid-2024, providing valuable financial flexibility. Turning to guidance, we have increased our 2022 same-property NOI growth expectations from 3% to 4.5% to 5.5% to 6%, as a result of the significant out-of-period collections of previously reserved amounts recognized again in the second quarter and an improvement in our outlook for revenues deemed uncollectible, ancillary, and other revenues and percentage rent. Consistent with our prior methodology, the bottom end of our same-property NOI growth guidance range does not assume any additional collections of previously reserved amounts. Nareit FFO guidance has also been revised to a range of $1.93 to $1.97 per share from the previous range of $1.88 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. Our first question today is coming from Craig Schmidt from Bank of America. Your line is now live.

Thank you. It's clear that the leasing year-to-date continues to really drive the company. I'm just wondering, are you still seeing leasing appetite in the third quarter unchanged despite the inflationary pressure?

We are. As I mentioned in my remarks, we're very encouraged by what we're seeing, not only under negotiation, but also what we're seeing in our weekly leasing committees. Brian?

Yes. Craig, and coming out of ICSC, we were very encouraged by the conversations, the portfolios that we've had since then. You can really see, as Jim mentioned, that forward legal pipeline despite all that we signed during the quarter, that's up 17% from where we were a year ago. Traffic continues to exceed pre-pandemic levels at our centers. We're really seeing core retailers, those in value apparel, mass merchants, specialty grocery, QSR restaurant space, and more mall-native tenants that we continue to do a lot with. You saw it again during the quarter with Bath & Body Works and Claire's and Rally House. So the depth of demand has been pretty strong, and we continue to be encouraged by it for retailers that, as Jim mentioned, are looking to open stores in both 2023 and 2024.

And Brian, if there's anything you can say regarding the appetite for the small shops, the mom-and-pops, and the locals as opposed to national.

Yes. We continue to be encouraged by that as well. I think the pandemic created an opportunity for really strong local tenants, particularly in that restaurant space. Over the course of the past 18 months, good quality operators, multiunit operators, have come in and taken second-generation restaurant space. The team has really capitalized on the investments made in our centers, with better anchors that are driving more traffic and helping attract those. Local tenants are still roughly about 17% of our ABR, but the strength of those local operators is encouraging. The team has done a nice job in their particular markets, driving strong local tenants to our centers.

Another trend that we discussed a lot during the pandemic, which has continued, is seeing strong demand from national and regional players for small shops as well. This has been an interesting evolution in the composition of our small shop tenant base.

Great, thank you.

Thank you. Next question is coming from Alexander Goldfarb from Piper Sandler. Your line is now live.

Hi. Good morning. Jim, a question about the shopper. It seems that when I've asked this question of peers, everyone seems to state that all shoppers, not just the core diehard shoppers that drive retailer sales, but all shoppers are still engaged. Last night on Simon's call, David spoke about sort of the team shopper, the value shopper being pinched in some of their categories, but overall the consumer being strong. How would you characterize your shopper base and what are the tenants saying? Is it strength across everywhere? Are you seeing any cracks? Just curious about a bit more perspective.

You've seen really strong traffic levels, which have continued and which we find to be very encouraging. At the same time, our tenants are reporting strong sales across the board. In fact, you may have noticed that we picked up some percentage rent in the prior quarter, reflecting the strength of traffic and the sales volumes that our tenants have achieved, including tenants in the value segment. If you take a step back and think about our centers more generally, grocery-anchored, necessity-based, value apparel, those categories have remained pretty strong. Certainly, you've seen within some of the earnings reports, some shifting in consumer habits and how consumers are spending money. What I'm most encouraged by, Alex, is the continued real-time demand of tenants to open new stores. They understand very well where the consumer is and are investing more in their most profitable channel, which is the store. So considering our traffic levels, tenant demand, forward leasing pipeline, and the consumer hanging in there, we feel pretty good.

Okay, thank you.

You bet.

Thank you. Your next question is coming from Juan Sanabria from BMO. Your line is now live.

Hi, good morning. Just hoping you could tease out a little bit about your comments on being a net seller for the back half of the year. Any quantum around that and where asset values are for the stuff you're looking to sell?

Juan, we've always been hesitant to provide specific levels of guidance because we want to continue being opportunistic, which we are right now as we find good demand for some of the smaller non-core assets. We're really not seeing a lot of compelling product in this period of capital markets volatility that would interest us from an investment perspective. That could certainly change, and we're actively monitoring the market response in our core markets. We do expect to be net sellers in the coming months and continue to have the acquisition dry powder to pivot should great opportunities arise.

And any color on where you've seen cap rates or how you see cap rates change as a result of uncertainty in the economy and some volatility on the rate side?

What's been surprising is we've seen a continued relatively strong market for grocery-anchored assets that have growth and value creation potential, certainly like the assets we've recently purchased. However, cap rates for more commodity-based assets that don't have growth likely have drifted up a bit, although not significantly with the rise in the risk-free rate. It’s important to note that overall cap rates for open-air retail have proven to be fairly sticky over time. So, I believe that characteristic, along with the solid performance we've seen during challenging times, will continue to attract capital to the sector and sustain values.

Thank you very much.

Thank you.

Thank you. Next question is coming from Todd Thomas from KeyBanc Capital Markets. Your line is now live.

Hi, thanks. Good morning. Jim or Angela, maybe there's been a little bit of volatility in your current same-store NOI growth results just given the out-of-period collections. And Jim, you commented that you're excited about the future for 2023 and beyond. Base rent growth is expected to pick up a bit from the 4.3% year-to-date based on your revised guidance, so call it ending the year in the mid to high 4% range. Is that a realistic growth rate to anticipate moving forward into 2023 as an appropriate level of minimum rent growth upon exiting 2022 and looking ahead?

Without giving guidance, we expect the rent growth to continue to be strong and reflect the accelerating momentum as we deliver our value-added reinvestments. What gives us confidence in that forward look is remembering that prior period collections are definitely going to moderate. However, as you look at the base period and beyond the noise of the prior period collections, the engine is firing on all cylinders. We are particularly encouraged about our signed but not commenced pipeline, the forward legal leasing pipeline, and the discussions we're having that enable us to capitalize on our attractive rent basis to drive accretive reinvestment projects and more fundamental growth. We like the trajectory and how our business plan is delivering, and it provides differentiation compared to a business model focusing solely on replacing tenants when rents may be at or above market. Our planning allows us to look several quarters into the future, and we are doing business now for 2023 and 2024.

I just add one comment on the out-of-period collections. It is certainly a headwind as we head into next year from an optical growth perspective. We recognized over $10 million this quarter, similar to the amount collected last quarter. While that is a finite pool and naturally moderates as we move forward, it's noteworthy that we have addressed many of the most likely to collect amounts. However, if you consider collections year-to-date, it's a positive sign reflecting the strength of the underlying tenancy. Over 80% of what we collected in the second quarter related to tenants still active in the portfolio, which indicates their recovery and current positioning.

Okay, that's helpful. And then just a follow-up. Would you expect, Angela, I think you commented on net recoveries in the back half of the year. But looking forward, would you expect net recoveries to become a greater contribution to same-store NOI growth, given the increase in occupancy rates? Or is there likely to be ongoing volatility impacting margins?

Yes. There's certainly volatility this year related to the timing of expenses in 2021, especially in Q4. While we expect net recoveries to positively contribute for the full year, currently, it is negative at this point in the year, but that will revert as expenses normalize with easier comparisons in Q3 and Q4. Looking into next year, I certainly believe we can maintain the momentum based on prudent expense management and continued growth in billed occupancy. We've navigated the inflationary environment well and aren't seeing significant pressure on margins stemming from that.

Okay, great. Thank you.

Thank you.

Thank you. Our next question is coming from Craig Mailman from Citi. Your line is now live.

Hi, everyone. Just wanted to follow up on the $50 million pipeline of leases under negotiation. Could you provide a sense of how much of that is renewal versus new? And what that could mean for small shop occupancy if the majority of those actually sign?

Hi, Craig. This is Brian. That's a new lease pipeline, and we're very encouraged by it, particularly given how much GLA we've signed year-to-date. Regarding small shop occupancy, as Jim mentioned, we see continued potential for growth. We have about a 150 basis point drag in overall and small shop occupancy from that redevelopment pipeline. As our teams continue to deliver, and we bring in anchors to drive traffic, we expect occupancy to continue to grow. We're very encouraged by the growth we've seen so far and there's still a lot of runway to go.

Okay. So maybe another way to ask is how much of that is same-store space versus some of the value-add?

I think it's broad across the portfolio. While we definitely see an impact from reinvestment, broadly speaking, our centers look significantly better today. The operating teams have done a fantastic job managing them. Gains are occurring across the board. In particular, when we implement reinvestments, we see significant small shop occupancy gains of around 600 basis points. So I'd say that our legal pipeline is fairly broad-based, and we are seeing positive outcomes in many areas.

Yes. I would point out that all of our reinvestment projects remain in the same property pool, which represents over 90% of the total portfolio.

Thank you for the clarification. Just one for Angela real quick: you broke down the $54 million of commencements between 2022 and 2023. From an FFO impact perspective, should we assume that about 50% of the $27 million will hit in the back half of the year and then 50% to 75% of the $26 million will hit time-weighted through 2022?

Yes, I can provide a little color there. In the supplemental, we provide a breakdown between 2023 and then 2024 and beyond. So as we discussed on the call, $27 million is for 2022, a little bit weighted to Q4, but not substantially. For 2023, it amounts to about $19 million of the remainder, and then for 2024 and beyond, it’s about $8 million of the balance. So that's kind of the breakdown.

Perfect. That's helpful. Thank you.

You bet.

Thank you. Next question is coming from Ki Bin Kim from Truist Securities. Your line is now live.

Thank you. Just I want to...

Hi, Ki Bin.

Hi. Hi, Jim. I'd like to go back to the $15 million of ABR that is in negotiations but not signed. It's clear that there are leases moving into that bucket and some converting to signed. That number is about the same as last quarter, $15 million. Can you discuss the dynamics of that number and how real-time demand is tracking?

Yes, Ki Bin, it's about the same number, but keep in mind that we signed 900,000 square feet of leases during the quarter. The real-time demand is very promising, especially coming out of retail earnings and the conversations which have transpired. Our core tenants and new entrants into the portfolio are looking to expand their open-air footprint, filling slots for both 2023 and 2024. They're making long-term decisions now because they acknowledge that store profitability is crucial. We've improved the quality of our centers, driving traffic up against pre-pandemic levels. We remain very positive about tenant demand.

I appreciate the question, Ki Bin. As Brian emphasizes, we are continuously backfilling that pipeline. We delivered over $15 million of ABR from what was in legal last time as we signed it for 2017, and we consistently see activity with new negotiations on the front end. This reflects the quality of our centers and the general environment where there’s minimal new supply; in many cases, we're seeing multiple tenants competing for the same space, leading to favorable terms.

Okay. I'm curious regarding the $1.77 of tenant-specific landlord work in 2Q. Is that a fully loaded number, implying if you do work like HVAC or roofing, where the useful life expense exceeds the tenant fee curve? Is that CapEx included in the $1.77 or excluded?

It's tenant-specific costs related to work performed generally for larger TIs for tenants. So some of that TI work is included there, generally performed by the landlord.

The typical base building work is usually excluded from those numbers, Ki Bin; you'll see that reflected in maintenance CapEx.

Okay, thank you.

Thank you.

Thank you. Our next question is coming from Greg McGinniss from Deutsche Bank. Your line is now live.

I think they're talking about me. Hi, good morning. I want to go back to your comments about the transaction market in terms of not seeing compelling product during this market volatility. Does that imply no product available to buy or that sellers are not adjusting cap rates despite increases in borrowing costs? Is it a wider bid-ask spread issue?

There are certainly fewer assets on the market today, particularly grocery-anchored properties. The ones available have shown pretty sticky pricing, more so than we anticipated. Larger deals tend to experience a wider bid-ask spread whereas smaller deals remain somewhat liquid due to the larger buyer pool and various financing options. So, it confirms that larger assets are trading less frequently.

Okay, thanks. Separately, I need clarification on the 150 basis point occupancy drag you mentioned from the redevelopment pipeline. Does that imply current vacancy in assets undergoing repositioning, or is it based on occupancy expectations after new anchors and renovations are completed?

It's vacancy in those assets undergoing reinvestment, which we expect to fill as we deliver on those reinvestments. So it’s the impact of assets under reinvestment from an occupancy standpoint regarding the overall pool.

Okay, great. Thank you.

You bet.

Thank you. Our next question today is coming from Haendel St. Juste from Mizuho. Your line is now live.

Hey, good morning.

Hey, Haendel.

Good morning, Jim. You've done an excellent job of getting to your net rents on time, even faster than anticipated. I’ve received some comments about potential store opening delays due to labor shortages and supply chain concerns. Could you discuss how you are consistently achieving rent and if any concerns about potential delays in the future?

That's something that Brian, Haig, our leasing, and operations teams, as well as our tenant coordinators, manage proactively. We've successfully delivered ahead of schedule due to a multi-pronged approach: working with tenants on scope adjustments, deferring certain items, and getting early permits to speed the process. The team has done a great job navigating supply chain disruptions and permitting delays from the pandemic, and it’s a credit to Brian and the leasing team for their trustworthiness with the tenants to work alongside them and negotiate scope. We've successfully held offsite meetings with many major tenants to synchronize schedules.

That’s great. Thanks for that, Jim. A follow-up for Angela regarding the balance sheet. I understand that you have considerable liquidity and no nearing maturities until 2024. However, your debt-to-EBITDA is in the mid-sixes. I assume this limits your ability to act opportunistically. Could you clarify your current balance sheet philosophy, target leverage, and timeline for reaching it?

We're pleased with our overall position. Our signed but not commenced pipeline will naturally lead to EBITDA growth, bringing down the debt-to-EBITDA metric. We generate strong free cash flow and use it to fund a majority of our redevelopment efforts, which also contributes to EBITDA growth. We anticipate our debt-to-EBITDA number to trend down into the low six times range organically as we progress into next year.

Great. So you’re comfortable with a low six in the current environment?

Yes, we are. Our portfolio has significant mark-to-market opportunities, and the right debt-to-EBITDA number should be informed by the portfolio's basis as well as EBITDA expectations.

And where EBITDA is going?

Exactly. If we thought the portfolio was above market, our target leverage would differ. Because of our ongoing substantial mark-to-market opportunities demonstrated by executed spreads, we expect consistent EBITDA growth and anticipate debt-to-EBITDA trending lower over time. Thus, six times feels appropriate.

Okay, thank you for the time.

Sure.

Thanks, Haendel.

Thank you. Our next question is coming from Anthony Powell from Barclays. Your line is now live.

Hi, good morning. I have a question on revenues deemed uncollectible. You mentioned expecting prior questions to moderate, but you're seeing stronger collection rates. As you look towards 2023, can we expect that line item to become flat or positive as you improve collections?

It’s a difficult question to answer due to the prior period collections. We’ve been pleasantly surprised by our ability to collect legacy amounts, but as time advances, it's likely the remaining collections will lean heavily towards those categories affected by the pandemic, such as restaurants and entertainment. While we have about $39 million of reserved revenues remaining from the pandemic, only $18 million of that is linked to current active tenants, which are our highest likelihood for collection. Notably, over 80% of our collections in the second quarter resulted from active tenants—the trends here are very positive. Overall, the granularity in that pool continues to increase, and it currently contains smaller average balances per tenant, making it hard to predict totals or timing. I expect our watch list to decrease over time, and while we’ll continue striving for collection improvements in 2023, we should expect a trend down overall.

Thanks for the detail. And one more on Lake Pointe in Sugar Land; can you talk about the underwriting there and whether it requires full redevelopment or just leasing opportunities?

It's a combination of both. We have small shop vacancies that we are already backfilling, exceeding our assumptions, as well as prospects for additional pad sites and density at this very trafficked asset.

We're excited about that opportunity. We purchased that asset at a low point in its occupancy history. The current occupancy is 87% overall and 82% in small shops, both well below our portfolio average. We anticipate near-term growth from this asset. From a cap rate standpoint, it was just below a five cap, and we have leases in hand that would elevate it significantly in the near future.

Thank you.

You bet.

Thank you. Our next question is coming from Floris van Dijkum from Compass Point. Your line is now live.

Good morning, guys.

Hey, Floris.

Thanks for taking my question. Jim, could you remind us where your portfolio occupancy is currently located? Although that may not be the key statistic given your continuous upgrades, what do you believe the potential is, and how will it impact your NOI margins? With the existing signed but not open lease pipeline, will your margins improve as well?

We are currently at 92.5% occupancy. Our previous record was 92.8%, and we believe we will continue to surpass that as we execute. Of course, improving occupancy will positively impact our margins. We won't provide exact numbers, but driving billed occupancy will enhance our NOI margins.

Thanks, Jim. A follow-up: with all the cell phone data and other information at your disposal concerning traffic levels, what do you believe the typical redevelopment does to traffic? I noticed a few online updates about your Mamaroneck Centre; it appears considerably more appealing than it was two years ago. Could you discuss traffic changes at a center like that after a redevelopment?

The changes can be quite substantial—high double-digit growth is typical, and it varies based on the type of redevelopment. Take Mamaroneck, for example, where we replaced a dark box and created additional shops; traffic growth there has been impressive. The addition of an outparcel in Rockland has likewise led to a traffic increase of 15% to 20%. It is heavily dependent on the nature of redevelopment. Our relative traffic growth since 2019 compared to peers is indicative of our strategy's effectiveness; we’ve renovated over 130 properties, with an additional $400 million in redevelopment planned that will further accrete to traffic levels at impacted assets.

Thanks, Jim.

You bet.

Thank you. Our next question is coming from Linda Tsai from Jefferies. Your line is now live.

Hi, good morning. Angela, you mentioned earlier success in managing expenses; could you elaborate on what that involves?

Our proactive approach focuses on all areas of our property management team, allowing us to maximize vendor relationships and leverage our scale for efficiency. This broad-based effort has enabled the team to identify and manage inflationary pressures across the portfolio effectively.

Thanks. Regarding revenues deemed uncollectible being a headwind for 2023, are there any other factors impacting growth in the following year?

The previous period collections will be a headwind for 2023, and we are aware of how that will impact year-to-date performance. While we hope for additional out-of-period collections in the latter half of the year, we have to acknowledge that it may intensify as we head into 2023. The overall health of tenant portfolios looked good today. The future growth potential lies mainly with our signed but not commenced pipeline contributing to an increase in occupancy and, thus, improving margins and recovery rates.

Thanks.

Thank you. The next question is coming from Paulina Rojas Schmidt from Green Street. Your line is now live.

Good morning.

Good morning.

You're witnessing strong leasing demand despite a slowing economy. How unique is this retailer behavior based on your experience with other cycles? Is it a unique situation, or could history teach us that this is typically the delayed reaction from retailers?

You need to frame this in the context of the past few years. Retailers have navigated the pandemic effectively, solidifying their perspectives on the store's importance for customer engagement and profitability. There are, of course, headlines about inventories along with changing consumer preferences, but traffic remains strong, and retail sales continue to rise. Retailers seem to be making rational long-term decisions not just for the next couple of quarters but well into the next couple of years, pinpointing areas where they can expand and increase profitability. That's why rent basis matters; retailers avoid stores that won't yield a profit. Additionally, they are better equipped to estimate a store's productivity, both within its walls and its contribution to online revenue. So this continued strength in retail demand feels fundamentally robust.

Thank you. Very insightful.

You bet.

Lastly, your assets typically reside in areas with lower average household incomes than your peers. Could you discuss the implications of this in a low-growth scenario while considering the type of product typically found in strip centers?

Our centers are in exceptionally strong locations from a national perspective, and our performance showcases this through fundamental growth, relative traffic increases, and high tenant demand. We believe we are well-positioned as a portfolio, and we are happy with our pricing, especially in light of our rents and the consistent tenant demand we observe in real-time traffic patterns.

Thank you.

You bet.

Thank you. Our next question is coming from Mike Mueller from JPMorgan. Your line is now live.

Yes. Hi. I'm curious; how do the return expectations for your new and planned reinvestment projects today compare to projects you've initiated one or two years ago?

They remain quite strong. It changes based on the mix; typically, outparcel projects yield more returns than larger redevelopments. However, we are achieving excellent incremental returns, and importantly, we're also seeing great gross returns on the capital being deployed. Today, this pipeline is producing just below 10% returns, which is quite favorable given the current cap rate environment.

Got it. Thank you.

Thank you.

Thank you. We have reached the end of our question-and-answer session. I would like to turn the floor back over for any final comments.

Thanks everyone for joining. Enjoy the rest of your summer.

Thank you. That concludes today's teleconference. You may disconnect your line and have a wonderful day. We thank you for your participation today.