Conference Transcript - BRX 2026-03-02

Craig Allen Mailman, Analyst — Citi Research

Good morning, everyone, and welcome to Citi's 2026 Global Property CEO Conference. I'm Craig Mailman with Citi Research, and we are pleased to have with us today Bricksmore and CEO Brian Finnegan. This session is for Citi clients only, and disclosures have been made available at the Corporate Access Desk. To ask a question, you can raise your hand or go to liveqa.com and enter code GPC26 to submit questions. So, Brian, I'm going to turn it over to you to introduce your company and team, provide any opening remarks, tell the audience the top reasons an investor should buy your stock today, and then we can jump into Q&A.

Brian Finnegan, CEO

Sorry about that. Can you hear me now? Okay. Thank you all for being here today. With me, I have Steve Gallagher, our Chief Financial Officer, Mark Horgan, our Chief Investment Officer, and Stacey Slater, our Head of Investor Relations and Corporate Strategy and Capital Markets. We are one of the largest owners of open-air shopping centers across the U.S. We have 348 assets in the major markets across the country. We're among the largest landlords to TJX and Kroger, Publix, Ross, and Burlington, Whole Foods as well. Our strategy is a bit differentiated in the sense that we have a very low rent basis in well-located shopping centers. and over the course of the last 10 years have gone on a strategy of continuously reinvesting in those, being able to recapture below market rents and put better tenants in that are driving a lot more traffic at higher rents. You can see that coming through in almost every observable metric in the portfolio. And why you should own our stock today is the best is yet to come, because all the things you liked about the portfolio in the past relative to the low rent basis the redevelopment opportunity the platform in place to drive outside growth is still there from the best foundation that we've ever had relative to our underlying cash flows relative to the capex that we have to deploy both cause of the environment and what we've already touched across the portfolio and the redevelopment pipeline going forward is as exciting as it's ever been. If you think about the pipeline that we have with Publix, the centers that we have in places like Plano, Texas and Atlanta and Metro New York that we're starting reinvestments in. So we're in a fantastic position to continue to drive growth and really excited about what we have going on in the business.

Craig Allen Mailman, Analyst — Citi Research

And given that this is the first time you're in the hot seat, having taken over more recently, as you kind of take the position, I know Bricksmore has been a little bit of a machine with the redevelopment over this cycle. What, as the incoming CEO, are you looking at to tweak or change on the margin as you take the seat?

Brian Finnegan, CEO

It's a great question. So I'd say the first part in terms of the aggressive operation of our assets, the focus on reinvestment, that's not going to change. If anything, we're putting resources in place to be able to drive that faster. I oversaw the realignment of the team 18 months ago when we went from four to three regions when we invested in more execution resources that we could move around more seamlessly across the portfolio depending on capital needs. And we've seen tremendous benefits from that. So we're operators at heart, and that is not going to change. And as I mentioned earlier, I'm even more excited about what we have in front of us than what we've already completed. Mark is up here and acquisitions is not a core part of our business strategy. It's not something that we need to do to grow, but we have been net acquirers for the last five years. Forty percent of the acquisitions that we've done as a company have been in the last five quarters and we've found fantastic opportunities to replenish that redevelopment pipeline, but also where we can put the platform to work in places like Houston and Denver and South Florida. So we expect to be opportunistic there and we expect to continue to find opportunities, but we're going to remain disciplined. I think the third thing is we've always leveraged technology very well here. What can we do to lean into that? We've seen some early initiatives in AI and automation really pay off, particularly on the legal front, allowing us to negotiate leases a lot faster. from a leasing perspective, more information in terms of how our tenants will perform at shopping centers, allowing us to make merchandising decisions, and understanding our tenant health a bit. We have 8,000 leases. We have 900 million visits to our portfolio over the last year. It's a lot of data. And how can we utilize that to make better decisions? So I expect us to lean into technology a bit more there.

Craig Allen Mailman, Analyst — Citi Research

Since you opened the door with technology, I'll jump to my AI portion of the show um right off the bat here i mean you mentioned legal is one place that you guys are are finding efficiencies um can you describe kind of how deep the initiative is that at bricks on this kind of ai implementation outside of maybe legal where you're seeing the opportunity and how you guys evaluate the roi on this or how you evaluate maybe the go no-go on putting time and effort and money into some of these new technologies versus waiting maybe and being the follower on some of these things

Brian Finnegan, CEO

versus more of a first mover I think if you take the crawl walk run approach sometimes people can sprint fast past you so we have been measured in terms of how we're approaching things but you asked coming in we challenged every leader in every function to look at their process and say not particularly just with AI but what are some things that with technology we can do faster whether it's automating whether it's some level of AI tools our teams are using it every day to be more efficient to get faster information and I think what we've seen across the portfolio Craig that's been really interesting is we've seen people step up and find things to make themselves more invaluable for instance We talked about legal. Some of the things we do in terms of how we're abstracting leases and finding certain things out and different ways we're doing that across the portfolio was a bit inefficient. We were able to save thousands of dollars with one individual just utilizing some tools to figure out, okay, what consents do we need to put solar on our roofs rather than things that were taking us a couple weeks were taking us 10 to 15 minutes. That individual is now a business liaison who's helping other people deploy the tool. Some of the things in tenant health, right, you may ask about that today. We may have a sense, everybody in the room, of who's on a watch list or what tenants you're paying particular attention to. But for us, can we go a bit deeper to say, all right, well, who was paying on the second of the month that's now paying on the fifth or sixth? Where we might not get a flag on that because they're still not technically, quote, unquote, paying late. They're within their grace period. But we can start to get some early signals that, hey, maybe we need to send a leasing rep in there. maybe we need to send a property manager in there we've cut back to the legal front we've cut three to five hours out of drafting leases through automating those out of the gate and just think of okay well that's time to be able to work on another lease to be able to do that faster our time in legal was down 10 percent last year so we're continuing to find ways to your point about where we're investing we are looking at the tools that we have and what some of the embedded options are within that like with Salesforce and other things and ultimately where we spend time with what we're doing on our own but we've been very encouraged by what we've seen to date and are going to continue to leverage it to make better data-driven decisions and do you guys have a preference for platform you know Google open AI anthropic is there any we're in the Microsoft suite today so so copilot's been a tool that we've used and we like it so far and it ties into everything else that we're doing from a SharePoint perspective across the portfolio. So from that standpoint, that's a tool that we've used, but also leveraging what's embedded in some of the other tools as well.

Craig Allen Mailman, Analyst — Citi Research

And do you anticipate you guys would be more of an off-the-shelf user of products coming from these providers, or with your IT team, is there an initiative to try to build out BRICS-specific tools internally and spend the time and money there.

Brian Finnegan, CEO

I think it's a balance, and I wouldn't have an exact percentage of it today. We try to think about these things of, like, what are the gaps we're trying to solve for or what are the initiatives that we want to focus on, and then think about what are the tools, and always looking, okay, what do we have in place today or what are we doing today that we can leverage? Steve oversees the data analytics team, and we've been going through a process across the portfolio. One of the things that we did when we did the realignment was enable us to figure out how we were measuring certain tasks differently in regions and get that with some standardization across the entire portfolio, primarily through a Power BI initiative. So from that standpoint, it will still be a mix, but we do think there's tools that we have in place today that we can certainly leverage. And we're talking a lot about how we utilize AI, but I think it's important to recognize, is even if we may want to shift the discussion, but we'll get there relative to our tenants. Our tenants have more data today on their customers than they ever have. They understand what happens when they open a store in a given market, how that store will impact other locations, how that will impact their online sales. So as you see the tenants that are performing well and continue to make investments in expanding their fleet, they're utilizing data and AI more so than they ever have to get visibility in terms of how that store is going to perform.

Craig Allen Mailman, Analyst — Citi Research

And we'll jump into the tenant side in a second because this question somewhat dovetails into tenant health.

Brian Finnegan, CEO

As you guys are looking at it, as you guys look at headcount today versus future and the benefits of AI, is it more of a headcount reducer or just a slower of headcount growth because you improve productivity yeah I'd probably answer it this way we have maintained the headcount reduction that we did from from two years ago and are still operating incredibly efficiently across the portfolio I mean we are challenging ourselves when we do have open positions to say hey is this something that we can ultimately absorb but I go back to there are going to be individuals that spend the time that are curious that are going to improve their skill set and we've seen it at our company that are going to make themselves more invaluable and that's the encouraging thing I think with this and any other forward-leaning technology is those that are early adopters are going to be able to increase their value we've seen it and we expect to continue to see it going forward and I guess pivoting to the tenant side you know You echoed some of the comments I've heard from some of your peers, just maybe better margins by your tenants, better inventory management.

Craig Allen Mailman, Analyst — Citi Research

But then on the other side, there's the talk of agentic commerce and what does that do to brick and mortar versus does that just create bigger winners in the e-commerce space? So I'm just kind of curious, your views on that and then juxtapose that with sort of your tenant composition and how maybe you guys feel you're positioned if there is that push towards some of the bigger players versus maybe, you know, the role of the off-price retailer and the grocer, right, and some of the roles that these different tenants can fit into.

Brian Finnegan, CEO

The best tenants today meet the consumer whatever the consumer wants to meet them, and whether that's in the store, whether it's online, whether it's pickup, whether it's on their phone. And you see that with operators like Ulta. You see that with great grocery operators. Off price is a bit differentiated, but those operators are succeeding today because the brands that they're carrying in their store are the best that they have ever been. And you have seen a shift in terms of consumers from an apparel standpoint looking for value at a discount. And that's why they continue to succeed. So I think as it relates to merchandise, mix it's something that we're always thinking about it's a center specific discussion but we love grocery we love what's happening in the grocery space from the specialty operators that are differentiating themselves to our traditional operators both the regional players and nationals continue to invest in their stores we talked about off price wellness is becoming more essential people care more today than they ever have about how they look and feel so we're seeing folks less apt to give their gym membership up you're seeing health and beauty operators like Olten Sephora continue to perform and then the quality of service operations around that and you're also seeing that tie in to quick serve restaurants the quality of operators that were bringing to our centers like the Cabas of the world Shake Shack they're providing value but they're also providing more of a healthy option than you saw previously from fast food so from that perspective I think we have been nimble and that merchandising mix has changed from a consumer standpoint over time and something that will continue to focus on I do think still though if you talk to retailers that have an omni-channel platform they're gonna say the store they're trying to make the store the center of what they do and the store is still the most profitable way to deliver goods to the consumer and on the the

Craig Allen Mailman, Analyst — Citi Research

continued kind of tenant health here leasing has been strong continues to be strong you guys are pushing kind of shop occupancy higher the snow pipeline has grown um as you guys assess sort of the the portfolio today and then look at sort of the redevelopment tale you have how should we expect near term and long term frictional vacancy i guess in that shop portfolio like where do you think today's portfolio can handle it versus once you're even further through the redevelopment what long-term potential for your portfolio could be assuming you know similar type supply

Brian Finnegan, CEO

demand dynamics to today so we have always said that we expected this portfolio to be at a low 90s shop occupancy so it's 92.2 percent what is encouraging about what we still have in terms of the growth opportunity there, bless you, is if you were to look at the future redevelopment pipeline, it trails our portfolio average by about 400 basis points. Generally, when we bring those projects online, that's the uplift that we see. So whether that's 150 or 200 basis points more, we certainly see the opportunity to grow small shop occupancy further, and we're doing it with great tenants. I think if you look at occupancy overall, we're still 50 basis points behind what the prior peak was, and I believe we have opportunity to go even further because of the position of the portfolio today. So that gives you more visibility in terms of just another avenue for growth going forward.

Craig Allen Mailman, Analyst — Citi Research

Then kind of near to medium term, at what point does the snow pipeline top out and then start to contract as you guys bump up against that ceiling that you were just talking about? Like, is it 27, 28, 29? Like, as you guys look, when does that start to contract and normalize and where should we expect that spread between lease and occupancy to ultimately trend?

Brian Finnegan, CEO

I would expect, to the latter part of your question, I would expect the spread to remain somewhat wide this year and potentially into next as all the leasing that we did a year ago starts to come online. A high spread is something that everybody in this room should be encouraged by when we continue to lease because it gives you visibility on future growth that's baked, that's signed and committed. That snow pipeline has been fairly sticky at around $60 million because even though we've been commencing $15 to $22 million a year, we've been backfilling a similar amount, which is encouraging. So we do expect, I think, roughly two-thirds of that to come online this year, but that's without the additional leasing that we continue to do, and we still are very encouraged by what we see in the demand environment.

Craig Allen Mailman, Analyst — Citi Research

Maybe turning to acquisitions, Mark looks bored down there. He's never bored. We'll put him into the mix. You guys have been fairly active, but you're match-funding things, right? And so it feels like the game plan has been more IRR arbitrage on upgrading the portfolio, harvesting some value. Could you just talk about is that the trend that we should continue, where sort of market cap rates go in, and how much could you do that's more immediately accretive versus longer-term accretive?

Mark Horgan, Other

Hey, well, I'd say a couple things. on, I would note, as Brian said earlier, we've been a net acquirer of assets now for the last five years, so we have been growing externally. I think you're 100% right. Our focus as an investor is long-term IRR, and when we think about our marginal dollar, we're certainly directing that dollar towards redevelopment today, given the yields, the incremental yields that the team has been delivering. So when we're looking at acquisitions, we're comparing that dollar and making sure that we're buying assets where we can put our platform to work and really drive IRRs into that high single-digit, low double-digit on a levered basis. So that's how we're going to continue, I think, to think about it. From a market perspective, the open-air retail market today is quite robust. It's one of the sectors, I think, relative to a lot of other ones that has a lot of new capital coming in on the margin cap rates are compressing, particularly for assets that are smaller. So from our perspective on that IRR recycling question you had, we've been able to sell some assets in our portfolio at pricing where we think we're selling them at a low, high 6, low 7 IRR and reinvesting at that 9 to 10% IRR range. So we like that about the market today. If you look at what we've invested over the last couple of years, the deals have been bigger. So our average deal size was somewhere in that, I think, 150 last year. What's interesting about those bigger deals is that they're a little bit higher yielding generally. There's less competition for those assets. And more importantly, they usually have more moving pieces that we can put our platform to work in today's environment. So we're excited about that piece of the environment. For us acquisitions, as Brian said, it's not necessary for us to grow. We're excited about the opportunity that acquisitions incrementally can add to our company. But the other thing I'd leave you with is that it's always going to be opportunistic for us. So it's not a quarter by quarter plan. It's a let's find the right deal to put our platform to work on. Did you guys think about that time frame to capture that 300 basis point 200 300 basis points of of irr lift like what's the is there a time hurdle internally what is it well what we you know we've we've done a lot of back testing on our on our on our acquisitions they've generally been good deals and what we're finding is it's a three to five year business plan generally when we buy um and it's it's driven by a variety of factors we're we're focused on assets that i've run mark to market last year we bought some assets with occupancy gain the year before we bought britain plaza in tampa which is really backfilling the the redevelopment pipeline but that that plays out over three to five years and what is what's

Craig Allen Mailman, Analyst — Citi Research

kind of the opportunity pipeline look today as you kind of evaluate the the redevelopment irrs and incremental returns versus acquisitions that you kind of need to do for the long term backfill and growth i mean what's our what's the deal pipeline look like for you and how do you kind of ultimately decide here's the bucket of capital we need this um maybe you could just sell more to fund it but kind of how do you guys divvy that up internally i'll take the first part and mark can talk about the pipeline maybe steve can can chime in here so our focus is going to continue

Brian Finnegan, CEO

to be on accretive reinvestment we're funding that with free cash flow and as i mentioned earlier i'm even more excited about what we have in that future pipeline than what we've already done to date because the projects are larger in scale but still de-risks in the sense de-risk in the sense that they are pre-leased and we have good visibility on costs and we have them in in great markets and so that's going to continue to be the first focus of our capital dollars and mark i don't if you want to touch on any more of the market yeah from a from a pipeline perspective you know the market was quite active in q4 q1's been a little slower when we think about the pipeline we've been building it's we've been talking to some of these families that we're trying to acquire

Mark Horgan, Other

from for five seven years at this point and what's interesting is that we are seeing more activity from some of the private families who are saying to themselves hey i kind of see the market's stabilized i need to make a transition with with my business and we're seeing some more activity down on the private side. It's always going to be, as I said, opportunistic for us. We don't need to do it every quarter. We're trying to find the right deals to put money to work. And to your question, we are comparing that marginal dollar to anything we can spend on the pipeline. If the returns and the acquisitions don't match those, we're really a path. We really are trying to find the right deals to drive a long-term value for shareholders here.

Brian Finnegan, CEO

And I think implicit in your question, Craig, is the impact on growth in the short term, right? And we've been net acquirers now for the past five years it have continued to grow FFO at the top of the peer group. So this has been additive. We are excited with what we're seeing in the market and we want to grow because we have a platform that we feel can drive outsized and incremental results than ultimately what can be achieved by whoever is owning the property today. So we're excited about it. And generally, we're growing in markets that we know very, very well, and that we have a good understanding of what the leasing demand is and how far we can push things to drive outsized returns of value.

Craig Allen Mailman, Analyst — Citi Research

And we just had a question come in. You mentioned the deals that you're tracking are with private families. How much do marketed opportunities play in your consideration?

Mark Horgan, Other

The way we think about that question is how many deals have we bought off-market versus on-market? It's about 60% on-market, 40% off-market. That's kind of the way it generally trends. It's a widely brokered market.

Brian Finnegan, CEO

And generally, I would just say, Mark, chime in here if I'm off on this, but even some of the off-market deals will have some level sometimes of broker assistance, and we're generally not getting them, I would say, at a steep discount.

Mark Horgan, Other

We are just getting ahead of them before they're broadly marketed and there's more competition for them 100 percent with the the beauty of the off-market deal The ones that you've been tracking for many years is that you kind of know the business plan day one You're not getting a broker package saying hey, this is kind of interesting You're saying I wanted to buy this center for ten years And so that's the that's the beauty I think of off-market can control that that price will get to your business plan much faster I brought this up with one of your peers earlier.

Craig Allen Mailman, Analyst — Citi Research

I'm just kind of curious on your answer um as you guys underwrite different markets clearly some states and cities are are more tax-friendly and others are less tax-friendly and some are moving even more unfriendly right um speaking of new york city and some other places but just how do you underwrite that political risk and which ultimately translates into operating expenses and limits the ability to push rents right and maybe impacts demographics in an area where you thought was X and maybe it changes to Y I know it doesn't change quickly but just how much time do you guys think about that versus those are maybe 10 year changes and it's past the point or are you guys thinking internally now about that and maybe is that leading you towards not only the buy no buy decision but also hold sell decision on assets that you currently have in the portfolio that's where we start is more the existing not as much on it's certainly a consideration Craig on external growth but understanding that the decision to hold an assets investment decision as well and so as we look out and say okay what's happening over the next ten years what's happening

Brian Finnegan, CEO

in that market from a tax and legislation standpoint, what's happening in that market in terms of the competition there. One of the benefits of clustering and having a lot of assets and being the largest landlord in places like Philadelphia, Atlanta, among the largest landlords in Houston, is that you have a good understanding of ultimately what's happening in a given market we've done some very accretive reinvestments in some high-tax states and others that have been much more accommodating from an overall tax perspective so I think where we sit today in terms of the markets that we're in and we have a large presence in we like but it's certainly a consideration not just for what we're buying but more importantly for what we already own and control I think importantly to just the size of

Mark Horgan, Other

portfolio gives us that diversification right so not any one market is that impacted by any one decision by a local jurisdiction and i i would re-emphasize what brian said when we think about new deals that we're buying the reason why we buy in in our footprint is because we know the markets well we think we understand where taxes are going we think we not we think we know where operating expenses are going and so that that's an advantage for us to take to to use to find good deals in the market. As you've seen where we bought, we bought a lot in Texas recently. We bought a lot of assets in Florida. We bought some deals in Chicago that have been big home runs for us because we understood the opportunity some of those assets presented. We're a big landlord in Southern California, and that has a lot of headline risk in that market. Our portfolio in California performs extremely well. We just put money to work in that market at a high six, low seven going in yield with growth that we think is four to five percent.

Brian Finnegan, CEO

So you have to buy the right assets in these markets and we do think our platform gives us that advantage to do so we had another question come in um can you paint a scenario that would lead to ffo growth in 2026 that trends above the high end of guidance yeah steve can chime in on this too it's it's pretty simple for us it's ultimately on the execution front what can we still get done now that we can open this year what might we be able to pull in from next year? Can we continue to see the compelling move-out trends that we've had across the portfolio where normal course move-outs are now four years running of historic lows? So it's kind of simple, but it's more on our ability to continue to execute throughout the year, and we're pretty encouraged out of the gate.

Steve Gallagher, CFO

Yeah, I think it always comes down to the same property. NOI, that's the largest component of our growth, and it's what Brian said. it's it's getting leases open sooner i think you know we didn't spend a lot of time talking about tenant disruption but obviously our our watch list compares favorably to a lot of the other the companies out there and to the extent that is muted as well i think you could see us drive to the higher end of our same property noi guidance i mean for the for the rest of it i think on the interest rate side we only have a little we only have a little exposure left right So I think, like we saw in 25, to the extent there are opportunities for us proactively to get paid to take back space and then ultimately backfill that with more relevant tenants, you may see, you know, an opportunity for lease settlement to be higher. But, you know, we feel very comfortable where we are set today with our range.

Craig Allen Mailman, Analyst — Citi Research

And from a funding perspective, where do you guys kind of sit? What were you anticipating? You know, I don't know how much debt raising was in guidance, if any, but just from a spread perspective, some of your peers have put out, have issued debt at, you know, record-tight spreads there. I mean, how does that factor into what you have kind of baked in?

Steve Gallagher, CFO

Yeah, I mean, we have an upcoming $600 million maturity. We pre-funded some of that back in September. So we were sitting on about $350 million of cash. So the remainder exposure for the year is pretty limited. Obviously, you know, we saw those prints. They were great spreads, and our fixed income, I know there's some of them in here today, our fixed income support has been very, very strong with investors. Obviously, there's a lot more volatility in the 10-year today and where spreads are going. But, you know, I still think we would probably do a 10-year sort of in the 5, 10-ish range, plus or minus. So, you know, still very strong cost of capital of what you've seen over the last couple of years. And we'll continue to look for a window to be opportunistic in the market as we get closer to that maturity.

Craig Allen Mailman, Analyst — Citi Research

And then just to remind us, I know you talked about it a bit on the call, But how much of the bankruptcies from a year and a half ago are still need to be addressed in the portfolio versus where, you know, have been leased? Then the commencement timing again. I know that we've talked about the snow pipeline today, but the tail of that from a commencement standpoint.

Brian Finnegan, CEO

I'd say it answered this way. our occupancy was down 10 basis points year over year despite the fact that we took back 1.6 million square feet last year and grew it over 4% while we were doing that so I think it gives you visibility in terms of what we've addressed now the bulk of the leases that generally takes about a year if you think about it maybe a little bit more depending on the work that you're doing in a space so thinking about the bulk of the anchors that we signed in the fourth quarter starting to come online in the fourth quarter of 2026 and what we're signing today Craig will generally there's still some anchors that you can get in for the year but primarily that's going to be for

Craig Allen Mailman, Analyst — Citi Research

2027 and beyond and then even thinking about I mean we signed close to a million square feet new leases in the fourth quarter that's only a small fraction of what's coming on in 2026 the bulk of that the full year impact is coming on in 2027 and Steve as you mentioned the tenant credit watch list type exposure and guidance it's it's eased a bit right like what remind us again what you have in there for known versus maybe a cushion for potential yeah i mean the way we approach budget has been consistent going back ever since i've been here is we go space by space property

Steve Gallagher, CFO

by property right so to the extent there is an individual bankruptcy at a property we would removed that out of the underlying amount but where in the previous years we've given that range of possible outcomes because there were more material larger bankruptcies out there I mean we're not seeing that today and when you look at you know you'll still see drug stores closed stores you know container store we had one sacks at a great property we had in Naples but there's there's just not a lot of exposure out there and then on the traditional revenues deemed uncollectible where our historical run rate was 75 to 110 basis points based on all the work we've done on their portfolio and the improvement of that underlying tenant credit profile, we've tightened that into 75 to 100 just to reflect that improved underlying tenant.

Brian Finnegan, CEO

And I would just add, and I know we're coming up on time here, to leave everybody with what I said at the beginning was this is the strongest underlying tenant credit profile that this company has ever had. And if you were to screen a perceived watch list versus us and any of the peers the category Steve mentioned individual names we would screen very favorably four years running of normal course move outs being historic lows for the portfolio retention rates close to all-time highs so the position that we're in today is very strong from an overall tenant credit perspective before we run out of time same store for the retail group next year three and a half and more fewer the same amount of companies less oh look at that right thank you guys enjoy the conference thanks guys we appreciate