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Brixmor Property Group Inc
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Greetings, and welcome to the Brixmor Property Group Incorporated Third Quarter 2022 Earnings Conference Call. [Operator Instructions] A question-and-answer session will follow the formal presentation. [Operator Instructions]
I would now turn the conference over to you host, Stacy Slater, Senior Vice President of Investor Relations and Capital Markets. Thank you, you may begin.
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; and Angela Aman, Executive Vice President and Chief Financial Officer; as well as Mark Horgan, Executive Vice President and Chief Investment Officer; and Brian Finnegan, Executive Vice President, Chief Revenue Officer, who will be available for Q&A.
Before we begin, let me remind everyone that some of our comments today may contain forward-looking statements that are based on certain assumptions and are subject to inherent risks and uncertainties as described in our SEC filings and actual future results may differ materially. We assume no obligation to update any forward-looking statements.
Also, we will refer today to certain non-GAAP financial measures. Further information regarding our use of these measures and reconciliations of these measures to our GAAP results are available in the earnings release and supplemental disclosure on the Investor Relations portion of our website.
Given the number of participants on the call, we kindly ask that you limit your questions to one or two per person. If you have additional questions regarding the quarter, please re-queue.
At this time, it's my pleasure to introduce Jim Taylor.
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 discipline value-add strategy. Those impacts are reflected in every metric, many of which are post IPO records for the company. And 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 out performance. During the quarter, we signed 1.7 million feet of new and renewal leases at a record rent of $19.26 a 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%.
And as reflected in our strong net effective rents, we achieve 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 traffic 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. And 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, or 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. And importantly, we commenced another $14 million of new ABR during the quarter, driving our build occupancy to 89.6%.
Importantly, we also set another record in small shop occupancy, which rose to 88.8% on new rents achieved of $24.78 a foot. More than any other milestone achieved, this growth and occupancy and rate for our small shops truly underscores a transformative follow-on benefits of our reinvestment strategy. We also drove our average in place ABR to over $16 a foot, another record for the company, but which still has plenty of room to run is demonstrated by the nearly $20 a 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% in NOI growth of 3.6%, which is particularly impressive when you consider the drag of 250 basis points from revenues deemed uncollectible due primarily 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 is 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%. And importantly, we have another $400 million leased and underway providing a 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 power drives, 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.
And 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?
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 and build occupancy in significant releasing spreads over the last year.
Ancillary, and 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. And our current expectation is that such amounts will be minimal in 2023. As a result, we do 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. And the total sign, 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 based rent this quarter while adding $14 million of newly executed leases to the population.
As we've highlighted in the past, 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 based rent per square foot on the sign 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. While our existing $300 million term loan has been swapped through July 2024, the delay draw term loan has not yet been swapped.
As noted in last night's release, 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 also 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%. And we have revised our FFO guidance to a range of a $1.94 to a $1.97 per share.
And with that, I'll turn the call over to the operator for Q&A.
Thank you. At this time, we'll be conducting a question-and-answer session. [Operator Instructions] Our first question comes from Craig Schmidt with Bank of America. Please proceed with your question.
Good morning.
Good morning. Jim, I'm wondering will there be any pull back on the redevelopment investment given the potential for recession in 2023?
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 real important follow-on benefit 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 a stop perform in that environment as well.
Great. And then just what are the positive and negatives of having local tenants at 21% of your ABR?
It's important to have the center be relevant to the community it serves. And one of the things that really struck us through the pandemic was the strength of that tenancy. We did have some failures. And interestingly, even with the small and local tenants we saw demand to backfill those tenants with better, more well-capitalized operators. And so, 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, we're typically able to drive higher embedded growth, as well as absolute growth in that portion of our tenancy.
But we, like importantly 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 instability from a cash flow perspective.
Thank you.
You bet.
Our next question is from Todd Thomas with KeyBanc. Please proceed with your question.
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?
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, 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. And importantly also our traffic levels continue to be very strong to our centers. So, we like how we're positioned.
Yes, I’ll just add up as it relates to revenues deemed uncollectible. There is some disclosure in this 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. And 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. I think that says something, despite the fact that there were some delays in payment with those tenants. 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.
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.
Okay. And then Jim, I wanted to ask about your comments in your paired remarks around the embedded growth from leasing and the sign 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? And can you provide some additional context around what you are anticipating for minimum rent growth heading into 2023?
I appreciate the question and the focus on this point because it is important. So without giving specific guidance, what I will tell you is that we do expect continued strength in top line growth. And it's being driven by that visibility on the sign, but not occupied pipeline as well as the forward pipeline. So, if you think about it over a long period of time, we feel good that that rent growth is going to trend towards the upper end of the range.
Yes, I would say on a year-to-date basis, our contribution from base rent growth, sort of 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. So certainly I do think you could see some acceleration in Q4 to get us to the midpoint of that range.
And as Jim said, we're very pleased with the signed but not commenced pipeline, the way that that continues to deliver and the leasing pipeline Jim mentioned in his remarks behind that.
All right, great. Thank you.
Thank you, Todd.
Our next question is from Haendel St. Juste with Mizuho. Please proceed with your question.
Hey there, good morning.
Good morning.
Given the recent transaction activity, I was hoping you could provide some perspective on cap rates especially curious on where cap rates on grocery versus non-grocery assets are today and how they have moved here over the last quarter. And could you provide, or can you give the cap rates for the $81 million utility in early fourth quarter?
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 where the cost to finance has gone.
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. And 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?
Yes, I would comment then 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. So 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.
Would you be willing to provide a cap rate on the $81 million in the fourth quarter so far?
Yes, I mean, 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 cap rate on the full quarter once we give Q4 results.
Okay. Fair enough. And Angela, maybe one for you. Looks like the SNO spread widened 20 bps from last quarter, but the embedded rent declined by about a $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 slow spread as good as you think it's going to get? Thanks.
Sure. So, 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. And 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. Right? So back fills of existing tenants.
So last quarter, the total sign 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 commence pool, even though the total number did not change more of that pool today is incremental than it was a quarter ago.
Got it. Got it. And are you seeing any delays – sorry, just one last follow-up on just the SNO pipeline. Are you seeing any logjams forming or still expect to get stores open next year and that SNO rent commenced on time? Thanks.
Haendel, this is Brian. 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. And I think what we've been able to do has really positioned us go forward to negotiate those scopes upfront. So 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.
I would agree, and I would say what we're actually commencing in the quarter is exceeding our expectations. So 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 in an occupancy. And 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.
Thank you. Great forecast.
Our next question is from Greg McGinniss with Scotiabank. Please proceed with your questions.
Hey good morning.
Good morning.
Just thinking about occupancy. Curious what you see is reasonable – reasonably 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?
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. And so that's why you're seeing a set records today, but we still believe we have room to run. We believe we have room to run both an 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.
So 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 so that 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. So 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 to create value.
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?
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. And then 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.
So, like that we've got 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. But we will find in the future our openings to continue to grow in that regard as well. But what I like about how we're positioned is we don't need that. We've got several years of runway of growth and opportunity that's embedded in the assets that we own and control.
Okay, thanks. And Angela, if I could just follow-up with how are you accounting for rent from Regal at this point?
Yes. 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. So we are recognizing revenue from all of our movie theater tenants as cash is received.
Great. Thank you.
You bet.
Our next question comes from Juan Sanabria with BMO Capital Markets. Please proceed with your question.
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?
Yes, what we've seen and also 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 the tenant demand.
So again, we have pretty good visibility on continuing to be able to drive 9%, 10%, 11% incremental returns. Of course, the gross returns are much higher. And 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. And importantly, we're setting these assets up for continued growth as the balance of the assets benefit from the investments we're making.
Yes, I would also just add to that, 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, all of the revenue kind of contractually obligated.
So 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.
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?
Juan, this is Brian. 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. But also 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.
Thank you.
You bet.
Our next question is from Floris van Dijkum with Compass Point. Please proceed with your question.
Thanks for taking my question guys. I'm intrigued by the signed-not-opened pipeline. As you know, Jim, not all spaces 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 1% increase in small shop percent means in terms of ABR?
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. And 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. So we have real follow-on benefit for the assets that were impacting. And we're seeing in those assets growth in the small shop occupancy of several hundred basis points, not to mention rate. But to something implicit, in the start of your question, we're creating huge value in the boxes, too. That's a lot of rent. And it's big spreads. You're talking about spreads for us of 30%, 40%. So, I'm excited about that, too.
And 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. And the small shop is a great follow-on to the extent it's not included in what we originally touched. So…
Yes. I can just say Floris, we do give some good disclosure, I think in the portfolio overview page in the sup, but the different components of the GLA and the portfolio and the rent on each of those buckets. But as your point sort of underscores, while small shop is a smaller portion of the portfolio, 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. So 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.
Thanks Angela.
Our next question is from Samir Khanal with Evercore. Please proceed with your question.
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. Didn't really change this quarter. I guess just trying to understand better I guess 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?
Yes, well thanks for the question, Samir. I'd say a couple of things. I'd kind of break it down this way. I would say about a third of the $38 million that that we report that has been accrued for throughout the pandemic period but uncollected and reserved for. So 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, basically I would say a third of that $38 million, I would put a zero percent probability on collecting. Those are amounts that we've gone through the process, we've determined they're highly likely of being uncollected. We've written them off from a balance sheet perspective.
Another third of that relates to tenants that are – have vacated the portfolio. So 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. So 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 balances spread out across many, many tenants across the portfolio. We no longer have some of the big chunky national collections that we're still pursuing. Most of those have been fully resolved to the company's benefit – to the company's favor. So it is 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. But those amounts will even stretch out past 2023. It's just it's becoming much more difficult to have good visibility on, on the timing of those collections given the granularity.
And when you think about the total rent during the pandemic period and the collection percentages that this company has achieved, it's pretty impressive. And I think it stacks up against anybody, and I think 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. But it is something, as Angela laid out very well is of declining benefit as we look forward. So I'm real pleased with the cash flow that we've been able to capture, and frankly as Angela alluded to earlier the strength of the tendency 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. And I think we fully expect as Angela has said in her remarks the benefit of that prior period collection to moderate significantly in the coming years.
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 right in 2023, which is sort of the main focus for everybody in light of a pending slowdown? Thanks so much.
Yes. And I appreciate the question, and we really tried to lay it 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 any opportunities to recapture space, we're doing it and reducing our exposure to those tenants as you would expect us to. I think an important thing to consider is if we do see a more normalization of tenant disruption, which we fully expect and have incorporated into our outlook, who's well positioned to perform, and this is where rent basis matters, right?
So 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 rooms around, and you look at the discipline on capital, we're not buying these rents. So 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 also one that's choppier. And I think it's logical to assume, and I think it's a good exercise for you to go through as we have an understanding of the puts and takes as we look into 2023 and beyond. And we're just really pleased with how we're positioned to grow and the cumulative impact of this reinvestment plan we think will continue to shine.
Thanks so much, Jim.
You bet.
Our next question is from Alexander Goldfarb with Piper Sandler. Please proceed with your question.
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 on 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?
Yes. I mean, 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 so 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. And our historical run rate average has been somewhere between 75 and 100 basis points of deduct based on total revenue; 75 to 100 of total revenues in any year for bad debt expense.
We're coming off of a two-year period really where revenues deemed uncollectible has been positive to the income statement. That's obviously in the absence of prior period collections, not something anybody should be expecting continue – to continue going forward. The balance sheet, as you mentioned is in very good shape today. We don't have any debt maturities at this point until 2024 – and June of 2024. But I also 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. And so those are some of the things to think about. I think 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 about earlier, how strong the fundamental growth of the portfolio used to be?
As we're talking this year, the same property guidance implies kind of 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. So 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 as Jim underscored in his prior comments, very strong top line growth.
Okay. So just – Angela, just to be clear that the only real two things that we should be considering in our model is 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?
Yes. That's all we've highlighted at this time, Alex.
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 and 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 so that we have this conceptually, but it'd be great to hear some actually real anecdotes that are material not just sort of one-offs?
Yes. Sure, Alex. It's a great question. I think first you'd start with target who is said they're distributing, 95% of their orders are coming from their stores, and they said on multiple calls that the store is the center of what they do. And 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 where you see an Ulta for instance, that's taking a portion of their store to allow for it. We've talked about on prior calls too, just the vast amount of retailers that are now doing curbside pickup.
Prior to the pandemic, we had mostly large format retailers and grocers, now it's a wider range where they're interacting with the customer, both in the store, taking the most expensive part of the delivery out of it by having curbside pickups. So where we've really seen it though is in, I think some of those small shop and junior anchor retailers, like in Ulta, who's utilizing their space and their sales floor area a portion of it for last mile. And I think it just points to the flexibility of the format, right? And the terms of you're seeing traffic that's being driven to the stores as well as retailers continuing to be flexible. But I think for us it's just really encouraging that we're seeing that investment in the stores.
Thanks.
Our next question is from Craig Mailman with Citi. Please proceed with your question.
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?
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.
Okay, that's helpful.
Probably about $20 million to $25 million in the first half.
Okay. If we think of that, again I know you guys aren't doing 2023 guidance, but you talked about kind of the minimum rent growth for this year and I think 4% to 5% range. If you were able to maintain that level for next year, how much of that would be in the bag given what you guys have kind of already even assigned not occupied bucket?
Yes. I think it's a bit of a tough question to answer. I think we give really good visibility on the sign, but not commence pool. Where we end up in total is going to depend on things like tenant disruption, move out activity, all the other things. So I think at this point a little bit of a hard question to answer, but I would just reiterate that I think the total size of the sign, but not commence pool. The waiting as we described in 2023, the timing in 2023 is as high as it's been in any year, certainly, and I think that bodes really well for growth overall.
And 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 and we're liking how we're seeing tenant demand and momentum continue to build in our forward pipeline. So we feel pretty good about how we're positioned.
Okay. That’s helpful. And then just kind of one curiosity, I guess we talked earlier the call about kind of 21% from the local tenants, but how much of that bucket is like single kind of unit operator versus local guys who may have kind of 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 because local kind of mean a lot of different things to a lot of different people?
Yes. This is Brian. It's a bit of a mix and I would point to some things we talked about 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. And what we've continued to see is strong multi-unit operators and then also operators that are taking advantage of an environment where there were some built out restaurant vacancies or there were some kind of move in ready spaces.
So our credit profile is much better today, I'd say both from a local and a national perspective, but we're really excited about the depth and quality of local tenants that we have. And as Jim kind of alluded to earlier in the call, those act as mini anchors to our centers. They're unique businesses that really help cultivate a merchandising mix that that we really like and help us – help make those centers to the center of the communities they serve. So I'd say overall our local tenant base is much stronger and it has to do a lot – it has to do a lot with the work that our teams both on the leasing and finance side have don doing the right those deals.
Great, Thank you.
Our next question is from Ki Bin Kim with Truist Securities. Please proceed with your question.
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? That's probably the big question. So when you look at the collective basket of conversations you're having for future leasing demand, now how resilient do you think that those conversations are, if kind of macro data points start to go south a little bit further?
It's proven to be incredibly resilient. And one of the interesting things Ki Bin as you well know is we're working with tenants on store openings now that stretch into 2024 and beyond. So the tenants are planning pretty far forward understanding as everybody does that we may see some disruption in the coming year. I think one of the fundamental things that's important to appreciate is that these stores are very profitable for the tenants and their key part of their plans to serve the customer and that's only proven to be more true. And it's against Ki Bin, I think versus other environments, a supply demand backdrop that's incredibly supportive for landlords. There's virtually no news supply. So as we have calls with national, regional and local tenants alike and meetings we remain very encouraged by the breadth of that demand, as I talked about and the depth of it and the position that it puts us in as a landlord to continue to drive rate.
So 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 is 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. It's part of the fall on benefits that we've been willing to harvest and discipline around capital recycling.
So I like how we're positioned. I like how we're positioned to perform particularly on a relative basis, again given our rent. So the strength of the tenant demand remains really robust. The supply demand picture really favors our asset class. Our traffic levels continue to remain strong and elevated, and we in particular are benefiting from a value added reinvestment program that's transforming the portfolio.
Okay. And second question. What are you expecting from the Kroger's and Albertson's merger and any type of store closures within your portfolio that we should expect?
Ki Bin, hey, this is Brian. Look this is going to be a long process. I think the companies have given themselves to early 2024. There's a big regulatory process that they have to go through. I would just say that we feel really strong about both our Kroger and Albertson's fleets. We've got great partnerships with both of those retailers. Great, well performing locations throughout the southeast places like Texas, Southern California, Denver. We have a very strong Kroger portfolio in the Midwest. And as some of you on the call have mentioned, we have one of the lowest overlaps in the sector of these two companies. So it's something that we are closely watching and we'll continue to monitor but really early innings for that. And no matter the outcome we feel really good about our fleets.
And that's been by the productivity of these stores. So not only we have low overlap, our store sales numbers are very strong.
And what does that low overlap mean?
Well what you look at is the number of stores that you have 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 what they want to do from a strategy perspective. If there's a long regulatory road ahead and 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.
Okay. Thank you guys.
You bet.
Our next question is from Mike Mueller with J.P. Morgan. Please proceed with your question.
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 still may be sketchy and you don't like your stock price?
Yes. Sure. Mike, thanks for the question. I would say 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. So we're really not, as Jim sort of mentioned earlier, we're not beholden to the disposition market or the public equity market in terms of continuing to fund the portfolio transformation efforts and generate those very attractive 9% to 11% incremental returns.
Got it. Okay. Thank you.
Our next question is from Paulina Rojas with Green Street. Please proceed with your question.
Good morning.
Good morning. I'm trying to have a sense of economics behind getting a box back in the current environment. And I can see your disclosure that during the last 12 months, the average ABR for new anchor leases being around $16 for square foot. How much lower is that number after CapEx on a net effective basis? I know you have some disclosure...
It depends on – it depends on the plan to back fill. So if it's a consistent use, your capital per foot over a tenure basis can be a couple of bucks a foot. If it's a situation where 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. And that's Paulina really the basis and the important part of this question is because it does take capital to bring in a new tenant and we show you what those net effective rents are. It does take capital to divide a box, what is your going in rent?
And so when you're coming off a rent that's $8, $9, $10 and you're 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. So that it depends on the box itself. What we do in addition to disclosing our net effective rents as we show you what the returns are across our reinvestment activity. And then every quarter we show you what we've delivered and that's really I think, the litmus test for us in terms of whether or not we're creating value in the repurposing of a box.
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?
Again it depends. You could spend $40 a foot, you could spend $70 a foot, $80 a foot 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 you're making a small shop, you could be at the upper end of that range. And again 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 is going to maximize ROI and that that comes through in those reinvestment yields that that we show you.
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?
Well, no, it's interesting. I think what's happening in the capital markets is clearly we're 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. And the other thing that you have going on Paulina right now is constrained liquidity. So 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 that will work itself through. But even in that environment, I do 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's going to present some interesting opportunities as those maturities come to in a higher interest rate environment. And 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 importantly the track record to do so, and also the liquidity to capitalize on it. So we're excited about the potential for that opportunity coming out of this disruption. We're not pounding the table and saying it absolutely will happen, but it feels to me like we're setting up for a very attractive cyclical redeployment period.
Thank you.
You bet.
Our next question is from Tayo Okusanya with Credit Suisse. Please proceed with your question.
Good morning.
Hi. Good morning.
Good morning guys. Thanks for taking my call. I know earlier on you emphasize you don't need acquisitions to still put up a very strong earnings outlook, but I am curious what the – what kind of the 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 kind of curious what would make you kind of get back on that horse?
I think it's a little bit of both those things. One you want to see where cost of capital is settling out, but also perhaps even more important than cap rate or equally important to cap rate is that you're finding opportunities to truly grow ROI and achieve very attractive unlevered returns even in an environment such as the one we're in. So I think it will become clear as the market evolves. 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.
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?
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. So I think you could see some additional consolidation particularly amongst some of the smaller platforms that that don't have the scale or efficiency or liquidity but we'll see. I think it's something that's often predicted and doesn't occur quite as often as it's predicted.
Great. Thank you.
Thank you, Tayo.
Our next question comes from the line of Anthony Powell with Barclays. Please proceed with your question.
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?
We're always trying to make the best and most appropriate capital allocation decisions. And so as Angela highlighted in her remarks, the shelf really gives us a battery pack for our tools as we move forward. Not a statement that we're going to use it or not use it, but we always want to have those tools available to us as with every other tool necessary that we think can drive our growth as an enterprise. But again I think what's important here to appreciate 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 is going to deliver growth towards the top of the peer group.
We like that. We like that it's not dependent upon where the capital markets might be at a particular point in time or the availability of attractively priced acquisitions or attractively priced 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 – de-leveraging basis. So we like that. But I think as we've demonstrated over the last six plus years that we've been part of this team we, we will be opportunistic with capital and, and step into those situations that we think really enhance long-term shareholder value.
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? And how is 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?
Yes. This is Brian. We've seen that improve a bit. I think retailers, it's something that I think the entire market that was grappling with here 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, incredibly focused on getting those stores in and open ahead of holidays and even work out – working outside what typically would be blackout windows pushing those out. 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 having those stores fully staffed. So we've seen that certainly improve, and I think a good signal of that from our retail partners is that focus on getting a lot of those stores open this year.
Right. Thank you.
Thank you.
Our next question is from Lizzy Doykan with Bank of America. Please proceed with your question. 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.
Thanks everyone. We look forward to seeing many of you at NAREIT.
This concludes today's conference. You may disconnect your lines at this time and thank you for your participation.