Earnings Call
Brixmor Property Group Inc. (BRX)
Earnings Call Transcript - BRX Q3 2022
Operator, Operator
Greetings, and welcome to the Brixmor Property Group Incorporated Third Quarter 2022 Earnings Conference Call. A question-and-answer session will follow the formal presentation. I would now turn the conference over to host, Stacy Slater, Senior Vice President of Investor Relations and Capital Markets. Thank you, you may begin.
Stacy Slater, Senior Vice President of Investor Relations and Capital Markets
Thank you, operator. And thank you all for joining Brixmor's third quarter conference call. With me on the call today are Jim Taylor, Chief Executive Officer and President; Angela Aman, Executive Vice President and Chief Financial Officer; Mark Horgan, Executive Vice President and Chief Investment Officer; and Brian Finnegan, Executive Vice President, Chief Revenue Officer, who will be available for Q&A. Before we begin, let me remind everyone that some of our comments today may contain forward-looking statements that are based on certain assumptions and are subject to inherent risks and uncertainties as described in our SEC filings and actual future results may differ materially. We assume no obligation to update any forward-looking statements. Also, we will refer today to certain non-GAAP financial measures. Further information regarding our use of these measures and reconciliations of these measures to our GAAP results are available in the earnings release and supplemental disclosure on the Investor Relations portion of our website. Given the number of participants on the call, we kindly ask that you limit your questions to one or two per person. If you have additional questions regarding the quarter, please re-queue. At this time, it's my pleasure to introduce Jim Taylor.
Jim Taylor, Chief Executive Officer and President
Thanks, Stacy, and good morning, everyone. I'm really pleased to report another quarter of phenomenal execution by our Brixmor team that highlights the accelerating and transformative impacts of our disciplined value-add strategy. Those impacts are reflected in every metric, many of which are post-IPO records for the company. Importantly, that execution provides exceptional visibility on forward growth through 2023 and beyond, even in a more disruptive economic environment. Allow me to dig into our results and highlight how our all-weather plan positions Brixmor for continued outperformance. During the quarter, we signed 1.7 million square feet of new and renewal leases at a record rent of $19.26 per foot, and a blended cash spread of 14.2%, which included 660,000 square feet of new leases at a record rent of $21.20 and a comparable cash spread of 32%. As reflected in our strong net effective rents, we achieved those records while remaining disciplined with capital. This record-setting performance underscores the transformative impacts of our value-add plan in the related tenant demand to be in our well-located, highly trafficked centers. I'm also pleased by the breadth of that demand as we continue to drive strong market share with store openings for our core tenants and categories like grocery, fast casual, wellness, and value apparel. We've also recently brought exciting new concepts to the portfolio that will drive additional traffic such as Yardbird, Best Buy’s outdoor furniture concept, Bark Social, or the LIVE! The Cordish menu. Our leasing activity drove overall lease occupancy to a company record of 93.3%, a year-over-year increase of 180 basis points. Importantly, we commenced another $14 million of new annual base rent during the quarter, driving our build occupancy to 89.6%. We set another record in small shop occupancy, which rose to 88.8% on new rents achieved of $24.78 per foot. More than any other milestone achieved, this growth in occupancy and rate for our small shops truly underscores the transformative follow-on benefits of our reinvestment strategy. We also drove our average in-place annual base rent to over $16 per foot, another record for the company, which still has plenty of room to run as demonstrated by the nearly $20 per foot achieved on all new leases over the trailing 12 months. As we've said many times, our attractive rent basis provides the opportunity to outperform through disruptive environments such as we experienced in 2020, as well as strong supply-demand environments such as we're experiencing today. Our execution delivered top-line same-store growth of 4.8% and NOI growth of 3.6%, which is particularly impressive when you consider the drag of 250 basis points from revenues deemed uncollectible due primarily to the declining prior period run collections as we work down our remaining receivables. Year-to-date, as we've driven occupancy and improved recovery rates, we've grown bottom line FFO by 6.5% on a comparable basis. Looking ahead, we have $53 million of signed but not commenced rent, which will commence over the next several quarters as well as $40 million of annual base rent in our forward new leasing pipeline. Even with the declining rate, or the naturally declining rate of prior period collections as those receivables are paid in full and the increased possibility of disruption as economic concerns loom, we still expect continued outperformance in our revenue and NOI growth in 2023 and beyond. This level of visible forward growth truly underscores the all-weather nature of our plan. Given our increased cash flow and confidence in continued growth, we are pleased to announce a dividend increase of 8.3%, which will keep us still at one of the lowest payout ratios in the sector as we utilize free cash flow to self-fund our value-add plan without reliance on the volatile capital markets. Speaking of that plan, our reinvestment pipeline continued to deliver despite ongoing supply chain issues as we partnered with tenants to get stores open on time. We stabilized $46 million in projects during the quarter at an incremental yield of 8%, bringing our year-to-date deliveries to $113 million at a 10% yield, creating significant value even in a higher cap rate environment. Since we began this program, we've completed over $800 million of reinvestments at an incremental return of 11%. Importantly, we have another $400 million leased and underway, providing significant future value creation. Please do check out our At The Center video series on our website that truly highlights the transformative impact and accretive returns of our program. From an investment standpoint, we continued our pause on acquisitions, keeping our powder dry. We believe there will be compelling opportunities in the coming quarters as private less well-capitalized landlords struggle with upcoming debt maturities and cash flow constraints. With that said, even in this more challenging capital markets environment, we've continued to find some liquidity to sell smaller non-core assets at opportunistic values with over $110 million in sales transactions completed during and subsequent to the end of the quarter. Importantly, as Angela will discuss further, we have $1.3 billion of liquidity and no debt maturing until 2024, allowing us to be opportunistic from an external growth perspective. With that, I'll turn the call over to Angela for a detailed discussion of our results, our outlook, and our capital structure.
Angela Aman, Executive Vice President and Chief Financial Officer
Thanks, Jim. And good morning. I'm pleased to report on another strong quarter of execution by the Brixmor team that highlighted both the value creation potential of our portfolio and the ability of our platform to harvest the embedded upside. Nareit FFO is $0.49 per share in the third quarter, driven by same-property NOI growth of 3.6%. Base rent growth continues to accelerate, contributing 480 basis points to same-property NOI growth this quarter. Excluding the impact of lease modifications and rent abatements in the prior period, base rent growth contributed 440 basis points, representing a 70 basis point acceleration from last quarter, reflecting continued growth in build occupancy and significant releasing spreads over the last year. Ancillary, other income, and percentage rents contributed 80 basis points on a combined basis, while net expense reimbursements contributed 50 basis points. Revenues deemed uncollectible detracted 250 basis points from same-property NOI growth, primarily due to the fully expected moderation of out-of-period collections of previously reserved amounts. Year-to-date we have recognized approximately $21 million or $0.07 per share of out-of-period collections related to prior years. Our current expectation is that such amounts will be minimal in 2023. As a result, we expect revenues deemed uncollectible to be a headwind to both same-property NOI and FFO growth next year as the total level of revenues deemed uncollectible reverts to historical levels. Our operational metrics continue to reflect the strength of the current leasing environment despite macro headwinds and the continuing successful transformation of our portfolio. Build occupancy was up 60 basis points sequentially, while leased occupancy was up 80 basis points sequentially. The anchor leased rate now stands at 95.4%, up 60 basis points sequentially, while the small shop leased rate stands at 88.8%, up 110 basis points sequentially, reflecting another new portfolio record for this metric. The spread between lease and build occupancy grew to 370 basis points this quarter. The total signed, but not yet commenced pool, which includes an additional 50 basis points of GLA, related to space that will soon be vacated by existing tenants, totaled $53 million. While the size of the pool is in line with last quarter, there has been significant continued velocity within the pool, as we commenced leases representing over $14 million on annualized base rent this quarter while adding $14 million of newly executed leases to the population. One of the strongest indicators of forward growth is a persistently widespread between lease and build occupancy while both build and lease occupancy are increasing. In addition, the blended, annualized base rent per square foot on the signed but not yet commenced pool remains well above $19, approximately 20% above our portfolio average, reflecting the broad-based impact of our granular reinvestment initiatives. From a balance sheet perspective, as of September 30, we had $1.3 billion of available liquidity, only 4% floating rate debt and no debt maturities until mid-2024. As a reminder, with the execution of our amended credit facility in April, we obtained a $200 million delayed draw term loan that we expect to utilize before April 2023 to continue to extend the duration of the balance sheet. We have also renewed both our $400 million share repurchase program and our $400 million at-the-market equity offering program, which were set to expire in January, proactively extending our ability to capitalize on a wide range of capital markets conditions. As Jim highlighted, we are pleased to announce an 8% increase in our quarterly dividend last night to $0.26 per share, or $1.04 on an annualized basis. This dividend increase reflects the strong growth in taxable income experienced over the last year, while also allowing the company to retain as much free cash flow as possible to continue the execution of the value-enhancing reinvestment program. The revised dividend level represents a payout ratio of just over 50% of our third quarter FFO and a dividend yield of 4.8% on last night's closing stock price. As it relates to guidance, we have maintained our previous guidance range for same-property NOI growth at 5.5% to 6%. We have revised our FFO guidance to a range of $1.94 to $1.97 per share. And with that, I'll turn the call over to the operator for Q&A.
Operator, Operator
Thank you. At this time, we'll be conducting a question-and-answer session. Our first question comes from Craig Schmidt with Bank of America. Please proceed with your question.
Craig Schmidt, Analyst
Good morning. Jim, I'm wondering will there be any pull back on the redevelopment investments given the potential for recession in 2023?
Jim Taylor, Chief Executive Officer and President
What we are finding is continued demand as well as highly accretive returns. So even in an environment of increasing costs we're offsetting that very effectively with the rent that we're able to achieve. As we've talked a lot about a lot our business plan is built for an environment of higher rates, less liquidity because it's self-funded and because importantly, the absolute returns that we're achieving are quite compelling. And we also, as you're seeing in all of our metrics, Craig, we're driving some really important follow-on benefits not measured in those initial returns in terms of follow-on occupancy and rate and our small shops. So we like how our plan is positioned. We like that it allowed us to outperform during the disruption of COVID where over that 2.5-year period we grew our NOI, I think, at the top of the peer group. But also in a strong environment such as the one we're in today, really, we're seeing more tenant demand than we've seen in quite some time. But then importantly to what's implicit in your question, should we see a reversion to more normalized levels of tenant failure, et cetera, we believe this reinvestment plan is the way to really position us to outperform in that environment as well.
Craig Schmidt, Analyst
Great. And then just what are the positives and negatives of having local tenants at 21% of your ABR?
Jim Taylor, Chief Executive Officer and President
It's important to have the center be relevant to the community it serves. One of the things that really struck us through the pandemic was the strength of that tenancy. We did have some failures. Interestingly, even with the small and local tenants we saw demand to backfill those tenants with better, more well-capitalized operators. It's a balance. Obviously, out of the small shop tenancy, whether it's local, regional, or national, we're able to drive higher absolute rents, and we're typically able to drive higher embedded growth, as well as absolute growth in that portion of our tenancy. We, importantly, like how it's positioned today. We think we've got a very good balance of national, regional, and local tenants that provides great visibility on stability from a cash flow perspective.
Craig Schmidt, Analyst
Thank you.
Jim Taylor, Chief Executive Officer and President
You bet.
Operator, Operator
Our next question is from Todd Thomas with KeyBanc. Please proceed with your question.
Todd Thomas, Analyst
Hi, thank you. Good morning. Just first question, I guess following up on the local tenants and that exposure in the portfolio, wondering if you are seeing any change in the health or ability of your local small shop tenants to pay rent today. Any increase in rent relief requests or otherwise at all?
Jim Taylor, Chief Executive Officer and President
Quite the contrary. We're seeing very good strength out of our entire tenant base, particularly in the small shops. It's reflected Todd in the rents and occupancy levels we're achieving, which we're really proud of. And frankly, as we've executed this plan, there's been an upgrade in the quality of tenancy, which we think is implicit in our results, but something that's worthy of being highlighted. Our collections levels continue to be very strong. Importantly, our traffic levels continue to be very strong in our centers. So, we like how we're positioned.
Angela Aman, Executive Vice President and Chief Financial Officer
Yes, I’ll just add that as it relates to revenues deemed uncollectible. There is some disclosure in the stuff that gives you a good sense for what we're reserving as it relates to collection shortfalls for current period revenue. And that's been stable over the last few quarters at around 135 basis points to 140 basis points. So certainly with some of the macro headlines lately, we have not seen any deterioration in credit quality. The other thing I would emphasize is, as both Jim and I sort of talked about in our remarks, out-of-period collections of previously reserved amounts have continued to be pretty significant. We are continuing to collect amounts from 2020 and 2021 and even earlier in 2022. The fact that many of those tenants are fully paying off amounts that were underpaid during the pandemic is a really good sign of how they have come through the last few years and how they are positioned going into a more disruptive economic environment.
Jim Taylor, Chief Executive Officer and President
Yes, and I put our collections experience at the top of the group. When you look at what we've been able to drive in terms of collections and the enforcement of our leases, I think we've done a really good job there.
Todd Thomas, Analyst
Okay. And then Jim, I wanted to ask about your comments in your prepared remarks around the embedded growth from leasing and the signed but not occupied pipeline. Notwithstanding, some of the noise from out-of-period collections that you mentioned, Angela, are you expecting to see minimum rent growth continue to improve into the fourth quarter from the 4.4% in the third quarter? Can you provide some additional context around what you are anticipating for minimum rent growth heading into 2023?
Jim Taylor, Chief Executive Officer and President
I appreciate the question and the focus on this point because it is important. Without giving specific guidance, what I will tell you is that we do expect continued strength in top line growth. It's being driven by that visibility on the signed but not occupied pipeline as well as the forward pipeline. Over a long period of time, we feel good that rent growth is going to trend towards the upper end of the range.
Angela Aman, Executive Vice President and Chief Financial Officer
Yes, I would say on a year-to-date basis, our contribution from base rent growth, stripping out the lease modification and abatement number, year-to-date is at 430 basis points. The guidance we've given earlier in the year was that for the full year we would be somewhere between 400 and 500 basis points. Certainly, I do think you could see some acceleration in Q4 to get us to the midpoint of that range. As Jim said, we're very pleased with the signed but not commenced pipeline, the way that that delivers, and the leasing pipeline Jim mentioned in his remarks behind that.
Todd Thomas, Analyst
All right, great. Thank you.
Jim Taylor, Chief Executive Officer and President
Thank you, Todd.
Operator, Operator
Our next question is from Haendel St. Juste with Mizuho. Please proceed with your question.
Haendel St. Juste, Analyst
Hey there, good morning.
Jim Taylor, Chief Executive Officer and President
Good morning.
Haendel St. Juste, Analyst
Given the recent transaction activity, I was hoping you could provide some perspective on cap rates. I'm particularly curious about where cap rates on grocery versus non-grocery assets are today and how they have moved over the last quarter. Can you provide, or can you give the cap rates for the $81 million utility in early fourth quarter?
Jim Taylor, Chief Executive Officer and President
We are seeing Haendel, and I think it's true across the universe, a real slowdown in overall transaction activities. So, data points are less instructive. I think in an environment of transition like this, everybody can point to a tight cap rate or a wider cap rate. With that said, I think it's clear that there is upward pressure on cap rates even for the most core grocery-anchored shopping centers due to where the tenure has gone and the cost to finance. I don't believe that, by the way, that movement is anywhere near as wide as the movement in asset classes that are trading closer to that risk-free rate. If you look at the cap rates that we achieved and what we sold through the quarter and subsequent to the quarter, they are very attractive. In part, it's a testament to Mark and team finding liquidity from both smaller private buyers, 1031 buyers, et cetera, as well as buyers looking at alternative uses for the properties such as what we capitalized on in College Park, Maryland.
Mark Horgan, Executive Vice President and Chief Investment Officer
When you look at the market over the past few months, it's really been driven by a pretty wide bid-ask spread between owners and sellers. There is clearly demand for the asset class and people looking to buy. I think you are seeing some owners say they are going to wait and see what happens in the rate environment, and that's really what's driving, I think, some of the slowness in the market today.
Haendel St. Juste, Analyst
Would you be willing to provide a cap rate on the $81 million in the fourth quarter so far?
Angela Aman, Executive Vice President and Chief Financial Officer
When I look at the pool of assets we sold subsequent to quarter end, there were, I believe, five shopping centers in that pool, one of which was sold for an alternative use at a very low cap rate. The cap rate, the blend on the $81 million subsequent to quarter end is going to be below where you've seen us transact historically, but we would prefer to wait and give the cap rate on the full quarter once we give Q4 results.
Haendel St. Juste, Analyst
Okay. Fair enough. And Angela, maybe one for you. Looks like the signed-not-opened spread widened 20 basis points from last quarter, but the embedded rent declined by about $1 million. So I guess first off, I'm curious why the ABR within a slow pipeline is decreasing a bit here while the spread is expanding. Is that a mix issue? And then second, as you now sit at historically high occupancies, is this spread as good as you think it's going to get?
Angela Aman, Executive Vice President and Chief Financial Officer
There is a bit of a nuance between the spread between lease and build occupancy and what we report in the signed but not commenced pool that's footnoted in the supplemental under that signed but not commenced table. The delta really relates to leases that have been signed and have not yet commenced on space that's currently in build occupancy from the prior tenant. So last quarter, the total signed but not commenced pool represented 420 basis points and included 70 basis points of space related to tenants that were currently in build occupancy, getting you down to that 350 basis point spread between leased and build occupancy. Today, we're still at 420 basis points in the signed but not yet commenced pool, but only 50 basis points of that is related to tenants that are currently in occupancy. So more of the signed but not commenced pool, even though the total number did not change, is more incremental than it was a quarter ago.
Haendel St. Juste, Analyst
Got it. Are you seeing any delays? Sorry, just one last follow-up on just the signed-not-opened pipeline. Are you seeing any logjams forming or still expect to get stores open next year and that signed-not-opened rent commenced on time?
Brian Finnegan, Executive Vice President, Chief Revenue Officer
Our team has done a great job of minimizing that. We certainly had some delays across the portfolio. But I think as Jim talked about in his opening remarks and as we've talked about on prior calls, our operating teams are working very closely with retailers. We found that our retail partners are being incredibly flexible in this environment, keeping existing HVAC units or keeping the bathrooms in the locations where they're at because they are incentivized to get these stores open, and we've had some great successes year-to-date. What we've been able to do has really positioned us going forward to negotiate those scopes upfront. Some of the best practices we're learning will even take advantage of in a more normalized environment. So I think the team has done a great job.
Jim Taylor, Chief Executive Officer and President
I agree, and I would say what we're actually commencing in the quarter is exceeding our expectations. We talked about the $14 million of rent that commenced this quarter, and the team is doing a phenomenal job of getting the tenants open and in occupancy. As you could imagine, we're absolutely aligned with the tenants in that regard. So as Brian highlighted, we and the tenants are working together to get those stores open as quickly as possible.
Haendel St. Juste, Analyst
Thank you. Great forecast.
Operator, Operator
Our next question is from Greg McGinniss with Scotiabank. Please proceed with your questions.
Greg McGinniss, Analyst
Hey, good morning.
Jim Taylor, Chief Executive Officer and President
Good morning.
Greg McGinniss, Analyst
Just thinking about occupancy. Curious what you see is reasonable achievable full occupancy, and I'm doing air quotes for those not in the room with me, for the portfolio as it stands today. You've spoken about the 150 basis points of occupancy locked up in the active redevelopment pipeline. But I'm curious how much more benefit is embedded in the future pipeline? And really kind of what do you see as the low-hanging fruit left to fill in the near term?
Jim Taylor, Chief Executive Officer and President
Love the question and appreciate the air quotes. As we think about the plan, what we're excited about is that we continue to increase not only occupancy, but potential occupancy for the portfolio. That's why you're seeing us set records today, but we still believe we have room to run. We believe we have room to run both in overall occupancy of a couple of hundred basis points, but we also see it importantly in the high rate, small shop component of our portfolio as well. This strategy has had the follow-on benefit of increasing the potential occupancy of this portfolio and that's something that's important to understand. I fully see this portfolio hitting a stabilized occupancy above what it's ever achieved in the past. But another important thing to consider about this strategy, it's not simply about getting to full occupancy. It's about maximizing the ROI on the assets that we have, recycling capital effectively, improving rate, driving NOI growth in doing so in a value-added and disciplined manner. It's a very granular strategy. But all you need to do is look at the metrics and results to see the success of it over time. Even in a more full occupancy environment, this is a platform that will continue to create value as we recycle through opportunities that exist throughout the portfolio.
Greg McGinniss, Analyst
Thanks. And then just kind of just digging back on that. Do you have any thoughts on the future redevelopment pipeline and what might be contributed from that in terms of occupancy?
Jim Taylor, Chief Executive Officer and President
I can't give you specific occupancy guidance on the future redevelopment pipeline. But when you look at it, we have another $400 million underway, substantially leased, that's going to be a 9% to 10% incremental return. We have close to $1 billion of opportunity beyond that that we've identified in the properties that we'll get to as leases mature and give us the opportunity to recapture space and drive the potential of those assets. We have several years of visibility of value-added activity even in an environment today where it's a self-funded and internal growth-driven plan. I'm really pleased with what we've done with acquisitions that have been value added. Obviously, we're in an environment today where, I think, it makes sense to pause. We will find in the future our openings to continue to grow in that regard as well. I like about how we're positioned is we don't need that. We have several years of runway of growth and opportunity that's embedded in the assets that we own and control.
Greg McGinniss, Analyst
Okay, thanks. And Angela, if I could just follow-up with how are you accounting for rent from Regal at this point?
Angela Aman, Executive Vice President and Chief Financial Officer
It's fair to say that all of our entertainment tenants or our movie theater tenants have been on cash basis through the pandemic. We had three Regal locations at the time of filing. One was rejected. We have two still in place. We are recognizing revenue from all of our movie theater tenants as cash is received.
Greg McGinniss, Analyst
Great. Thank you.
Jim Taylor, Chief Executive Officer and President
You bet.
Operator, Operator
Our next question comes from Juan Sanabria with BMO Capital Markets. Please proceed with your question.
Juan Sanabria, Analyst
Hi, good morning. Just hoping to go back to Craig's question on the redevelopment and maybe a comment you made about the rents you are getting there. Do you expect that the yields you are targeting on those will increase as rents move higher? Or that the spread would maybe compress a little bit, although still be positive and definitely better than traditional ground-up developments, just given a higher cost of capital in today's environment with particularly higher interest rates?
Jim Taylor, Chief Executive Officer and President
Yes, what we've seen on the cost side of the equation is we're seeing it come through in terms of the cost to redevelop these centers. But fortunately, we've been able to offset that with the rents that we're realizing on the reinvestment projects driven by tenant demand. We have pretty good visibility on continuing to drive 9%, 10%, 11% incremental returns. The gross returns are much higher. We think what we like about that is even in an environment of rising cap rates and rising interest rates, which we've always underwritten, we're still creating significant value. Maybe not as much incremental value as when interest rates were in the low single digits, but we're still clearing it by a healthy margin. Importantly, we're setting these assets up for continued growth as the balance of the assets benefits from the investments we're making.
Angela Aman, Executive Vice President and Chief Financial Officer
I would also add that the risk associated with the type of redevelopment work we're doing continues to be very low. This is very much, as Jim said earlier, a tenant-driven exercise. We're really not beginning projects. We have no capital at risk until we have substantially all of the leases signed and all of the revenue contractually obligated. When you think about that complexion from a risk standpoint against the returns we're achieving and where cap rates are today or where they might go, I think that activity continues to be very attractive on a risk-adjusted basis.
Juan Sanabria, Analyst
That makes sense. And then just as a follow-up on foot traffic. Have you seen any bifurcation in foot traffic to your centers, if you cut your portfolio into quartiles or what have you on different demographics or affluence levels? Have you seen any lower foot traffic for some of your less affluent neighborhoods or anything to point out?
Brian Finnegan, Executive Vice President, Chief Revenue Officer
It's actually been fairly broad-based across the portfolio, whether it's by region, whether it's by demographic. We've been really encouraged by what we've seen in terms of consistent traffic growth both over last year and pre-pandemic. We've obviously had some assets where we might have had a dark anchor, and now that anchor is open, where we're seeing growth. Interestingly, we've seen it from both grocery-anchored and non-grocery-anchored portfolio, which really makes us really encouraged about what we're seeing in terms of the overall demand in traffic in centers.
Juan Sanabria, Analyst
Thank you.
Brian Finnegan, Executive Vice President, Chief Revenue Officer
You bet.
Operator, Operator
Our next question is from Floris van Dijkum with Compass Point. Please proceed with your question.
Floris van Dijkum, Analyst
Thanks for taking my question, guys. I'm intrigued by the signed-not-opened pipeline. As you know, Jim, not all spaces are created equal and the upside potential here in your small shop is actually more valuable than the anchor space. Could you quantify for us what a 1% increase in small shop percent means in terms of ABR?
Jim Taylor, Chief Executive Officer and President
Angela? Let us get back to you on that in terms of a specific quantum, but you're hitting on a very important point, which is the rents in the small shops are higher. We're driving benefit from that reinvestment, both in terms of occupancy and the small shop and rate. To that end, our in-process reinvestment pipeline is actually a drag on our occupancy, right. We have real follow-on benefit for the assets that we're impacting. We're seeing in those assets, growth in the small shop occupancy of several hundred basis points, not to mention rate. We're creating huge value in the boxes too. That's a lot of rent, big spreads, talking about spreads for us of 30%, 40%. So, I'm excited about that too. When you look at the yields that we're driving just on the absolute capital invested, repositioning anchors or repositioning portions of shopping centers, that's pretty compelling. The small shop is a great follow-on to the extent it's not included in what we originally touched.
Angela Aman, Executive Vice President and Chief Financial Officer
We do give some good disclosure, I think on the portfolio overview page in the supplemental, but the different components of the GLA and the portfolio and the rent on each of those buckets. Our small shop space only represents about 31% of our total GLA across the portfolio. Occupancy gain in that smaller portion of the portfolio certainly has a disproportionate impact, given that the rents in small shop even in place today are $25 versus $16 for the portfolio overall. A 100 basis point occupancy gain in that 31% of the portfolio translates into something more like a 50 or 60 basis point improvement in our current ABR per foot. So higher than the 30 you would expect based on the composition of the portfolio.
Floris van Dijkum, Analyst
Thanks, Angela.
Operator, Operator
Our next question is from Samir Khanal with Evercore. Please proceed with your question.
Samir Khanal, Analyst
Hey, Angela. Good morning. I guess just a little bit more on the prior period rent collection at this time. I know that bucket was about $40 million, I think in the last quarter. It didn't really change this quarter. I'm just trying to understand the collectability of that amount over the next few quarters. Maybe provide some color on how many of those tenants are still active in your portfolio? Just trying to get a better sort of trying to figure out what sort of upside you can see in your numbers coming from that in the coming quarters.
Angela Aman, Executive Vice President and Chief Financial Officer
I'd say a couple of things. I'd kind of break it down this way. About a third of the $38 million that we report has been accrued for throughout the pandemic period but uncollected and reserved for. That's the number that has theoretically the potential to be positive to the income statement were collected. If you break that down into thirds, I would say a third of that $38 million, I would put a 0% probability on collecting. Those are amounts that we've gone through the process, determined they are highly likely of being uncollectible. We've written them off from a balance sheet perspective. Another third relates to tenants that have vacated the portfolio. We continue to actively pursue all amounts outstanding. We're continuing to work with some of those prior tenants to get those amounts collected, but clearly the probability on that bucket is lower than on the one-third of the $38 million that relates to tenants that are still active in the portfolio. In terms of probability, waiting again a third relating to active tenants, higher probability; a third relating to tenants that have moved out but we're still pursuing; and then a third I would put effectively a zero percent probability on. I would also say just in terms of the granularity of that pool today, it is a very small balance spread out across various tenants across the portfolio. We no longer have some of the chunky national collections that we're still pursuing. Most of those have been fully resolved to the company's benefit. It's becoming much more difficult to predict the timing of when those amounts come in, and I would say not only might we see some in 2022, maybe some in 2023, as I said in my remarks, we expect it to be pretty minimal. Those amounts will even stretch out past 2023. It's just becoming much more difficult to have good visibility on the timing of those collections given the granularity.
Jim Taylor, Chief Executive Officer and President
When you think about the total rent during the pandemic period and the collection percentages that this company has achieved, it's pretty impressive. I think it stacks up against anybody, and that goes to the quality of our centers, the quality of our leases, and frankly the focus of the team and making sure that we drive the collection of those prior period amounts. It is something, as Angela laid out very well, is of declining benefit as we look forward. I'm pleased with the cash flow that we've been able to capture, and frankly as Angela alluded to earlier, the strength of the tenancy in being able to pay some of those prior period amounts, some of those deferrals, et cetera, but we're finally moving to the other side of that. We fully expect, as Angela has said in her remarks, the benefit of that prior period collection to moderate significantly in the coming years.
Samir Khanal, Analyst
Got it. And thanks for that color, Jim. I guess just switching over to maybe the watch list for next year, right? Clearly the pipeline is strong here from a leasing perspective. You talked about the S&O pipeline. I guess help us understand what the level of fallout you could see, whether it's boxes or shop. There's clearly been some noise in the news about some sort of retailers. But I'm just trying to frame out sort of the puts and takes for next year as we think about growth in 2023, which is sort of the main focus for everybody in light of a pending slowdown? Thanks so much.
Jim Taylor, Chief Executive Officer and President
What we've laid out in our prepared remarks as we look at returning to a more normalized level of tenant disruption as we look at the coming quarters. What tenants that we have on watch list wouldn't surprise anybody, and we're watching them closely and where we have opportunities to recapture space, we're doing it and reducing our exposure to those tenants as you would expect us to. An important thing to consider is if we see a more normalization of tenant disruption, which we fully expect and have incorporated into our outlook, who's well positioned to perform. This is where rent basis matters. When you look at the in-place rents that we have and you look at where we've been signing new rents, we have a lot of room around, and you look at the discipline on capital, we're not buying these rents. I like, again, the all-weather nature of this plan and how it positions us to grow in a high-demand environment such as the one we're in, but in also one that's choppier. It's logical to assume, and it's a good exercise for you to go through as we have to understand the puts and takes as we look into 2023 and beyond. We're pleased with how we're positioned to grow, and we think the cumulative impact of this reinvestment plan will continue to shine.
Samir Khanal, Analyst
Thanks so much, Jim.
Jim Taylor, Chief Executive Officer and President
You bet.
Operator, Operator
Our next question is from Alexander Goldfarb with Piper Sandler. Please proceed with your question.
Alexander Goldfarb, Analyst
Hey, good morning down there. So Angela, maybe just continuing on Samir's line of questioning, not asking for a specific 2023 guidance, but you guys have discussed the 250 basis point headwind from back rents that were paid this year. There's also, it sounds like Jim's comments normalization, or sorry, going to a normalized tenant credit loss. I don't know if that's maybe in the 50 to 100 basis point range, but – and then I think you guys are pretty good on the balance sheet, so not really too worried about floating rate exposure, but can you go through some of the things that absolutely and in maybe in dollar amounts that we should be thinking about as we're updating our models and thinking about 2023?
Angela Aman, Executive Vice President and Chief Financial Officer
I just go back to my prepared remarks, Alex, and the few things we mentioned, which for the most part I think you just articulated. The first thing I think to really think about as it relates to 2023 is the out-of-period collection. As I mentioned, it's about $21 million of out-of-period collections. We've seen year-to-date in 2022. That will absolutely act as a headwind to growth next year, and that's something to be mindful of. I also said in my remarks, and you heard Jim reiterated as well, that we expect bad debt in total to look like historical levels. Our historical run rate average has been somewhere between 75 and 100 basis points of deduction based on total revenue; 75 to 100 of total revenues in any year for bad debt expense. We're coming off a two-year period where revenues deemed uncollectible have been positive to the income statement. That's obviously in the absence of prior-period collections and not something anybody should be expecting to continue going forward. The balance sheet, as you mentioned, is in very good shape today. We don't have any debt maturities until 2024 – June of 2024. I mentioned in my prepared remarks, we have a $200 million delay draw term-loan that we may utilize to continue to extend duration across the balance sheet. Those are some of the things to think about. Regardless of what the full picture looks like when we give complete guidance in the fourth quarter, I would just really emphasize as we talked earlier about how strong the fundamental growth of the portfolio used to be? As we talk this year, the same property guidance implies kind of a 450 basis point contribution from base rent at the midpoint of the range. That's relative to the last high water mark for the portfolio of 260 basis points. The growth we're seeing in the current environment based on the strength of leasing demand and based on the minimal amount of fallout we have had this year, certainly can support, as we look into 2023, a more normalized level of tenant disruptive activity while still putting up very strong top line growth.
Alexander Goldfarb, Analyst
Okay. So just – Angela, just to be clear, the only real two things that we should be considering in our model are the $23 million of catch-up rents that you got this year from COVID back pay, and then two, the normalized 75 to 100 bps bad credit, right? Those are the only two big ones, right?
Angela Aman, Executive Vice President and Chief Financial Officer
Yes. That's all we've highlighted at this time, Alex.
Alexander Goldfarb, Analyst
Okay. Second question is for Brian Finnegan. We hear a lot from you and peers about retailers re-engaging their store fleets after a decade of e-com only focused, whether it's last mile or just realizing that they need to focus more on capitalizing on the resurgence of people shopping at shopping centers after the relocations during COVID. Can you just give some tangible evidence or examples of where you've seen retailers shift dollars from e-com to stores? It would be great to hear some actual real anecdotes that are material, not just sort of one-offs?
Brian Finnegan, Executive Vice President, Chief Revenue Officer
Sure, Alex. It's a great question. First, you'd start with Target, who has said that 95% of their orders are coming from their stores. They've said on multiple calls that the store is the center of what they do. They are looking at taking a portion of those stores for last-mile fulfillment. You saw Wal-Mart do the same thing at the start of the pandemic, and now that's flowing down into some smaller retailers like junior boxes, for instance, Ulta, who's utilizing their space and their sales floor area for last-mile fulfillment. We've talked about previously the vast number of retailers that are now doing curbside pickup. Before the pandemic, we had mostly large format retailers and grocers; now it's a wider range where they're interacting with customers, both in the store, taking the most expensive part of the delivery out because they're now offering curbside pickups. We've seen it from both grocery-anchored and non-grocery-anchored portfolios, which really makes us really encouraged about what we're seeing in terms of the overall demand in traffic in centers.
Alexander Goldfarb, Analyst
Thanks.
Operator, Operator
Our next question is from Craig Mailman with Citi. Please proceed with your question.
Craig Mailman, Analyst
Just wanted to follow up on the store pipeline, the progression. Angela, I know it's up in 2023, I think about $14 million sequentially, but just from a timing perspective, can you just give a little bit of a sense of when that commences or like a time-related ABR for the year, just some type of incremental color on how we should be kind of flowing that through the model?
Angela Aman, Executive Vice President and Chief Financial Officer
Yes. As I look at the 2023 commencements, so it's $32 million in total in 2023. At this point, it is pretty first half weighted as you would expect it to be. As we continue to sign leases in the fourth quarter and early in 2023, you'll continue to see that second half number be added to, but of the existing $32 million in that pipeline, it's pretty weighted to the first half of the year. Probably about $20 million to $25 million in the first half.
Craig Mailman, Analyst
Okay, that's helpful.
Angela Aman, Executive Vice President and Chief Financial Officer
It's a bit of a tough question to answer. I think we provide really good visibility on the signed but not commenced pool. Where we end up in total is going to depend on things like tenant disruption, move-out activity, all other things.
Jim Taylor, Chief Executive Officer and President
It gives us a good bit of confidence. As we look into next year, we're not counting on significant speculative activity. We've done most of the business already, which is always a good position to be in. We're liking the tenant demand and momentum continuing to build in our forward pipeline. So, we feel pretty good about how we're positioned.
Craig Mailman, Analyst
Okay. That’s helpful. And then just kind of one curiosity, I guess we talked earlier in the call about 21% of local tenants, but how much of that bucket is like single unit operators versus local guys who may have multiple units and a little bit more of a revenue base to lean on in case the economy does weaken? I'm just trying to get a sense of the real credit profile that local can mean a lot of different things to a lot of different people.
Brian Finnegan, Executive Vice President, Chief Revenue Officer
It's a bit of a mix. I'd point to some things we discussed on prior calls in terms of our underwriting standards because coming out of the pandemic, our leasing teams partnered with Angela's group in finance to really tighten that up. We've continued to see strong multi-unit operators and operators that are taking advantage of an environment where there were some built-out restaurant vacancies or some move-in ready spaces. Our credit profile is much better today, both from a local and national perspective, but we're really excited about the depth and quality of local tenants that we have. As Jim alluded to earlier, those act as mini-anchors to our centers. They're unique businesses that cultivate a merchandising mix that we really like and make those centers the center of the communities they serve. Our local tenant base is much stronger, and it has to do with the work that our teams both on the leasing and finance side have done to make the right deals.
Craig Mailman, Analyst
Great, thank you.
Operator, Operator
Our next question is from Ki Bin Kim with Truist Securities. Please proceed with your question.
Ki Bin Kim, Analyst
Thanks. Good morning out there. So Jim, I think a lot of us on this call are trying to balance the good results that might be a little bit backwards looking versus some of the macro concerns and it does feel like after a couple more bad data points, how does demand shift? What's the big question? When you look at the collective basket of conversations you're having for future leasing demand, now how resilient do you think those conversations are, as macro data points start to go south a little bit further?
Jim Taylor, Chief Executive Officer and President
It's proven to be incredibly resilient. One of the interesting things, as you well know, is we're working with tenants on store openings now that stretch into 2024 and beyond. The tenants are planning pretty far forward understanding, as everybody does, that we may see some disruption in the coming year. One of the fundamental things that's important to appreciate is that these stores are very profitable for the tenants and are a key part of their plans to serve the customer. It's proven to be more true against Ki Bin compared to other environments in a supply-demand backdrop that's incredibly supportive for landlords. There's virtually no new supply. We remain very encouraged by the breadth of tenant demand and the depth of it and the position that it puts us in as landlords to continue to drive rate. While certainly our results to date are a factor of what we've done, I think what's also important to appreciate is how what we've done sets us up to be pretty confident in terms of where we're going to be over the next several quarters. Even with the moderation in tenant demand. I don't see it; we haven't seen it yet. But we've always prepared ourselves for an all-weather environment. It's part of our exacting standards on capital allocation and the follow-on benefits we've been willing to harvest and discipline around capital recycling. I like how we're positioned, particularly on a relative basis again, given our rents. The strength of the tenant demand remains really robust. The supply-demand picture continues to favor our asset class. Our traffic levels continue to remain strong and elevated, and we are benefiting from a value-added reinvestment program that's transforming the portfolio.
Ki Bin Kim, Analyst
Okay. And second question. What are you expecting from the Kroger-Albertson's merger and any type of store closures within your portfolio that we should expect?
Brian Finnegan, Executive Vice President, Chief Revenue Officer
It's going to be a long process. The companies have given themselves until early 2024. There's a big regulatory process they have to go through. I'd just say that we feel really strong about both our Kroger and Albertson's fleets. We've got great partnerships with both these retailers. Great, well-performing locations throughout the southeast, places like Texas, Southern California, Denver. We have a very strong Kroger portfolio in the Midwest. Our overlap in the sector is one of the lowest. It's something we will be watching closely and continuing to monitor but it’s early days. No matter the outcome, we feel really good about our fleets.
Jim Taylor, Chief Executive Officer and President
That’s been by the productivity of these stores. Not only do we have low overlap, our store sales numbers are very strong.
Ki Bin Kim, Analyst
And what does that low overlap mean?
Jim Taylor, Chief Executive Officer and President
The number of stores competing with each other within a five-mile radius as stores that may be impacted by the combination, either in terms of required divestitures or potential store closures as the two chains consider their strategy. There's a long regulatory road ahead, as Brian said, this will take time to play out, but we like how we're positioned both on an absolute basis given the productivity of the stores, as well as a relative basis given the limited degree of overlap our portfolio has.
Ki Bin Kim, Analyst
Okay. Thank you guys.
Jim Taylor, Chief Executive Officer and President
You bet.
Operator, Operator
Our next question is from Mike Mueller with J.P. Morgan. Please proceed with your question.
Mike Mueller, Analyst
Yes. Hi Angela, I was wondering, can you walk through how you think about, I guess, the balance sheet and leverage and funding redevelopments next year in a scenario where the disposition market may still be sketchy and you don't like your stock price?
Angela Aman, Executive Vice President and Chief Financial Officer
Based on the significant amount of free cash flow we generate, we can continue to fund 100% of our redevelopment activity on a leverage-reducing basis. If we use that free cash flow and a little bit of incremental leverage, debt-to-EBITDA comes down as we execute on that program given that it's substantially funded with free cash flow. We're really not, as Jim sort of mentioned earlier, beholden to the disposition market or the public equity market in terms of continuing to fund portfolio transformation efforts and generate those very attractive 9% to 11% incremental returns.
Mike Mueller, Analyst
Got it. Okay. Thank you.
Operator, Operator
Our next question is from Paulina Rojas with Green Street. Please proceed with your question.
Paulina Rojas, Analyst
Good morning. I'm trying to have a sense of economics behind getting a box back in the current environment. I can see your disclosure that during the last 12 months, the average ABR for new anchor leases being around $16 per square foot. How much lower is that number after CapEx on a net effective basis?
Jim Taylor, Chief Executive Officer and President
It depends on the plan to backfill. If it's a consistent use, your capital per foot over a tenure basis can be a couple of bucks a foot. If you're coming back and you're dividing the box for two junior anchored tenants, your rent spreads can be much more significant and cover the capital that would be required. The important part is that it does take capital to bring in a new tenant, and we show you what those net effective rents are. It takes capital to divide a box, what's your going in rent? If you're coming off a rent that's $8, $9, $10 and dealing with a new rent that's $16 or higher, you have the ability on a net effective basis to be positive, not to mention the ROI. It does depend on the box itself. What we do in addition to disclosing our net effective rents is show you what the returns are across our reinvestment activity. Every quarter we show you what we've delivered, and that's the litmus test for us in terms of whether we're creating value in the repurposing of a box.
Paulina Rojas, Analyst
How much would you say the CapEx is in a worst-case scenario where you need to bring in another use and maybe split the box today?
Jim Taylor, Chief Executive Officer and President
It depends. You could spend $40 a foot, you could spend $70 a foot, $80 a foot, or even more depending on what you're doing with the box. If you're coming back with a similar use, you can be below that; if you're dividing the box up, say you're taking a large box and making it a small shop, you could be at the upper end of that range. The decision as to what to do with that box is going to be driven by what we believe is right for the center, but also what we think will maximize ROI.
Paulina Rojas, Analyst
Thank you. And then last question, I know you have no expirations in the near term, but can you talk about how you perceive how restrictive or expensive you perceive bank on CMBS financing for the strip center actually today?
Jim Taylor, Chief Executive Officer and President
What's happening in the capital markets is clearly going through a reset, and I don't think levels have found normalcy yet, not only with respect to the base rate but also importantly with respect to spreads. You have many lenders who have pulled back in terms of providing debt capital or where they do, it's pretty high cost debt capital. Even in that environment, I think you have private landlords that have upcoming debt maturities who've been reliant perhaps on low interest rates to recapitalize, refinance, and take equity out of assets. That will present some interesting opportunities as those maturities come to a higher interest rate environment. That's where we think our advantages as a national platform with access to understanding tenant demand, the ability to redevelop and reposition boxes, and the track record to do so, and the liquidity to capitalize on it. We’re excited about the potential for that coming out of this disruption. We're not pounding the table and saying it absolutely will happen, but it feels like we're setting up for a very attractive cyclical redeployment period.
Paulina Rojas, Analyst
Thank you.
Jim Taylor, Chief Executive Officer and President
You bet.
Operator, Operator
Our next question is from Tayo Okusanya with Credit Suisse. Please proceed with your question.
Tayo Okusanya, Analyst
Good morning.
Jim Taylor, Chief Executive Officer and President
Hi. Good morning.
Tayo Okusanya, Analyst
Good morning, guys. Thanks for taking my call. I know earlier on you emphasized you don't need acquisitions to still put up a very strong earnings outlook, but I am curious what kind of signals you are looking for before you feel more confident about the transactions market? Is it more of just cap rates backing up 150 basis points, 200 basis points? Is it more of you guys feeling you have a better sense of your cost of capital? Just curious what would make you kind of get back on that horse?
Jim Taylor, Chief Executive Officer and President
It's a little bit of both those things. You want to see where the cost of capital is settling out, but also perhaps even more important than cap rate or equally important to cap rate is finding opportunities to truly grow ROI and achieve very attractive unlevered returns even in an environment such as the one we're in. I just think we're in a transition period right now, and the wise thing to do is to be patient because I think opportunities are going to move our way from a return perspective.
Tayo Okusanya, Analyst
Got it. And then just kind of what you're seeing in regards to a lot of the shopping center still trading that they discussed NAV. Just curious what your thoughts are in regards to another round of consolidation in the industry as saw a few years ago with some of the merger of equals that happened back then?
Jim Taylor, Chief Executive Officer and President
It's certainly something that happens in cycles, and we could see platforms combining in part because there's certainly benefits to having scale such as we have in dealing with landlords or, excuse me, in dealing with tenants. You could see some additional consolidation particularly amongst some of the smaller platforms that don't have the scale or efficiency or liquidity but we'll see. It's something that's often predicted and doesn't occur quite as often as it's predicted.
Tayo Okusanya, Analyst
Great. Thank you.
Jim Taylor, Chief Executive Officer and President
Thank you, Tayo.
Operator, Operator
Our next question comes from Anthony Powell with Barclays. Please proceed with your question.
Anthony Powell, Analyst
Hi, good morning. I do have a similar question. Could you comment on the renewed and slightly expanded share repurchase authorization and how that could rank in your priorities in the next several quarters?
Jim Taylor, Chief Executive Officer and President
We're always trying to make the best and most appropriate capital allocation decisions. As Angela highlighted in her remarks, the shelf gives us a battery pack for our tools as we move forward. It's not a statement that we're going to use it or not use it, but we want to have those tools available to us with every other tool necessary to drive our growth as an enterprise. What's important here is what Angela highlighted before, which is we have a self-funded plan generated and driven by opportunities embedded in the assets that we own, that we believe will deliver growth towards the top of the peer group. We like that. We like that it's not dependent on where capital markets might be at a particular point in time or the availability of attractively priced acquisitions or dispositions. It's a plan that we think is all-weather, and again, it's driven by opportunities that we control and funded by free cash flow as Angela highlighted on a leveraged-deleveraging basis. We like that, but we've demonstrated over the last six plus years that we've been part of this team, we will be opportunistic with capital and step into those situations that enhance long-term shareholder value.
Anthony Powell, Analyst
Thanks. So maybe one more like how do labor staffing levels at your centers to the best of your knowledge? Are most of the stores fully staffed or appropriately staffed? How has that trended across the year, and do you think maybe a looser labor market in the next few quarters should help store opening the distillate?
Brian Finnegan, Executive Vice President, Chief Revenue Officer
We've seen that improve a bit. I think retailers, it’s something that the entire market faced over the past few quarters, but I think we've seen that stabilize a bit. Retailers are very excited about the store openings this year. In our discussions with our retail partners, they're incredibly focused on getting those stores in and opened ahead of holidays and even working out what typically would be blackouts. There were periods where they didn't want to get very close to Thanksgiving, but they're really focused on getting those stores open and fully staffed. We've seen that certainly improve, and I think a good signal from our retail partners is that focus on getting a lot of those stores open this year.
Anthony Powell, Analyst
Right. Thank you.
Jim Taylor, Chief Executive Officer and President
Thank you.
Operator, Operator
Our next question comes from Lizzy Doykan with Bank of America. Please proceed with your question.
Lizzy Doykan, Analyst
You're live with our speakers, are you muted? Okay, she disconnected. We've reached the end of the question-and-answer session. At this time I'd like to turn the call back over to Stacy Slater for closing comments.
Stacy Slater, Senior Vice President of Investor Relations and Capital Markets
Thanks, everyone. We look forward to seeing many of you at NAREIT.
Operator, Operator
This concludes today's conference. You may disconnect your lines at this time and thank you for your participation.