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Date
Tuesday, July 29, 2025 at 2:00 p.m. ET
Call participants
Chief Executive Officer — James Taylor
President, Chief Operating Officer — Brian Finnegan
Chief Financial Officer — Steven Gallagher
Senior Vice President, Investor Relations — Stacy Slater
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Takeaways
NAREIT FFO per share: NAREIT FFO per share was $0.56 in Q2 2025, reflecting stable core profitability despite tenant disruptions.
Same property NOI growth: 3.8%, including a 260-basis-point negative impact from tenant disruption.
Blended cash leasing spread: Blended cash spread was 24% for all new and renewal leases, with new leases achieving 44% spreads.
Leasing volume: Executed 1.7 million square feet of new and renewal leases, including over 900,000 square feet of new leases at a record-high average base rent.
Occupancy rate: Sequentially increased by 10 basis points to 94.2%, after a 70-basis-point drag from bankruptcies.
Small shop occupancy: Reached a record 91.2% portfolio-wide small shop occupancy.
Signed but not commenced ("SnC") pipeline: $67 million total signed but not yet commenced pool, with $59 million representing net new rent. Expects $41 million to commence during the remainder of 2025.
Annual guidance update: Raised same property NOI growth range to 3.9%-4.3% for 2025. FFO (NAREIT, non-GAAP) guidance is $2.22-$2.25 per share for 2025.
Tenant disruption drag (guidance): Forecasts a 230-basis-point negative impact on same property NOI in 2025.
Available liquidity: $1.4 billion of available liquidity as of June 30, 2025, with no remaining debt maturities until June 2026. Debt to EBITDA was 5.5x on a current quarter annualized basis as of June 30.
Capital recycling: Ongoing, combining asset sales and free cash flow to fund new investments without incremental leverage.
La Centerra acquisition: Closed at a current yield in the low six percent range, with rents described as well below market, according to management and a projected IRR in the high single to low double digits (non-GAAP).
Redevelopment pipeline: $370 million of accretive projects underway, maintaining incremental NOI yields of around 10% (non-GAAP).
Lease terms: Achieved record new lease annual rent growth of 2.8% and improved recovery rates by eliminating burdensome CAM provisions and adding fixed CAM where suitable.
Bad debt expense: Tracking at the low end of the guidance range for bad debt expense, with underlying tenant credit quality described as improved by management.
Summary
Management emphasized that brisk leasing activity during Q2 2025 recaptured and backfilled 80% of bankrupt tenant space with stronger operators at materially higher rents. The acquisition of La Centerra in Houston was highlighted as a strategic, value-add investment with significant mark-to-market rent opportunities and immediate leasing momentum. Forward guidance for both FFO (NAREIT FFO, non-GAAP) and same property NOI growth for 2025 was raised, citing the size and quality of the signed but not commenced pipeline and the base rent acceleration expected as leases commence later in the year. Balance sheet flexibility is supported by substantial liquidity, no near-term maturities, and a stable leverage profile, enabling continued disciplined capital allocation. Recent lease negotiation strategies, including adjustments to CAM provisions and cost recoveries, are expected to further enhance portfolio margins.
Steven Gallagher stated that new lease commencements will drive acceleration of same property NOI growth in the back half of the year, as discussed on the Q2 2025 earnings call.
James Taylor noted, "we're providing visibility as those rent stack. Not just for this year, but as you point out, into next year, and it's pretty compelling."
Brian Finnegan described the retailer pipeline as larger and higher-quality than a year ago, observing movement of upscale, "mall-native" brands to grocery-anchored centers.
The watch list of at-risk tenants is described as "a lot smaller than it was historically," reflecting progress in portfolio credit improvement after recapturing weaker credits.
Industry glossary
Signed but not commenced (“SnC”): Lease agreements executed with tenants for space that has not yet begun generating rent revenue.
Blended cash leasing spread: The average percentage change between previous rents and new rents on both renewed and newly leased space, calculated on a cash basis.
CAM (Common Area Maintenance): Fees charged to tenants for the maintenance and operation of shared spaces within a retail property.
Full Conference Call Transcript
James Taylor: Thank you, Stacy, and good morning, everyone. I couldn't be more pleased with or proud of this Brixmor team's outstanding execution of our value-add plan. Execution that drives our improved outlook for 2025 and provides excellent visibility on outperformance in 2026 and beyond. Brian and Steve will review our results and outlook in more detail, but I'd like to highlight a few points that underscore, one, our unique visibility on growth; two, the fundamental and accelerating transformation of our portfolio; and three, the opportunities for future growth that we continue to unlock through disciplined capital recycling. As always, it begins with leasing, where we once again drove robust volumes in spreads.
Leveraging broad tenant demand to be in our centers and capitalizing on recent tenant disruption to bring in better, more relevant anchor tenants that in turn, as we all know, drive outperformance in traffic and rate for the balance of the shopping center. In fact, this quarter, we not only drove our average in-place ABR to a new record, we achieved a record high per square foot rate for new and renewal leases. Our robust leasing activity drove our signed but not commenced pipeline to $667 million or 7% of total ABR, despite commencing $15 million again of new ABR in the quarter.
This represents eight quarters of average commencements of $15 million while the forward pipeline has consistently exceeded $60 million. As Steve will detail in his remarks, this consistent delivery of new rents is part of what's driving expected NOI growth of over 4% this year despite the drag from recent tenant disruption. Speaking of value-add, our reinvestment pipeline continues to deliver. And we now expect to be at the upper end of our annual goal of $150 million to $200 million of project deliveries, a compelling return.
These projects include the Davis Collection at Trader Joe's and North Rack Anchored Center on the doorstep of UC Davis, Barn Plaza, Whole Foods Anchored Center just outside of Philadelphia, and Wynwood Village, a Target anchored center just south of Downtown Dallas. Where we have delivered reinvestment projects, we also continue to benefit from the flywheel effect in growing occupancy and rate on the balance of the shopping centers impacted. Which effect is reflected in the records we set in small shop occupancy and rate.
Importantly, in addition to the $370 million of accretive projects we have underway, we have a future pipeline of identified projects of several hundred million with assets we own and control that provide visibility on growth for the next several years. Finally, we continue to opportunistically recycle capital. Harvesting lower growth assets and redeploying the proceeds into assets where we see substantial upside through our leasing, operations, and reinvestment. We are particularly pleased to announce the acquisition of La Centerra. An iconic grocery-anchored lifestyle asset that we've long targeted in the Houston MSA, our third largest.
With great tenants such as Trader Joe's, Athleta, IKEA, Lovesac, Lululemon, Sephora, Warby Parker, as well as a diverse mix of high-quality dining and service tenants. La Centerra drives over 5 million visits annually, putting it in the top decile nationally of comparable lifestyle centers. Priced well below replacement cost, La Centerra offers a tremendous upside as we capitalize on below-market rents expiring over the near term. In sum, our value-add plan continues to fire on all cylinders, providing us with truly exciting and unparalleled visibility on future growth. With that, I'll turn the call over to Brian and Steve for a more detailed discussion of our results and outlook. Brian?
Brian Finnegan: Thanks, Jim, and good morning, everyone. Our team delivered another quarter of outstanding results, once again validating the demand to be part of the Brixmor portfolio and the momentum of our value-added plan. Leasing activity stood out with recently recaptured space not only resolved at speed but upgraded with stronger, traffic-driving tenants at significantly higher rents. The message is clear: top-tier retailers want to grow with us. And they are. This quarter we executed 1.7 million square feet of new and renewal leases at a blended cash spread of 24%, including over 900,000 square feet of new leases at an impressive 44% spread. That new lease activity generated the highest quarterly annual base rent in our company's history.
Much of this record performance came from backfilling space recaptured through the Big Lots, Party City, and Joann bankruptcies. And we've already resolved 80% of those spaces with better tenants at rents more than 40% higher. And despite a 70 basis point drag from bankruptcies, we still delivered 10 basis points of sequential occupancy growth to 94.2%. Small shop leasing continues to be a strength, reaching a new portfolio high of 91.2%, which as Jim highlighted, more upside as we deliver accretive reinvestment.
We also saw improvement in our intrinsic lease terms, setting a record for new lease annual rent growth at 2.8% while our disciplined approach in eliminating burdensome CAM provisions and deploying fixed CAM where appropriate has continued to improve our recovery rate. We're also proud of the caliber of tenants joining our portfolio, retailers that are expanding with purpose and conviction. This quarter, among the tenants we added were new locations with Sprouts Farmers Market, Nordstrom Rack, Ross Dress for Less, Burlington Stores, Barnes and Noble, Chick-fil-A, Dave's Hot Chicken, and PNC Bank.
As Jim mentioned, and as highlighted by our La Centerra acquisition in Houston, we're also seeing a clear trend as best-in-class mall-native and elevated brands are moving into high-traffic, grocery-anchored centers. Thanks to our proactive portfolio transformation, we're capturing this momentum. Adding first-to-portfolio deals with Sephora, Lovesac, and J. Jill during the quarter with several more exciting names in our forward pipeline. Looking ahead to 2025, we're confident in the trajectory of our business. Our traffic and collection trends are strong. The consumer remains resilient. And our forward leasing pipeline is larger than it was at this time last year with creditworthy tenants focused on growing store count.
We are exceptionally well-positioned to capitalize on this environment and deliver compelling growth in 2025 and beyond. That's a direct result of the outstanding execution by the entire Brixmor team, and we're grateful for their continued efforts. With that, I'll turn the call over to Steve for a deeper dive into our financial results. Steve?
Steven Gallagher: Thanks, Brian. As both Jim and Brian emphasized, we continue to deliver consistent outperformance as we execute our value-add business plan. NAREIT FFO was $0.56 per share in the second quarter, driven by same property NOI growth of 3.8% despite a 260 basis point drag from tenant disruption in the quarter. Base rent growth contributed 360 basis points to same property NOI growth, as the momentum from the snow commencements had higher rents continues to outpace the drag from the short-term build occupancy decline.
Handling other reimbursements, other revenues contributed 150 basis points to same property NOI growth, as we capitalized on tenant disruption to drive revenue on temporarily vacant spaces and also negotiated a revised agreement for our parking garage in Orlando that allows us to further capitalize on the growth and traffic at that center. As expected, net expense reimbursements detracted 110 basis points from same property NOI growth due to the prior year benefit related to tax assessments in Cook County, Illinois. As Brian noted, we signed a record high $21 million of new ABR in the quarter, ended the second quarter with a 450 basis point spread between leased and billed occupancy.
Our signed but not yet commenced pool totaled $67 million, which includes $59 million of net new rent. We expect to commence $41 million through the remainder of the year and now expect total commencements of $69 million in 2025, as compared to the $53 million we expected at the end of last year, which will provide a tailwind to growth in 2026. From a balance sheet perspective, at June 30, we had $1.4 billion of available liquidity, no remaining debt maturities until June 2026, and our debt to EBITDA on a current quarter annualized basis was 5.5 times, providing us flexibility as we execute on our business plan.
In terms of our forward outlook, we have updated our same property NOI growth guidance to 3.9% to 4.3% and increased our FFO guidance to $2.22 to $2.25. We expect tenant disruption to drag same property NOI by 230 basis points. We expect the trajectory of base rent growth to accelerate into the second half of the year as we commence rent from the snow pipeline. Our increased FFO expectations are driven by the increase in same property NOI as well as increased lease settlement and other income as we continue to operate the portfolio for long-term value creation, capitalizing on opportunities in this strong leasing environment to proactively recapture and accretively backfill space.
We have consistently said rent basis matters, and you see that in the growth we have been able to deliver at the top of the peer group while also reducing exposure to our at-risk tenants and providing unparalleled visibility into growth in 2026 and beyond. And with that, I'll turn the call over to the operator for Q&A.
Operator: Thank you. At this time, we'll be conducting a question and answer session. If you would like to ask a question, please press 1 on your telephone keypad. You may press 2 if you'd like to remove your question from the queue. As a reminder, we ask that you please limit to one question and re-queue if necessary. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for questions. First question comes from Todd Thomas with KeyBanc Capital Markets. Please proceed with your question.
Todd Thomas: Hi, thanks. Good morning. I wanted to ask about leasing in the quarter. New lease volume in particular was really strong. And I'm wondering, Brian, do you see a path to getting the portfolio's lease rate back to 95%? And what's the timeframe for that? And then with this year's bankruptcies and known move-outs largely behind you at this point, I was just wondering if you could comment on this year's tenant disruption and drag relative to the forward outlook for tenant risk and vacate activity in the remainder of 2025 and sort of an early view into 2026?
James Taylor: Hey, Todd, it's Jim. Before we answer that question, I just really wanted to comment at the start of the question that our hearts and prayers go out to our friends at 345 Park, particularly those families and loved ones of the victims. Just our hearts are with you, and I wanted to say that at the outset.
Todd Thomas: Thank you.
Brian Finnegan: Yeah, and thanks, Todd. We were really pleased with the activity during the quarter. I think we had talked about coming out of ICSC, just what we were hearing from our retailers in terms of continuing to be focused on growing their store footprint. What you heard on the first quarter calls from retailers was constructive and positive in terms of the trends that they're seeing in their business. And we really saw it come through in the activity during the quarter from a wide range of uses, whether that's in specialty grocery, off-price apparel, books, home furnishing, QSR restaurants, which we're seeing we're continuing to see better operators there. So it was pretty broad-based.
And particularly to your point, a lot of that was on space that we recently recaptured. And really proud of how the team has gotten after that quickly and have been able to backfill that with much better tenants. I think to your second part of your question, as Steve touched on it in his remarks, this has given us the opportunity to improve what has already been the best underlying credit profile that this portfolio has ever had. So really on the other side of this, that watch list is a lot smaller than it was historically. There's always categories that we're watching. Think of drugstores, they're certainly closing some locations.
It's a very small part of what we do, less than 1% of our ABR. You think of theaters, there's some good trends there, but also a very small part of what we do as well. So we feel pretty confident on the other side of this. And from a trajectory standpoint, remain really encouraged by what we're seeing in the leasing pipeline.
Todd Thomas: That's worth considering as we think about 3Q that will create a little bit of drag or do you anticipate an inflection in economic occupancy and ABR growth? Moving into the back half of the year?
Steven Gallagher: Yes. I mean, you just think about the rent you're talking on the bank growth spaces. Obviously, you would have had a sub period for some of the Joann locations. And then, you know, going forward, we will be getting back a couple of at-home. But I think more importantly, and what Brian highlighted was getting the rent commenced on those backfills within the third quarter and into the fourth quarter, we'll start to accelerate that base rent growth as we move through the remainder of the year.
James Taylor: Yeah. And, Todd, I would just remark, we're particularly pleased to be at a place where we're growing better than 4% despite over 230 basis points of headwind. Which, you know, obviously does imply the rent commencements and from the snow pipeline in the latter part of the year, as Steve highlighted.
Operator: Alright. Thank you. Our next question comes from Michael Goldsmith with UBS. Please proceed with your question.
Michael Goldsmith: Good morning. Thanks a lot for taking my question. On La Centerra, can you talk about the opportunity here? Seemingly you can benefit from scale in the Houston market and brings you closer to some of the growth tenants that you're working with across the portfolio. Presumably, there are some leases that are up for maturity for the first time where you can sprinkle some Brixmor magic and re-merchandise. So what are the benefits from this property? And if you could provide the cap rate, that would be helpful. Thank you.
Steven Gallagher: Sure. Well, I think you've got the sales point down pretty well. We're really excited about adding La Centerra to the portfolio. So we do think it's a pretty classic example of value-added investing as we do believe we bought the asset at a pretty opportunistic time in the asset's life cycle. You know, we recently reviewed plenty of lifestyle deals in the market. I think this one has some pretty unique attributes which you kind of outlined, which is why we focused on it. It does have several high-profile vacancies. We already have LOIs in hand and actually a lease on the short-term ownership that we've had.
Additionally, as you mentioned, the asset has very significant rent mark to market. As certain spaces have rents that were set well over twenty years ago and are now expiring, and they're in near term without options. And as importantly, the asset clearly is going to be the landing zone for the high-profile and high rent-paying tenants Brian kind of laid out in his remarks this morning. From a cap rate perspective, with our expenses, management fees, and LOIs in hand, yields in the low sixes today with very, very significant growth potential ahead of us.
Importantly, from a total return perspective, as we think about the IRR, I think this will generate high single-digit, low double-digit IRRs using pretty conservative exit assumptions. So really excited about having this part of our portfolio.
Michael Goldsmith: Thank you very much. Good luck in the back half. Good morning, everybody. I guess my question is around same-store NOI growth in the second quarter, which was a very strong number. Did pick up from a year ago? So what's kind of driving that? Thanks.
Steven Gallagher: Yeah. As I mentioned in my prepared remarks, we did have an opportunity to renegotiate our parking agreement at a point in Orlando right next to the Orange County Convention Center. And the great part about that renegotiation is we went from being a lease to now having more of a management agreement with the provider, and it allows us to capture the upside in driving additional traffic to that center with the recent redevelopment we did there. With that, we get to participate a lot more on the upside as the revenue as well. That's probably about a half of that.
And then as we've consistently done over the years, you know, we look for opportunities in there being vacant space to capitalize on that vacancy. And with our ancillary team, we've been able to backfill some of that vacancy space and drive additional revenue during this period.
Brian Finnegan: Yeah. Go ahead, Brian. Oh, sorry. I would just add it. I think this is just a great example from an operations perspective of how our team just takes advantage of driving revenue throughout the asset. And Steve mentioned parking, we have a great fee generation business. Whether it's EV charging, solar, that's been a growth initiative for us. We've a great specialty leasing team that works with our regions to drive ancillary revenue. So it has been an area of focus. And as Steve mentioned, as it relates to that, point garage deal, is gonna be recurring for us. So, we're really pleased with what we saw there during the quarter. Yeah.
And let's not lose sight as well of the strong top-line contribution of ABR of 3.8%. So what that really is showing you is the accelerating impact of that snow pipeline as we commence $15 million quarterly and continue to keep that snow pipeline over $60 million. So it gives us a high degree of visibility to me or not only in the growth this year but even better growth in 2026 and 2027.
Michael Goldsmith: Got it. Thanks a lot, guys.
Operator: Our next question comes Greg McGinnis with Scotiabank. Please proceed with your question.
Greg McGinnis: Hey, good morning. Just looking at the bad debt expense, looks like you're tracking at the low end of your guidance range. Is there anything that is standing out as potential headwinds for the back half? Or is this just some conservatism on your part? For maintaining that range?
Steven Gallagher: Yeah. I mean, think Brian hit on his comments. You know, we continue to be really pleased with the underlying credit quality of the portfolio. Obviously, in the first half of the year, there was a little bit more tenant and some of that pre-petition debt is or bad debt is sitting within that amount. And then there is always sort of the normal course seasonality to when we receive some of the real estate tax payments. But I think as you look to the back half of the year, we continue to be really impressed with the underlying tenant quality and you know, no real concerns there in the bad deadline item.
Greg McGinnis: Okay. Thank you. And then on the leasing demand, just curious how that trended, through the year, whether you've seen any sort of changes from you know, the April tariff announcement through today, and the types of tenants that you're finding to backfill, some of these anchor spaces. What you expect to be filling with.
Brian Finnegan: Yeah. Gary, on our last call, we actually touched on what we were seeing kind of real-time because we thought it was prudent after the tariff announcement. And then we came out of ICSC very encouraged in terms of the tenor of those conversations. And what's been interesting over the last two months is it's played out those conversations have now turned into LOIs and leases, and you can see that come through in the quarter. More GLA than we've leased in the last two and a half years in the Steve touched on the highest ABR we've ever had as a company.
And despite all of that volume, we still have more in the pipeline today than we did a year ago. So we remain really encouraged. Our team is focused on leasing up the remainder of the vacancy that we're taking that we've taken back here over the last few months. And then I touched on a number of the categories earlier, but I would add kind of to Mark's point, we are seeing this trend accelerate of more elevated brands going to grocery-anchored shopping centers, and it's not just at La Centerra, right, we've seen it in Suburban Philadelphia, at Marco Island, at Florida, in Plano, Texas, most recently in Davis, California.
And whether that's maybe lifestyle senate tenants that have been performing at grocery-anchored centers or higher quality food and beverage that we continue to add to the portfolio, opening our first locations with Tate Baked and Mendocino Farms and Urban Plate. So it's been fairly broad-based with all the work that our team's done across the portfolio, we're just attracting a better caliber of tenant today, and it's something that we're really excited about.
Greg McGinnis: Alright. Thanks, Brent.
Brian Finnegan: You got it. Thanks.
Operator: As a reminder, we ask that you please limit to one question and re-queue if necessary. Our next question comes from Craig Mailman with Citi. Please proceed with your question.
Craig Mailman: Hey, good morning. Just want to focus a little bit here on the cadence of earnings. I think you guys are run rating to at least hit the midpoint of guidance for the back half of the year. Could you just talk about some of the puts and takes as we think about kind of the first half run rate? Into the second half? And then just maybe give some additional color on the contribution of La Centerra and maybe how you guys think about financing that kind of more permanently with dispositions or other financing sources?
Steven Gallagher: Yes, Craig. If you just look at the first half of the year, we were really pleased on how we performed. Obviously, lease settlement income was a little higher than our historical run rate there. And I think that should probably decelerate into the past back half of the year, all things being equal. And then, obviously, there is some seasonality to just how we collect certain amounts of revenue whether it be the percent rent light that. But I think importantly what you should expect is the acceleration of same property NOI growth into the back half of the year as we continue to commence rent from the snow pipeline.
On La Centerra, as we typically done, we've really financed that with a combination of capital recycling and free cash flow on a leverage-neutral basis.
Craig Mailman: What should we think about on the kind of the net spread on that investment? From a GAAP perspective?
James Taylor: I would consider it basically neutral at the start. And with a position to be able to accrete that. Pretty quickly as we capitalize on the below-market rents.
Steven Gallagher: The other thing I would add Craig, think about our cap recycling. We always try to take advantage of opportunities in our portfolio to lower our marginal cost of capital like we did the past quarter where we sold the ground lease at a low cap rate, then a land parcel at about two cap, which really drove the cap rate for that cap recycling in Q2 down into the five. So we're always gonna be focused on trying to find those pieces of the portfolio where we can exit low hold and low yield low yield capital.
Craig Mailman: Great. Thank you.
Operator: Our next question comes from Michael Griffin with Evercore. Please proceed with your question.
Michael Griffin: Great, thanks. I appreciate the commentary so far. Just wondering if you could give us a sense, in your conversation with retailers, obviously, we've seen some trade deals come to fruition recently, but has there been kind of this understanding of, hey, we're still burning off the inventory that we brought in sort of pre-tariff announcements? Have they thought, oh, we're going to absorb some of this tariff cost versus pass it on to the consumer? I just want to get a sense as we look to the back half of the year, could we see some pressure on retailer margins as it seems like this tariff scenario of 15%, whatever you want to call it, starts to really materialize?
James Taylor: Yeah. Let me start the answer here. You know, one of the things that we've been really encouraged by with the retailers is their commitment to store. It's the most profitable channel to reach the customers. And they're really making a long-term decision by entering into a ten fifteen-year lease, and their commitment to the store has been phenomenal as you can see in our results. So the tariff noise really has done little to abate that demand and we're encouraged as Brian was talking about.
Not only by the breadth of demand we're seeing but by the types of quality tenants we're bringing into the portfolio, the vibrancy, and frankly, the traffic they bring, which is very clear in our results.
Brian Finnegan: Yeah, would just add, I mean the commentary that you heard from national retailers after the first quarter calls was really constructive in terms of how they're tariffs, whether that's through negotiation with suppliers or alternative methods sourcing, and also the commentary around how the consumer has remained resilient. You still have a strong job market. We're still seeing positive traffic trends across the portfolio. And to Jim's point, that really ties with what we're hearing from the real estate departments as well in terms of their focus on growth. And the tenants that we're growing with are performing.
And then the last thing I'd mention, you saw it again last week, another very active auction where retailers are bidding for space where there's no downtime, all their own cost. The of gives you a window into that demand environment, into how tight the supply environment is as well. So far it's been really constructive. We're keeping a very close eye on it. Could there be some impacts down the line? Sure. But from what we're seeing to date, we're very encouraged.
Michael Griffin: Great. Thanks so much.
Operator: Our next question comes from Cooper Clark with Wells Fargo. Please proceed with your question.
Cooper Clark: Hi, thank you for taking the question. Following the acquisition in Q3, could you talk about how the current acquisition pipeline looks moving forward? Wondering if there's an appetite for more transaction activity in the back half of the year and also what type of buyers you're competing with on deals you're currently underwriting?
Steven Gallagher: Yeah. I'd say, sort of, your last point, broadly in open air, competition clearly heating up. There's clearly more private capital. Includes high net worth and pension. Coming in and seeking exposure to the asset class. And that's clearly compressing cap rate for grocery-anchored deals and really following through some other asset. Asset types. So when we think about the market, we're gonna continue to focus on opportunities in our footprint where we see high growth opportunities. So we really that our team on the ground helps us identify those, quickly to focus on them like a loss in Terra and pass on other ones where we don't see that growth.
We'll work you should expect us, as Steve kinda to be balanced in capital recycling, but also disciplined where we're not buying to buy. We're buying we're buying assets where you think it can really drive value.
Operator: Thank you. Our next question comes from Alexander Goldfarb with Piper Sandler. Please proceed with your question.
Alexander Goldfarb: Hey, good morning. Good morning down there. So my one question is on the S and O the aggregate of the S and O, that's coming online. With the 200 basis points of drag that you entered the year, meaning the known move-outs that you started the year with and the known bankruptcies, and your pace of leasing and getting this 40 million of S and O open this year, Stacy, I'm not asking for 26 guidance, but still, when you hear your commentary and all these good things happening, why should we not think the back half of next year is gonna show a really strong ramp?
I'm trying to understand what are the offsets you know, that we should think about that would you know, sort of limit the upside benefit of all this stuff that talking about. I mean, presumably, the interest rates will come down, not up. So I'm just trying to understand what contains next year from showing sharp acceleration in the back half.
James Taylor: Well, we're not prepared to give guidance at this point, but what we are really encouraged by, Alex, is how we've positioned ourselves to outperform from a growth perspective given the stacking of that rent pipeline. And it's not only what we have in the signed but not commenced, but also what we have in legal. It gives us a lot of confidence that the strategy continues to work. It's an all-weather strategy that provides visibility on growth. And of course, the deducts from that growth as we look out will be any additional tenant disruption. But we like how the portfolio is positioned from a credit standpoint.
We like how we're continuing to generate great demand to be in our assets at compelling rents.
Operator: Our next question comes from Juan Sanabria with BMO Capital Markets. Please proceed with your question.
Juan Sanabria: You talked a little bit in the prepared remarks about opportunities on the CAM side to get more favorable setups in the leases. Just curious on how we should think about that impacting margins on a go-forward basis, kind of all else equal.
Brian Finnegan: Yeah. Again, it's been something that we've been focused on really throughout the lease and whether it is incremental rent growth, that we're getting, whether it is flexibility in terms of development, or to your point, removing cam caps, removing carve-outs, and strategically deploying fixed cam. I think you can see it come through today in the recovery rate that's ahead of where build occupancy sits. And so we expect to see some further improvement there in margin as we continue to focus on these areas. It's not really a new phenomenon. It's something that our team has been doing and has been successful with for some time. And you can really see that coming through in the results.
So we're pleased with the tenor of the lease conversation. It's something we're gonna be continue to be focused on. Yeah. And I would just add, it shows our disciplined approach to operation. And we continue to find opportunities to harvest growth in this great portfolio.
Operator: Our next question comes from Haendel St. Juste with Mizuho Securities. Please proceed with your question.
Haendel St. Juste: Hey there. Good morning. So I guess my question somewhat dovetails on the last comment you made, Jim, about finding these great opportunities in the portfolio. You guys have done lots of great things lately, strong stats, some all-time highs in ABR, small shops, spreads. And it looks as though you have some pretty sustainable tailwinds into next year with a low lower occupancy and lower rents, but your multiple still sits well below the peer set. So I guess I'm curious you know, why you think that is and what you guys are focused on to drive down that gap versus your peers and trade closer to the peers that or maybe even a premium of at some point.
Thanks.
James Taylor: Well, we would agree very much that our multiple doesn't reflect appropriately the upside in growth that we're going to continue to deliver. And our plan on this side is to continue to deliver that growth and outperform and chip away at that relative multiple. I think it presents, frankly, the investor compelling opportunity from a total return standpoint that we have a business plan that's not predicated upon external growth, that's not predicated upon the pricing of our currency. But much more predicated on the continued ability to fund accretive growth through internally generated cash flow.
That's why I often say it's an all-weather business plan, and I'm proud of the fact that we're delivering growth where we are despite the tenant disruption that we have. I'm also excited about what continues to happen to the composition of this portfolio as we execute our value-added strategy and really drive and create value. So we're confident in our ability to continue to deliver and I think as we do, we'll continue to eclipse that multiple differential.
Operator: Our next question comes from Caitlin Burrows with Goldman Sachs. Please proceed with your question.
Caitlin Burrows: Hi. Good morning, everyone. So it sounds like leasing and pricing remain really encouraging. I was wondering if you could go through how the year so far is turning out versus your expectations. Any additional color you can give on how you set guidance? Like, is it do you think of it as being conservative versus realistic? And what's making the previous high end a same-store NOI growth no longer attainable?
Steven Gallagher: Yeah. Thanks, Caitlin. You know, I think we continue to be really impressed by the underlying portfolio. I think you hit on a lot of the leasing items that Brian went through earlier. As you remember, just when we started the year, the midpoint of our expectation for tenant disruption was 200 basis points of drag, right? As I mentioned in my comments, with some of the more activity with At Home and Rite Aid that has moved up a little bit.
But I think importantly, our ability to drive additional growth from the portfolio and move our midpoint up from our initial midpoint of 4% just shows you that the growth in the portfolio our ability to continue to drive through disruption. I think we've consistently said over the last year or two to the extent we get additional spaces back as a result of tenant disruption, that may impact short-term growth, ultimately it's just going to provide us additional space to grow into 2026 and 2027.
Caitlin Burrows: Thanks.
Operator: Our next question comes from Floris Van Dijkum with Ladenburg Thalmann. Please proceed with your question.
Floris Van Dijkum: Good morning, Floris.
James Taylor: Hey, Jim. How are you? So my question for you guys is regarding shop occupancy. Again, your most valuable space presumably in all your centers. It's, I think, at an all-time high right now of 91.2. But my question is, you know and I think this is sort of what was alluded to in one of the previous questions, where can it go to? And maybe if you can talk about what your SHOP occupancy is on all the assets that you've actually redeveloped. Presumably, that's higher. And then the second question or the related question is, what percentage of your S and L pipeline represents shop space?
James Taylor: Let me take the top of that question. I'll let Steve add additional color. But one of the things we're particularly encouraged about is not only that we've reached a record in terms of small shop occupancy, but we've got great visibility and more than a couple of hundred basis points of growth in that number particularly as we deliver our in-process redevelopments, which can drag that as we bring in the new anchors and then obviously lease off the success of the anchors and the traffic that's being brought in.
So it's an important lever for our growth as we look ahead and we're very excited as Ryan was talking about in terms of the types of best-in-class tenants that are traffic drivers that we're bringing in the small shop category.
Steven Gallagher: Yeah. On the snow, it's about $35 million worth of ABR. And I think importantly, at about a mid-thirties ABR per square foot. So you know, as you mentioned, impressive numbers in there. And tremendous opportunity and visibility on being able to continue to accrete that occupancy percentage. As we often say, we don't manage the portfolio for occupancy but rather for growth. Which is part of why our in-process redevelopment pipeline drags that number a bit. But in my mind, it just provides us tremendous visibility on how we'll continue to grow it.
Floris Van Dijkum: And if I were to, you know, the first part of my question, which is the occupancy in SHOP space on the assets that are you know, redeveloped and stabilized, how much higher is that than your average today in your portfolio?
Steven Gallagher: We go ahead. Yeah. Sorry, Jim. We have about a 100 basis points of drag. Today. That in that in that future reinvestment, pipeline that are that's dragging that down for us, and we typically add several hundred points when we deliver those reinvestments.
Floris Van Dijkum: Great. Thanks.
Operator: Our next question comes from Ki Bin Kim with Truist Securities. Please proceed with your question.
Ki Bin Kim: Thank you. Good morning. Can you guys provide a progress update on the releasing efforts on the Big Lots and Joann's activity?
Brian Finnegan: Yeah. Sure, Ki Bin. Like I said earlier, we've been very pleased with what we're seeing. We're about 80% resolved for us. That's least at least we're finishing up an LOI to go to lease. And particularly on those Joann and Party Cities, which we really just taken back recently, we've been very pleased with the progress. So whether that's with specialty grocers like Trader Joe's, operators like Ulta, Crunch Fitness, Barnes and Noble, The team has been very active in terms of addressing the space. And we weren't waiting for it. Right?
We had a sense that this coming, like, when we talked about at the time we had reduced our exposure to big lots by 30% at the time of the filing. We had two of the spaces already leased of our Joann's. And had been managing down some of that Party City exposure over time as well. So we remain very encouraged with how our team is backfilling it. We're not resting on our laurels. We're focused on getting the rest of that space leased.
And you should really start we're starting some of that's starting to come online here in the back half of this year, but you start to see it come online in bulk as we get into 2026. And just broadly speaking, when you think about the potential basket of other retailers that might be a little bit challenged, whether that be like a Michaels, Kohl's or some pet stores. When you look at that collective basket of troubled retailers versus what you've already gone through this past year, does it feel better or worse or the same going forward?
James Taylor: It actually feels much better, and that's a point Steve was really trying to underscore in his remarks. Is the fact that we've worked our way through some of the more significant weaker credits in an environment that's been strong from a leasing perspective and importantly with the business plan that's been able to deliver growth. As we have been dealing with that tenant disruption. We continue to prove that it's an opportunity, and we're proud of the fact, again, that we're growing better than 4% despite over 230 basis points of drag. So as we look forward, will there be additional tenant disruption? Of course. But we like how the portfolio is positioned to outperform.
Ki Bin Kim: Thank you.
James Taylor: You bet.
Operator: Our next question comes from Mike Mueller with JPMorgan. Please proceed with your question.
Mike Mueller: Yeah. Hi. Noah Alcantara is a grocery-anchored center with the Trader Joe's. But if Trader Joe's wasn't there you have had the same interest in the property? And do you think pricing would have been materially different if so?
James Taylor: Look. It's a great question. We do like to buy assets that have grosser exposure that to highlight some of the trends Brian is focusing on. When it comes down to NAPA, I think it would be the question would have been more of could we put a grocer in here and do it accretively? Could that grocer then change the overall aspect of the tenancy here? Luckily, La Centerra, we have an easier path for us leasing and mark to market. But when we really look at acquisitions, it's really trying to find those opportunities where we can truly drive value not necessarily just about having a growth flexibility to drive value from the data acquisition.
Mike Mueller: Got it. Okay. Thanks.
Operator: Our next question comes from Linda Tsai with Jefferies Group. Please proceed with your question.
Linda Tsai: Hi, good morning. On the Lucentera acquisition, two-parter on your strategy with 5 million visits a year, how much higher is the annual traffic statistics in the HHI demos versus the rest of the Brixmor portfolio? And then just in terms of buying in a master plan community, are there any nuances to think about why these assets would be more attractive relative to a center that is not in the master plan community?
James Taylor: Well, I can start with the second piece of this asset. It's considered the heart of Cinco Ranch. So we really there's a real lack of competition here, and it's really been designed to drive interest across the entire community. So we like the position of this asset in that. There isn't true competition within the trade area. From a demo's perspective, you know, what I would say is our primary investment philosophy is really finding value-added assets where we can drive value. While this one does have very attractive demos, I think the average household income is about $151,000. I think our current today is $1.20. It's accretive to those demographics. So we didn't buy it for the demographics.
We bought it for the ability to drive value here. And we had tremendous visibility, as Brian can give some color on, in terms of great tenants who we knew wanted to be there.
Brian Finnegan: Yeah. I mean, as somebody mentioned earlier, sprinkling the Brixmor magic, our team is already doing that and is very excited. We've got a great team in Houston. As we talked about throughout this call, we've got a great portfolio in Houston. We've already had leases that are brought into committee that are ahead of where we expect it to be, some great uses. And we had some of the folks that were there on the asset join the team as well, to Mark's point, are very tied in with the community there and are helping us from an operating perspective. So it does fit into what we do from a growth perspective.
These are tenants that we have been attracting to the portfolio, like I mentioned, Sephora, and others, some great food and beverage operators there. And just overall, we're really excited about it and really proud of how our team's gotten after it out of the gate. With great existing traffic as you highlight, but we think the pro forma traffic as we bring in these better tenants to replace some of the first-generation lifestyle tenants here at rents that can be as much as double as what's in place. We'll continue to drive that traffic and continue to drive the performance here.
Linda Tsai: Great. Thanks for the color.
Brian Finnegan: You bet.
Operator: Our next question comes from Paulina Rojas with Green Street Advisors. Please proceed with your question.
Paulina Rojas: Hello. And a follow-up to a prior question. You mentioned that cap rates for grocery-anchored centers are compressing. Can you clarify the timing around that comment? Specifically, have you seen pricing continue to become more competitive at the margin over the last two or three months? Or were you really referring to a broader trend over, yeah, a longer period?
Steven Gallagher: Sure. It's a great question. So certainly, year over year, we're seeing cap rate compression. And if you really look at over the last quarter, so you think about the deals that really launched here in the spring, we're seeing very high demand for grocery-anchored centers from pension or their private capital. So we're seeing it real-time in the last three to four months. Is how I would answer your question.
Paulina Rojas: Yeah. Yeah. It does.
Brian Finnegan: Right.
Operator: Our next question comes from Cooper Clark with Wells Fargo. Please proceed with your question.
Cooper Clark: Great. Thank you for taking the follow-up. The incremental NOI yield from the redev pipeline in process has remained strong at 10%. As you talk about the future redevelopment projects you spoke to earlier on the call, could you walk through some of the puts and takes as we think about a strong leasing environment coupled with some continued uncertainty from tariffs? Wondering if we could see yields move north of 10% moving forward if the current leasing environment remains steady. I think you highlighted a couple of the drivers. Obviously, you've got demand and that's robust. And we continue to surprise even ourselves in terms of the rents that we're able to achieve.
On the other side of that, you could have cost and inflationary pressures impacting those returns. So as we look out in particular, look at the opportunities that we've identified in the shadow pipeline, we're reasonably confident about our ability to continue to deliver that incremental return in the high single, low double digits. Basically in line with what you've seen over the last couple of years.
Cooper Clark: Great. Thank you.
Brian Finnegan: You bet.
Operator: To ask a question, please press 1 on your telephone keypad. Our next question comes from Michael Griffith with Evercore ISI. Please proceed with your question.
Michael Griffith: Great. Thanks for taking the follow-up. Just a clarification question on the La Centerra property. I believe it's in a mixed-use development with an office and resi component. Did you just buy the retail portion, or did you also buy the office and resi as well?
Steven Gallagher: Yeah. It is in a mixed-use environment. We do not own the multi-family. There is some smaller office component at the asset. It's been well leased basically forever. It's really the only class A space in the market. We do actually believe just like the retail there is red mark to market. There really isn't any upside today at that, but we do think there's good rent mark to market in the office. Given it's really the only class A space in that trade area. And great creditworthy tenants that are in there today as well, which to Mark's point, we think there's some upside too.
Michael Griffith: Great. Thank you.
Operator: Our next question comes from Caitlin Burrows with Goldman Sachs. Please proceed with your question.
Caitlin Burrows: Hi. I feel like this has been talked about a few times, so sorry. But just on the watch list, it sounds like it's you've said a few times that it's smaller than it was historically. I was wondering if there was any way you could quantify, like, today, it's x amount of ABR, and last year, the x amount of what? Years, historically, it was some other level.
Brian Finnegan: Caitlin, I think it's important. We use the watch list as a tool. Right? We look at it not just with near-term credit risk, but also with tenants that may be putting stores at risk, that have weaker performance, that are closing locations, so we don't necessarily have a number that we've reported on it, but I would just say if you look at the names that have filed recently, it's significantly lower than where it was. But I'd also point to look at the names we grown with. In the top 40. Right? You think of how Whole Foods has come up in our portfolio.
You think of how Sprouts Aldi, Chipotle, Bath and Body Works, there are some strong operators that we continue to grow with. Trader Joe's is another one. So I think that underlying credit portfolio you see it getting stronger from that perspective as well. And to Jim's point, look, there's always some tenants and categories that we're keeping a close eye on. But if you have a low rent basis, like we do, we can backfill accretively to the extent you get a box or two back. You're gonna do okay. So we feel really good about the position that we're in today.
And as we talked about throughout the call on the other side of this, we're really in we're really improving that position that we're in today from a credit profile standpoint.
Caitlin Burrows: Thanks.
Brian Finnegan: You got it. Thank you.
Operator: Our next question comes from Paulina Rojas with Green Street Advisors. Please proceed with your question.
Paulina Rojas: Hi. Again, I'm very specific follow-up. Site of LaSanterra. Could you please provide some numbers around it? Where is where are current in place rents and what do you think the market rents are? As a percentage? If easier.
Steven Gallagher: Sure. So we do think that Lozontera is gonna drive some pretty NOI growth. Our, you know, our base case underwriting has NOI growth that kinda averages the 5% range over a ten-year hold. A lot of that's driven by the lease-up of the spaces are currently vacant. Those leases are coming in kind of in the 60 to $90 per square foot range versus the in-place NOI. In place ABR, obviously, the vacancies are zero. The in-place ABR of the asset today is in the low thirties.
Paulina Rojas: And is the type of space comparable there in that mix you are referencing?
Brian Finnegan: Yeah. For sure. So the Okay. That a lot of that the inline space in phase one where you see the big red mark to market. Yeah. And I think, Paulie, interestingly, the tenants that are performing are that we want there, they're driving a ton of traffic, are doing well. Those are the we're getting some percentage rent out of those. Stores. The other thing is some tenants where we may ultimately wanna upgrade. Those are the spaces that are significantly under market to Mark's point in that part of the asset. And we've been pleased with what we've been seeing just a few weeks out of the gate in terms of the activity there.
So we do feel that there's a tremendous amount of upside and excited how our team's getting after it out of the gate.
Paulina Rojas: Thank you.
Operator: Our next question comes from Alexander Goldfarb with Piper Sandler. Please proceed with your question.
Alexander Goldfarb: Hey, thank you for the follow-up. Just going back to my question, as we look on Page 30 of the sup and you have $41 million of S and O that's gonna commence this year. 21 million next year, and presumably, you know, that will those numbers in the outer years will grow as you guys do more leasing. It so far, you haven't described anything that would say these aren't fully additive. And I guess that's what I'm trying to get at is in shopping centers, we often get excited and then have to revise down numbers.
And I'm just trying to understand if there are any negatives to us adding fully the 41 million this year, the 21 million next year in addition to your normal course know, NOI growth.
James Taylor: Yeah. I mean, I think there are a couple of things that you always consider. One is ongoing tenant disruption. The other is normal course move-outs. But the important thing is that from a growth perspective, we're providing visibility as those rent stack. Not just for this year, but as you point out, into next year, and it's pretty compelling.
Alexander Goldfarb: So what is normal course move-outs, Jim, that we should be thinking about? Is it 10 million, 20 million? I'm just trying to get a sense.
Steven Gallagher: Yeah. Alex, I mean, that shifts in a given year relative to what the expiration profile looks like. Yeah. Just pointing to a number of the positive normal course move-outs have been down, but it shouldn't touch on we're not giving guidance today. We do feel really confident in the trajectory of growth for this year and beyond. But there are some factors, like, we from a either a disruption standpoint or some move-outs that can impact that into next year.
Alexander Goldfarb: Okay. Thank you.
James Taylor: You got it. Thank you.
Operator: We have reached the end of the question and answer session. I'd now like to turn the call back over to Stacy Slater for closing comments.
Stacy Slater: Thanks, everyone. Enjoy the rest of your summer.
Operator: This concludes today's conference. You may disconnect your lines at this time. And we thank you for your participation.