Greetings, and welcome to the Brixmor Property Group Inc. First Quarter 2024 Earnings Conference Call. Please follow the operator's instructions. This conference is being recorded.

Thank you, operator, and thank you all for joining Brixmor's first quarter conference call. With me on the call today are Brian Finnegan, Interim CEO and President; and Steven Gallagher, Interim Chief Financial Officer. Mark Horgan, Executive Vice President and Chief Investment Officer, will also 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. Before turning the call to Brian, please note that out of respect for Jim's privacy, we will not be addressing any questions regarding his temporary medical leave and look forward to his return in the near future. We do ask that he join our Brixmor family in wishing Jim good health. As always, please limit your questions to 1 or 2 and we queue for any follow-up. At this time, it's my pleasure to introduce Brian Finnegan.

Thanks, Stacy, and good morning, everyone. I'm pleased to report another quarter of outstanding execution by the Brixmor team as we continue to capitalize not only on the positive trends in open-air retail, but on the work our team has done in transforming this portfolio. That transformation is evident in every observable metric, including same-property NOI growth during the first quarter of 5.9%, and our improved same-property NOI and NAREIT FFO outlook for 2024, as Steve will provide additional detail on shortly. In conjunction with the tailwinds from the record $68 million of annual base rent and our signed but not commenced pool, along with our highly accretive, low-risk reinvestment pipeline, we continue to position this portfolio for long-term sustainable growth. That growth starts with leasing and we delivered another quarter of excellent results, executing 294 new and renewal leases totaling 1.3 million square feet, including 700,000 square feet of new leases with tenants across a wide range of categories in the open air space. We added another 3 grocers during the quarter and now derive 80% of our base rent from grocery-anchored centers, while again adding thriving retailers to the portfolio such as Ulta Beauty, Ross Dress for Less, Chipotle, Chick-fil-A and JD Sports. We achieved several noteworthy records this quarter, including overall anchor and small shop occupancy of 95.1%, 97.3%, and 90.5%, respectively, with a sequential small shop gain for the 13th consecutive quarter. We also hit a high watermark in new small shop rents at over $30 per square foot as the improvements we have made at our centers, along with a high demand, low supply, retail leasing environment, is allowing our team to drive rate across the portfolio. That ability to drive rate and capture the upside embedded in our below-market rents was also apparent in our new and renewal spreads of 20% and our new leasing spreads of 40%. We're also encouraged by our move-out trends, which were the lowest first quarter result this portfolio has had, leading to record retention at over 89% of GLA. In addition, tenant disruption has so far this year remained muted, which is a significant factor in our improved outlook for the year as Steve will highlight further. But to be clear, the positive trends we continue to see in move-outs and retention are not simply a result of the environment we are witnessing in open-air retail but indicative of the transformation of this portfolio and the durability of our underlying tenant base. The cumulative effect of robust leasing, record portfolio retention, low move-out activity, and a stable tenant base are also reflected in our improved same-property NOI outlook for the year of 3.5% to 4.25%. As the team remains laser-focused on accelerating rent commencements across the portfolio, including from space we recaptured last year. Moving to reinvestments, our team stabilized $11.6 million of projects at an incremental 12% return and now has an active pipeline of over $400 million of projects and an incremental 9% return, of which we expect to stabilize approximately $200 million of this year. This includes some of the company's most high-profile projects like Roosevelt Mall and Plymouth Square in the Philadelphia market and the first phase of Pointe Orlando across from one of the busiest convention centers in the country in Orlando, Florida. On the external growth front, as Mark can touch on in Q&A, we are beginning to see transaction activity increase and more opportunities to put our platform to work, particularly following the $69 million of attractive capital that Mark and team raised in the first quarter through dispositions. We took advantage of one of those opportunities last week in Long Island, New York, where we purchased a grocery-anchored asset adjacent to a center we already own, consistent with the clustering strategy we have deployed with great success over the last few years in places like Southwest Florida, Southern California, Houston, Atlanta, Philadelphia, and Chicago. And while we expect to see more opportunities in the transaction market in the balance of the year, we will remain disciplined as a higher interest rate environment persists, and our self-funded internal growth strategy allows us to be patient on the external growth front. Before handing it over to Steve for a more detailed review of our financial results, I would like to thank all of you that have reached out with your thoughts and well wishes for Jim. The outpouring of support has been overwhelming, but not surprising, given both the person that he is and the impact that he has had on this industry. As Stacy noted, out of respect for Jim and his family, we won't be answering any questions outside of what was in the release, but do look forward to his return in the near future. With that, I'll hand the call over to Steve for a more detailed review of our financial results. Steve?

Thanks, Brian. I'm pleased to report on a very robust start to 2024 as we continue to capitalize on the strength of the current leasing environment and the momentum generated by our portfolio transformation initiatives. NAREIT FFO was $0.54 per share in the first quarter, driven by same-property NOI growth of 5.9%. Base rent growth contributed 380 basis points of same-property NOI growth this quarter, reflecting continued strong leasing spreads growth in build occupancy and a historically low level of first-quarter move-outs. In addition, net expense reimbursements contributed 90 basis points driven by the growth in build occupancy. Revenues deemed uncollectible were slightly positive in the quarter and contributed 60 basis points of same-property NOI growth due to the lower tenant disruption and the timing of annual real estate tax reconciliations collected from cash basis tenants. Also of note, as indicated in our initial guidance for 2024, first-quarter FFO benefited from $0.01 of savings associated with the CFO transition, including the reversal of stock compensation expense. As Brian noted, we are very pleased to have achieved portfolio records for our total, anchor, and small shop lease rates, reflecting the demand from retailers to locate in our centers and the substantial progress we have made in leasing space we captured in bankruptcy last year. As such, we ended the first quarter with a 450 basis point spread between lease and build occupancy and our signed but not yet commenced pool totaled a record $68 million, which includes $60 million of net new rent. The size of the pool continues to grow despite commencing approximately $12 million of annualized base rents since the end of the year. In addition, the blended annualized base rent per square foot on the signed but not yet commenced pool is $21.11, approximately 23% above our portfolio average, reflecting the below-market rent basis in our centers that our team continues to capture the upside on. We expect approximately $41 million or 61% of ABR in the signed but not yet commenced pool to commence in the remainder of 2024. From a balance sheet perspective, we continue to hold the proceeds from our $400 million January bond offering in stable, high-yield accounts in advance of repaying $300 million of our 3.65% bonds when they mature in June. At March 31, we had total liquidity of $1.7 billion, and our debt-to-EBITDA on a trailing 12-month basis was 5.9x, leaving us well positioned to execute on our business plan and with the flexibility to opportunistically access the capital markets. Since last quarter's call, our credit rating has been placed on a positive outlook by Moody's, recognizing the improvements that have been made to the balance sheet over the past several years. In terms of our forward outlook, given the continued strength in the leasing environment, we have increased our same-property NOI growth to a range of 3.5% to 4.25% and comprised of a 425 to 475 basis point contribution from base rent, which includes approximately 40 basis points of top line drag at the midpoint from national tenant disruption. As we have better visibility at this point in the year. With respect to revenue deemed uncollectible, a significant portion of the outperformance in the first quarter, as I indicated earlier, was timing related. As such, we still expect revenues deemed uncollectible to end the year within our historical run rate of 75 to 110 basis points of total revenues. But the signs we are seeing in our tenant base are encouraging, with strong payment trends illustrating the improvements in the credit quality of our tenants. In conjunction with the increase in our same-property NOI expectation, we have raised our guidance for 2024 NAREIT FFO to a range of $2.08 to $2.11 per share. In summary, we are grateful for the continued execution by the Brixmor team as we continue to create value for our stakeholders.

Our first question is from Samir Khanal with Evercore.

I guess maybe help us unpack the same-store NOI guidance, the revised one, what you're assuming sort of this time around for bad debt assumptions?

I'll take that first, Samir, and then I'll pass it to Steve. During our previous call, we provided guidance that accounted for a wide range of tenant disruptions, but we believed we could outperform. At the beginning of this year, tenant disruption has been virtually non-existent, as the filing process has moved quickly without any rent downtime or store closures. Looking at our efforts to enhance our tenant base, we have seen record low move-outs and high retention rates. Thus, we are feeling positive about the start of the year. We are still monitoring specific categories and certain tenants, but we are encouraged by what we observe regarding bad debt. Now, I will turn it over to Steve to discuss how this impacts our guidance.

Yes, from a guidance perspective, if you remember going back to our initial guidance, we had about 100 basis points of drag in same-property NOI for this tenant disruption. As I said in my prepared remarks, that's sort of down to 40 basis points of same-property NOI drag. While we're seeing great trends in revenues deemed uncollectible, we still think we'll end up the year because it's mainly timing related in the 75 to 110 basis points of total revenue. So hopefully, that helps.

Okay. And then just shifting over to the transaction market, given what rates have done, maybe talk around kind of what you're seeing out there on buyer appetite? And how do we think about your strategy this year? I mean, should we expect you to be net acquirers this year?

I'll just take it quickly, and then I'll hand it to Mark, Samir. We have talked on the last several calls, and you've heard Jim mention about being patient, being prudent, and the market starting to come our way a little bit as it relates to seller expectations. As I pointed out in my opening remarks, we started to see that in the deal we closed last week. But let me let Mark touch on the overall transaction market and what he's seeing.

Thanks, Brian. One of the things we mentioned on the first quarter call is that we think we've got the ability to source some well-priced asset-level capital out of our portfolio. If you look at those sales in Q1, the blended cap rate was a mid-4 cap. This was driven in part by the sale of Mall at 163rd, which we do think is a good example of our capital allocation discipline. When we sold that asset, we looked at the value creation we thought would be available in redevelopment and where we transacted, we thought we were having that value today, which we do think provides well-priced capital to push growth plans forward in the market. With respect to acquisitions and the overall market, as we've highlighted, we were cautious on it, but we're definitely seeing more attractive opportunities today as sellers that come to the market are much more realistic in terms of pricing given the capital market changes you've referenced. We're pleased with the close of West Center last week. We bought that at a low 7 cap in a very affluent part of Long Island next to a center we call 3 Villages. We see really strong mark-to-market at West Center, but ultimately, as we cluster investments like we have in the past, we see the ability to drive value across both centers on Long Island. So we think we'll be a bit more constructive on acquisitions going forward. We're not going to give guidance on volume, but you should expect us to be disciplined, but we are seeing a building pipeline today.

And that last point, Samir, is important. I'll conclude by saying that we will remain patient. With our self-funded business plan and the growth evident in our operations, we are consistently delivering strong results quarter after quarter. We do not need to pursue external growth through acquisitions, but we are pleased with what we are observing in the transaction market overall.

The next question comes from Todd Thomas with KeyBanc Capital Markets.

I just first wanted to touch on the leasing environment, which has continued to be strong. In other sectors, we've heard about capital markets volatility and the higher interest rate environment having an impact on tenant demand, longer decision-making also having an impact on expansion plans. It doesn't sound like you're seeing that across your portfolio based on your comments around leasing demand. Is that the right read? And why is tenant demand in retail not necessarily being impacted to the same degree?

Well, I think on the first part, Todd, we remain incredibly encouraged by what we're seeing on the leasing front. If you look at the volume during the quarter of $700,000, it's in line with the volume that we did in the first quarter of last year. That's after we grew occupancy 110 basis points. We talked about coming out of New York ICSC. Tenants are looking at plans for stores in 2025 and 2026. That's still the conversations we're having as we have a full schedule heading into ICSC Vegas this year. In terms of why you're seeing it, it's really a couple of reasons. First, the supply environment remains incredibly constricted. There's just not a lot out there in terms of vacancy. And then you look at the uses that continue to thrive in this environment; it's everybody we're doing business with, whether that's specialty grocery, health and wellness, QSR, restaurants, or value apparel. These businesses continue to perform well. They're very intentional with their store opening plans. They know the markets they want to be in and want to get ahead of spaces that you could potentially get back. Our team is not just talking to them about our vacancies, of which we have much less today. They're talking about the spaces that we could get back, like during the quarter where we took back a lot that was expiring next year, and we backfilled it with an Aldi at a 50% rent uptick. So these are the types of tenants expanding, and we remain incredibly encouraged. We look forward to the ICSC show here in a couple of weeks to continue to push things forward.

Okay. And then, Steve, you mentioned that revenues deemed uncollectible at 75 to 110 basis points of total revenue. That's the historical level for the portfolio. You maintained that here for the year. But with the first quarter's favorable result, that would imply an above-average level of revenues deemed uncollectible in the remaining quarters. Can you just reconcile that against the positive comments here about tenant health and the lack of tenant disruption so far to date?

Sure. As we've discussed in the past, cash basis accounting can lead to volatility in revenues deemed uncollectible from quarter to quarter. As I mentioned in my prepared remarks, we recognized $2 million net in the quarter related to collections of real estate tax reconciliation from cash basis tenants. We expect this to reverse as we move through the year, and it typically hinges on the seasonality of these nonrecurring collections, which are focused in the first half of the year versus the second half. This is the first normalized year where we aren't seeing much on the out-of-period collection front. So as we came into the year, we felt we were appropriately conservative regarding that line item. We see good trends and are certainly encouraged. There are categories and tenants we're keeping an eye on. But as I pointed out in my opening remarks, all the work across the portfolio has positioned us for a stronger tenant base.

The next question comes from Alexander Goldfarb with Piper Sandler.

Sorry about that, yes, I'm here. Sorry, I had the mute on. Just first, obviously, wishing Jim a speedy recovery and Brian and Steve, testament to you guys for such a strong quarter despite your coach being sidelined. So obviously, speaks to the team and culture that Jim has built. Let me ask you this first question, Brian. You know that I've asked a lot about ways that you guys have improved your leverage with tenants to drive NOI, etc. But specifically on the leases themselves, not on CapEx or commissions or anything like that, but on the actual leases. Are you guys finding ways to increase the actual cash margin on the leases? Or are the lease structures, which I'm assuming are mostly triple net, such that there's not really any leverage you have to expand the cash you drive out of the leases themselves, whether it's recoveries or billbacks or whatever? Just trying to think along those lines.

Well, appreciate the kind words about Jim. We certainly miss him. I think the results speak to the confidence in the broader team in terms of their ability to continue to deliver. One of the things that's been encouraging to us is not just what you see in rate increases, which across the portfolio this quarter, our new rent funds were about 2.5%. That's versus an in-place of 1.5%. We continue to make a lot of progress there. Small shops were closer to 3%. But to your point about what we are doing, we are absolutely looking at CAM language and softening that up, looking at carve-outs in certain leases to ensure that the investments we're making in our centers get paid back. We've focused on eliminating non-cumulative caps across the portfolio, really eliminating caps in general. We have been laser-focused on deploying fixed CAM; we've done that with many local tenants. It's about 22% of our ABR. We're growing those fixed CAM rates at over 4% today. When we're setting those rates, we have really good visibility in terms of OpEx spend. There are other ways we drive income from some aggressive approaches on the percentage rent front, right? We understand sales projections at the shopping center and set breakpoints appropriately - so we can not just drive a very high rate initially but also recognize some upside if they perform well. So all these things speak to the environment. It's not just the environment, right? It's all the work we've done in our shopping centers over the past few years in terms of the tenants we brought in and the traffic we're generating, which allows us to drive these things with really great tenants.

Okay. The second question is, and maybe this is just an urban myth or social media legend. But you hear about Ozempic and all these weight-loss drugs deterring people from eating, although try going into a Chick-fil-A or In-N-Out and you wait in line forever. So is all this weight loss stuff an Internet myth, or are you actually hearing anywhere food tenants talking about this?

Well, I think aside from any myths, wellness has become increasingly important. When people think about their health and fitness, combined with the better quality operators in the quick-service restaurant space, it’s evident. There was a recent article highlighting that people are willing to pay more at Chipotle than at McDonald's because they perceive it as a healthier option. They believe they're consuming better food, which connects to the broader concept of wellness. Typically, when individuals get in shape, they strive to maintain that lifestyle. We're observing an improvement in the quality of gym operators and an emphasis on medical services in our shopping centers. Additionally, higher-end healthy options like Sweetgreen and Cava are expanding into suburban areas. Ultimately, regardless of things like Ozempic, people are prioritizing their health and well-being, and we see this reflected in the agreements we make for our centers.

The next question comes from Juan Sanabria with BMO Capital.

Hoping for a speedy recovery for Jim as well. I just wanted to piggyback on Alex's question regarding the story this morning about Walmart shuttering its health centers. It does seem there's been a huge proliferation of urgent cares understandably so with just the ease of meeting the customers where they are. I'm curious about your exposure to medtail or urgent care, specifically regarding credit risk there? Or is that trend kind of past its peak? Just curious about your general thoughts on that.

I think medtail has become an important part of our shopping centers. Back to Alex's question about lease structures—right, they allow for more fitness, more medical, and restaurants closer to the shopping center. Urgent care operators, dentists, and medical service operators have all been good components of our tenant mix. They tend to be well-capitalized due to their expensive build-outs, and they are generally the highest rent payers in the shopping center because they want those high-profile spaces. We believe it's a solid component of our shopping centers. When it comes to credit underwriting, we have a robust credit process coming out of COVID, and we're seeing dividends in move-outs and retention, and you will see that with these operators as well.

For my follow-up, could you expand on clustering and where the opportunities lie? Is it more efficient to run those assets close together, perhaps using fewer man-hours or FTEs, or is it about effectively placing retailers?

Why don't I have Mark take that.

Yes, it's a number of the items you hit on. We have a very strong platform, and we find that we perform better when we put assets in front of our platform. We can be much more efficient with operations since you're a larger landlord in the market. You can negotiate better contracts for cleaning and whatnot. Ultimately, when you're a larger landlord in a market, you know where retailers want to be. You have leasing folks that are focused on signing where retailers want to move. This helps us with the centers we run currently. It also aids us in finding acquisition opportunities by knowing where value can be driven. We're not really guessing; we have clear business plans with a handle on where the value will be directed based on the retailers who want to be there. So we see that pass through to the NOI almost immediately upon acquisition.

Yes. Mark highlighted most of the points. I'd just add that it enhances our understanding of the market. For instance, in Philadelphia's Plymouth meeting, where our office is located, we own 2 assets at a key intersection in that submarket. If you're a small shop tenant entering that market, you come to us. It's the same in San Diego, Houston, and at the center we purchased in Long Island. So controlling both sides of the street or being close by improves our ability to drive rates.

The next question comes from Craig Mailman with Citi.

Brian, I just want to go back to your commentary on the lower churn and higher retention here. I fully understand it's always better to keep a tenant, which means lower CapEx. But as you're trying to remerchandise centers and increase ABRs over time, how much flexibility do you have to maintain a high retention rate while ensuring you aren't renewing tenants that don't fit the 5- to 10-year strategic vision?

Yes, it's a great question. Just say that we've never managed this portfolio for occupancy per se. Occupancy gains are the results of all the efforts we've put into the portfolio. We're going to continue to be opportunistic and very intentional about proactively taking space back. About one-quarter of our anchor deals over the last year involved space we took back proactively, right? When we see the opportunity to drive rents or put in a better tenant, we're going to act on it. The interesting aspect is that the retention we're highlighting now reflects our significantly improved tenant portfolio; these tenants want to stay, invest in their businesses, and they're renewing at among the highest rates we’ve had. So it's a good mix. I believe with occupancy at these levels, it gives us more opportunistic avenues for reclaiming space when we do take it back. We are currently discussing with our tenants regarding their upcoming returns next year and even into 2026.

Are you seeing a significant increase in renewal escalators? Are your negotiations easier now compared to when they were more challenging before the renovation?

Yes, that's coming through in our renewal growth. We've now seen 9 consecutive quarters with over 10% renewal growth across the portfolio. That growth is seen in the escalators, with small shops during the quarter pushing close to 3%. Some regions are experiencing growth rates of 3% to 4%. I mentioned earlier that we're converting them to fixed CAM in many cases, especially with local tenants, where we anticipate steady rates for the next few years, and we're seeing growth rates of 4% to 5% there. So yes, that's been part of our approach, and the primary driver is the extensive work we've done in the centers, coupled with the current expense of moving a business today and a tight availability of space, which all helps us negotiate.

The 61% of ABR to commence in the remainder of the year, is that 61% of annualized? Or is that on a kind of what's going to actually impact 2024?

Yes, that's the annual number.

The next question comes from Haendel St. Juste with Mizuho Securities.

Best wishes to Jim. I was hoping we could talk a little bit about the redevelopment pipeline beyond this year. I think you talked about delivering about half of it this year, and yields are in that 9% plus range. What are the prospects for backfilling? Should we expect the sizing and the yield to be relatively the same as you bring new projects on board? Just curious where that pipeline could be heading.

We've mentioned in our last call that we expect deliveries of about $150 million to $200 million each year. We're delivering on the high side of that this year with a number of those projects noted. We're happy to report good visibility for several years ahead. The projects we're bringing in are generally lower risk because they're pre-leased. We've tightened our leasing thresholds in this environment, aiming for higher returns–from mid-single digits to low double digits. We feel confident about the projected run rate of $150 million to $200 million of deliveries for several years, and the timing is driven by leases—when we can get to those or complete a first phase and decide on a second phase. We just opened a Sprouts in Los Angeles as part of a Phase Two project after taking back a Kmart and adding Burlington and Chuze Fitness. That allowed us to bring in Sprouts and finalize a favorable deal. It's worth noting that it would have been more challenging without completing the first phase. We're confident about that run rate going forward.

One thing I'd add using one of my favorite Jim Taylor terms: we can find more coal for the fire on the acquisition side, like we've done with Plaza by the Sea, Venice, or Bonita Springs. We believe we can continue to find opportunities to build that pipeline over time.

One more just on retention. We've seen retention here remain pretty sticky in this upper 80%, low 90% range. Is that the expectation near-term with the portfolio occupancy where it is and the demand you're seeing? How does that translate to leasing-related CapEx moving forward?

Yes. It's cheaper to maintain a tenant than replace them. I'd say generally, our team across the board has excelled in holding costs in line, negotiating favorable work scopes. On the tenant side, they’ve become more willing to take existing conditions after COVID, which has helped us be more efficient. Regarding the retention trends, we've been encouraged. With the improvements in the portfolio, you'd expect those to trend upward—yet that's not the metric that may drive our decisions. We have a low rent basis in place, with our anchor deals under $9, signing leases over 15%. That upside in those expiring leases gives us confidence in our ability to reclaim space and bring new leases to market. We'll continue to be intentional and prudent in the process.

Given your willingness to reclaim space, does that suggest that slow rent spread, which has remained elevated in the high 300 to 400s, will continue? Or can we see that tighten over the next year?

You'd expect it to tighten over time. A lot of spaces were reclaimed last year. The continuing spread provides good visibility for future growth. We reached a record this quarter of $68 million in the signed-but-not-commenced pool. Two-thirds of that should commence this year, which is favorable to us. It’s positive when lease occupancy raises while the spread continues to grow; you can anticipate visibility into that future growth. That said, you’d expect it to tighten a bit over time.

The next question comes from Dori Kesten with Wells Fargo.

Can you comment on your current level of interest in acquiring the portfolio? Are there any available out there today you’ve heard about?

That’s not something we've fully pursued, yet we are open to the possibilities. Mark can elaborate, but his team has done an exemplary job securing one asset at a time while growing in the markets we favor. It’s more of an option for us; it’s not a definitive yes or no.

Certainly, there is interest from larger pools of assets looking to transact in today’s environment. Many are approaching assets on a one-off basis, which makes sense. I completely agree with Brian. We're going to pursue the right opportunities but will maintain our discipline in allocating capital.

Our next question comes from Jeff Spector with Bank of America.

I would also like to express my best wishes for Jim and a speedy recovery. Congrats on the quarter. My first question, maybe we've discussed a lot today; you touched on ICSC. With ICSC coming up, any particular goals for the team? As you said, it sounds like you're working mainly on maybe 2025 to 2026?

Jeff. I appreciate the kind thoughts and well wishes for Jim. Ahead of the conference, we focus on attracting new tenants. We track who’s brought a new deal out of it that didn’t happen at the conference. We also work to advance larger projects in our pipeline that, as mentioned, are generally pre-leased, but I may have a space or two left. Those three objectives are critical. We highlight new concepts we want to see more of in our booth, and expect to see many of those.

Okay. In terms of store openings and markets, can you talk about the demand for specific regions or markets?

We've observed strong demand and occupancy growth fairly broadly across the portfolio. For example, the 3 grocer deals we did this quarter occurred in three distinct regions. The Southeast remains hot, while tight supply persists more dramatically there and in Southern California. However, the Northeast and Midwest display a consistent demand as well. The signs are encouraging due to our intentional strategy regarding center locations.

The next question comes from Greg McGinniss with Scotiabank.

Sorry if I missed this, but Jim previously communicated an expectation from the announcement of a new CFO by early April. Is there an update, or should we expect that decision to remain on hold until he gets back?

Firstly, I would say, Greg, that we’re fortunate to have Steve in the seat. He has stepped up and built a great team. We're ecstatic to have him. I expect he will continue in that role until we have further updates. We are not imposing a timetable on it, but we’re glad to have him.

In the expected 75 to 100 basis points of guidance for bad debt expense, is there anything that specifically addresses risks from Big Lots? Are any of those leases expiring soon? Would we expect all those to be reclaimed or backfilled?

We're proactive on our watch list, including categories that are expected. Regarding Big Lots, we focus just on real estate; we discussed this previously. We have no expirations this year and our rents in these spaces are under $7 a foot. We're signing them at $15. We leased a Big Lots space during the quarter that expires next year to Aldi at a 50% uptick outside of Portland, Maine. We're constantly evaluating opportunities for every tenant where we want to consider taking back space but without delving into names. We feel we're well-prepared for our watch list as we advance through the year.

Furthermore, as I shared earlier, regarding our capacity to absorb tenant disruptions, we have a 40 basis point drag in our base rent. That’s mostly because it would pass through if we encountered bankruptcy with any of those spaces. Alongside that, we have the $75 million to $110 million of total revenues in the revenue schemes for non-collectible lines. We still think we're well-positioned to weather a range of results as we navigate through the year.

The next question comes from Floris Van Dijkum with Compass Point.

Somewhat unprecedented times with no permanent CEO and CFO. I know you can't speak much to this, but could you provide insight into how the Board thinks about this and what steps it's taking to plan for any eventualities?

Floris, as discussed at the beginning, I appreciate the well wishes for Jim, and we look forward to having him back soon. However, we’re not providing any further details outside what's been released. We're continuing to operate as usual until we have an update regarding Jim.

Okay. Operations are also going well. You mentioned medtail. Is there a secular demand driver for open-air space from medtail? What percentage of leasing comes from this segment? How do you assess their profitability and set rents?

Thinking back to tenant underwriting, we receive financial information from operators, which can be capital intensive. Generally, their profitability gives strong returns, as they pay some of the highest rents. Broadly speaking—those rents tend to be top of the market, as they look for high-profile spaces in retail markets. Often, we judge profitability based on the financials and occupancy costs shared by competitors. So, as we assess these tenants, we get a solid understanding of their potential profitability.

In terms of the percentage of leasing demand, where is it today and where do you see it going?

We leased 5 new spaces this quarter for specific medical use. This translates to around 4% of what we did for occupancy this quarter. It is a part of the merchandising strategy we are implementing across these centers, where we may add urgent care or dental services where there's demand. It's an area we are continuously eyeing.

The next question comes from Tayo Okusanya with Deutsche Bank.

I wanted to get your thoughts on the latest developments with the Kroger & Albertsons merger, particularly about the willingness to spin off more stores. Do you think that would be good or bad for the shopping center REIT?

Beyond the public disclosure, we don’t have much more to add. It’s currently with the FTC and courts regarding the merger's progression. We believe a merger would positively impact Albertsons in terms of scale and Kroger’s digital infrastructure, which is ahead of Albertsons'. We have minimal overlap with Kroger in the Midwest and Southeast, our main exposure markets. So regardless of the outcome, we feel well positioned; these stores have high sales volumes and continued investment.

If I could sneak in another, what’s your viewpoint on more public-to-public deals in the shopping center REIT space? With valuations being relatively cheap and overall success...

We've seen considerable consolidation in the open-air space. It’s a trend that’s been expected for years; this current wave is notably strong. From our angle, we’ll continue forwarding our business plan, yielding sector-leading results while keeping focus on those fundamentals.

The next question comes from Caitlin Burrows with Goldman Sachs.

I know we've touched on leasing strength, but could you give more details on the activity lately in small shop and big box leasing, what you see over the past year?

From an anchor perspective, specialty grocery continues strong—tenants like Sprouts, Aldi, and Whole Foods with expansion plans. Local grocers are also coming in—as we signed one outside Minneapolis this year, and good ethnic grocers are entering the Houston market. Likewise, value apparel is robustly represented by Burlington, Ross, and TJ, especially in newer areas like the Northeast. There remains fierce competition in 10,000 square-foot boxes, with players like Buy-Below, Ulta, Sephora, and JD Sports. From the small shop side, well-capitalized QSRs are expanding as many are relocating from central business districts to suburbs, a trend we anticipate continuing.

Got it. That makes sense. A quick follow-up about your Long Island acquisition this quarter. The low 7% cap rate you mentioned, is that based on the in-place NOI, or does it consider near-term benefits?

Yes, that 7% cap rate reflects the in-place NOI, which includes a 3% management fee that is non-cash from our perspective.

Next question comes from Anthony Powell with Barclays.

Ancillary and other rental income and percentage rents contributed nicely to same-store NOI growth in the quarter, I think, 0.6% total. What should we expect from those line items moving forward?

When you consider same-property NOI overall, remember that base rent will significantly drive growth through the year. Base rent contributed 3.8% to same-property NOI growth in Q1 due to our higher occupancy and rent spreads, and we expect that to accelerate throughout the year; as I mentioned, a contribution ranging from 425 to 475 basis points.

While ancillary income is facing some seasonality, we continue to observe nice trends in percentage rent. Grocers are maintaining their post-pandemic bumps. Our specialty leasing team is adept at generating income from our portfolio. As deals are filled, there remain fewer short-term options. However, we’re finding new ways to realize income from solar, EV charging stations, and utilizing parking lots.

The next question comes from Michael Mueller with JPMorgan.

Your option leases tend to generate the lowest rent spreads. Are these generally tied to anchor leases? Do you ever evaluate possible fair market resets given the strong demand?

Yes, as it relates to option productivity, this quarter was in line with previous quarters. The GLA uptick is due to 3 spaces taking options—two Home Depots and a Kroger all over 100,000 square feet. Removing options or reducing them has our team's focus; we've eliminated them with local tenants; they were just over 10% this quarter. We've also reduced options for some anchor tenants where they were getting 4 options previously—they now get 2. Fair market value is gradually broadening nationally; it used to be more of a West Coast aspect, but we've begun introducing this and setting growth rates on leases.

The next question comes from Paulina Rojas with Green Street.

You mentioned monitoring 10 categories closely. Which are those today?

Some categories we are focusing on include the home sector, which faced some challenges after a large spike from COVID. There are some entertainment uses; however, they're a minimal presence in our portfolio, with around 1% of our rent from movie theaters. There are certain discounters that also warrant attention. We'd say this watch list has reduced overall, as shown through the underlying credit base’s performance, which is evident from retention and collection rates on small shop tenants.

Generally, does it make a significant difference for tenants to be in a REIT-owned property as opposed to privately owned?

Absolutely, tenants see a clear advantage in partnering with established REITs. This leverages not just the owner’s balance sheet but also their commitment to reinvesting significantly in shared spaces. Tenants consider how effectively you execute in delivering retail space, their neighboring tenants, and the extent to which you invest into that center.

Without a doubt, some excellent privately-held retail owners exist. Access to scale provides us with leverage to invest in our platform—which enhances tenant relationships with significant operating components. When considering external growth, we engage with all privately held operators on potential asset sales—a substantial portion of our targets comes from smaller partnerships that lack the capital resources we possess to enhance the centers. Thus, we look forward to continued optionality in external growth.

The next question comes from Linda Tsai with Jefferies.

With increased demand, are payback periods on building out for new tenants decreasing?

Absolutely, Linda. They're down. This seems a result of tenants' willingness to accept existing conditions and increased competition for spaces—leading us to secure better terms on work processes. We’ve observed a general downward trend in payback periods for new tenants recently.

Do you have any quantification on how much it's going down?

I don’t have the exact number but describe it as a favorable shift in trend. We track it through committee discussions focusing on these metrics as we identify areas where tenants are more receptive to existing conditions.

Next question comes from Ki Bin Kim with Truist Securities.

First, best wishes to Jim. Most people on this call really appreciate him and wish him well. I look at your results, your leasing volume, and spreads—I'm led to believe the U.S. consumer must be in good shape, given high occupancy levels. However, I consider the risks—many retailers open stores before going bankrupt. I’d like to hear what you're observing about customer strength or weaknesses in various categories.

We can observe these trends reflected in the traffic data, which has seen year-over-year growth—especially in March and February. January's metrics were slightly lower due to seasonal weather. Overall, we still see strong growth and credit underwriting standards moving forward. Our team's approach is structured. We’re looking at the history of our tenants regarding expansion markets and the volumes of capital we invest in their spaces. These efforts contribute to tenant demand, it’s more targeted instead of random exuberance. This demand is based on proven success in established markets.

On the urgent care topic, especially in New York, it seems these locations charge more than primary care physicians. Is this trend impacting consumer decisions?

While that may be the case, a lot depends on insurance incentives that encourage individuals to visit urgent cares instead of primary physicians. Convenience also plays a factor—patients can walk in quickly to receive medical attention without an appointment compared to standard physicians, which is often more attractive.

The next question comes from Greg McGinniss with Scotia Bank.

I have a couple of quick inquiries regarding development. Did the recent acquisition next to Three Village give you ownership of the entire retail block? Are there any adjacent parcels still not under your control, and does it open up larger redevelopment prospects?

Looking at the Three Village and West Center properties, there is a third portion of that site currently home to another grocer. In the long run, retaining those properties may lead to unnecessary non-retail use, but that's not our plan. We're aiming to maximize West Center and Three Village to extract value across our retail platform there. For example, we may build an endcap drive-through now available to leverage this purchase that we could not do previously.

As a follow-up, we've noted Kessler Plaza and Northeast Plaza have moved from major to minor redevelopments. What led to the decision against multifamily at Kessler and what changed at Northeast?

We continually gauge the highest and best use for our centers. For Northeast Plaza, just outside Buckhead in Atlanta, we've encountered significant retail demand. Several multifamily market challenges have led us to reevaluate this demand. If we believe we can stimulate value and find suitable retail opportunities, we’ll pursue those. Several leases we have at location are also a timing factor. We identified a favorable medical deal there that allows us to increase rent with minimal capital compared to executing multifamily projects. So, as I mentioned, we categorize it for you to offer insight into our pipeline.

Additionally, we are achieving outstanding yields exceeding those available in multifamily projects. We maintain a retail ownership focus, optimizing our understanding of capital allocation. We continue to look for opportunities that facilitate strong low-cost capital and push growth forward.

Thank you. At this time, I would like to turn the floor back over to Stacy Slater for closing comments.

Thanks everyone for your time today and for all your support.

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a great day.