Brixmor Property Group Inc

NYSE:BRX

Earnings Call Analysis

Brixmor Property Group: Strong Growth Ahead with Increased NOI and FFO Guidance

In its third quarter, Brixmor Property Group reported solid growth, with same-property NOI projected to rise between 4.75% and 5.25%. NAREIT FFO guidance for 2024 is now between $2.13 and $2.15 per share, marking a consistent increase of 5%. The company saw strong tenant demand, reflected in a $59 million signed but not commenced pool of rent, set to commence at 27% higher than current rents. With a focus on enhancing tenant quality, Brixmor is confident about long-term growth, expecting NOI growth to exceed 4% in 2025 as new leases and renovations start yielding returns.

Solid Financial Performance Sets the Stage

In its recent earnings call, Brixmor Property Group showcased a robust quarter, marked by notable financial metrics and a strong operational framework. The company's NAREIT Funds From Operations (FFO) reached $0.52 per share, buoyed by a 4.1% increase in same-property Net Operating Income (NOI). The impressive growth was driven primarily by an uptick in base rent, which accounted for a 520 basis point contribution to the same-property NOI, highlighting strong commencement activity and favorable leasing spreads.

Navigating Challenges Yet Maintaining Growth Trajectory

Despite these positive developments, Brixmor acknowledged headwinds from revenue deemed uncollectible, which detracted 200 basis points from overall same-property NOI growth in the quarter. However, the outlook remains optimistic, with expectations to finish the year with uncollectible revenues at 50 to 75 basis points of total revenues, suggesting an improvement in tenant credit quality.

Impressive Leasing Activity and High Occupancy Rates

The demand for Brixmor's retail space remains strong, driven by a diversified tenant base. The company recorded a significant portfolio occupancy rate of 95.6% for anchors and 91.1% for small shops. New leases and renewals covered 1.1 million square feet, reflecting a blended cash spread of 22%. Notably, the company mentioned the addition of high-demand tenants such as Trader Joe's and ALDI, further solidifying its retail positioning.

Expanding Future Revenue Base with Strong Pipelines

Looking ahead, Brixmor's signed but not yet commenced pool stands at $59 million, with $47 million in new annual base rent already deployed this year. This future revenue is based on an average rent per square foot of $22.12, which represents a 27% increase over current in-place rents. The forward leasing pipeline bodes well for 2025 as the company anticipates ongoing rent commencements, leading to same-property NOI growth expected to exceed 4%.

Strategic Acquisitions and Portfolio Enhancements

The company's strategic investments and acquisitions continue to drive growth. Recently, Brixmor utilized its improved cost of capital to raise $20 million through its at-the-market (ATM) equity issuance, hinting at more active capital recycling. The company is eyeing $250 million in additional acquisitions, leveraging its operational efficiencies across markets, including Boston and affluent suburbs like Acton, which will enhance long-term value creation.

Updated Guidance Reflects Growing Confidence

Brixmor is raising its same-property NOI growth guidance to a range of 4.75% to 5.25% for 2024, with anticipated contributions from base rent between 450 to 500 basis points. The company also projected the 2024 NAREIT FFO to be between $2.13 and $2.15 per share while announcing a 5.5% dividend increase to $1.15, which reflects an ongoing commitment to returning value to shareholders while maintaining a conservative payout ratio. This growth plan highlights Brixmor's confidence in its trajectory.

Earnings Call Transcript 2024-Q3

[Operator]

Ladies and gentlemen, good morning, and welcome to the Brixmor Property Group Inc. Third Quarter 2024 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Samantha Strong from Investor Relations. Please go ahead, ma'am.

[Samantha Strong, executive]

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; Brian Finnegan, President and Chief Operating Officer; and Steve Gallagher, Executive Vice President and Chief Financial Officer. Mark Horgan, Executive Vice President and Chief Investment Officer, will also be available for Q&A.

Before we begin, let me remind everyone that some of our comments today may contain forward-looking statements that are based on certain assumptions and are subject to inherent risks and uncertainties as described in our SEC filings, and actual future results may differ materially. We assume no obligation to update any forward-looking statements.

Also, we will refer today to certain non-GAAP financial measures. Further information regarding our use of these measures and reconciliations of these measures to our GAAP results are available in the earnings release and supplemental disclosure on the Investor Relations portion of our website. [Operator Instructions] At this time, it's my pleasure to introduce Jim Taylor.

[James Taylor, executive]

Thanks, Sam, and good morning, everyone. This third quarter was yet another quarter of outstanding performance with increased expectations for '24, and importantly, excellent visibility on continued growth in '25 and beyond. Collectively, these results that Steve and Brian will talk about in more detail reflect the momentum and durability of our proven plan, the transformation of our portfolio and the strength of our team.

Our outstanding performance is reflected across every observable metric from record occupancy and rate, continued strength in customer traffic, sector-leading leasing spreads, continued delivery of accretive reinvestments and a ramping external growth pipeline that continues to cluster our portfolio while we efficiently harvest and redeploy capital from centers where we see limited upside. We also have proven again, as Brian will discuss, our ability to capitalize on tenant disruption as an opportunity to drive value by bringing in better tenants at better rents.

And of course, we continue to deliver strong bottom line FFO growth, which we expect to be 5% for the second consecutive year. As noted in our earnings release last night, during the quarter, we implemented a regional realignment that combines our North and Midwest regions and moves Texas into our South region. These changes enable us to realize the benefits of our clustering strategy and the efficiencies of scale across these markets while also investing in talent closer to the real estate.

In conjunction with realignment, we recognized a onetime severance cost of about $2.5 million, which we expect to more than offset in annual savings as we move forward. We are very pleased with the acceleration of our capital recycling efforts. Our patience over the last few years positioned us to now pivot and take advantage of our improved cost of capital and the dry powder we have built including through $143 million of dispositions year-to-date. During the quarter, we completed $64 million of acquisitions with $81 million completed year-to-date.

In addition to fresh market shops in Hilton Head, which closed during the quarter, we also closed on the acquisition of Acton Plaza, which is located in a very affluent suburb of Boston, [ increasing ] our portfolio there to 7 assets. Acton is anchored by a highly productive Roche Brothers grocer, and we are confident we can leverage our position in the market to drive NOI growth at that asset. Importantly, we also have an additional $250 million of value-add acquisitions under control. Look for us to share more about these exciting acquisition opportunities in the coming quarters.

At the same time, we've continued our focus on driving value through accretive reinvestment, delivering $33 million at a 10% yield in the quarter with our in-process pipeline over $500 million at a 9% expected yield. Importantly, these projects highlight our valuable tenant partnerships as we bring in and invest in our centers alongside thriving grocers, including Trader Joe's, Whole Foods, ALDI, and Sprouts.

We are even more excited as we look to the future. Our signed but not yet commenced pipeline sits at $59 million, even with the commencement of $18 million of ABR in the quarter, of which we'll see the full benefit in the coming quarters. These stacking rent commencements of which we've commenced $47 million year-to-date, combined with improving contractual rent steps, accretive reinvestment deliveries, a robust forward leasing pipeline and, of course, our attractive rent basis provide its unparalleled visibility on continued growth and value creation in '25 and beyond.

With that, I'll turn the call over to Brian for a more detailed discussion of our operating results. Brian?

[Brian Finnegan, executive]

Thanks, Jim, and good morning, everyone. Our results this quarter once again demonstrate how our team continues to capitalize on a positive environment for open-air retail, our transformed portfolio, and industry-leading platform. Supply remains as tight as it's ever been while demand from a broad range of retailers to be in our centers remains strong. This supply-demand imbalance is enabling our team to not only drive rents across our portfolio but to upgrade our merchandising mix with the best operators that are looking to expand their open-air footprint.

But it's the unique combination of the low rent basis across this portfolio and the track record of our team that truly sets Brixmor apart and is once again evident in our results. That begins with leasing as our team executed 1.1 million square feet of new and renewal leases at a blended cash spread of 22%, including record new small shop base rent of $31 per square foot. The new leasing activity, along with low move-outs led to another quarter of record overall anchor and small shop occupancy at 95.6%, 97.7%, and 91.1%, respectively.

The best-in-class tenants that drove these results during the quarter included 3 new grocer leases highlighted by Trader Joe's backfilling a former Bed Bath box in suburban Denver, increasing our percentage of ABR from grocery-anchored centers to 81%. We also added new locations with ALDI, Burlington, Boot Barn, SKECHERS, and Ulta Beauty while continuing to capitalize on great demand from outparcel tenants like Chase Bank, Fifth Third Bank, Shake Shack, and Cava.

The team is also well on its way to accretively backfilling space we're in the process of recapturing including from Big Lots, with 7 boxes already resolved in markets like Nashville, Houston, and Fort Lauderdale at spreads of more than 50% with great tenants in the grocery, value apparel, fitness, and home furnishing segments. The recapture of these spaces has long been anticipated and a focus internally, and our team is welcoming the opportunity to upgrade merchandising and do it at much higher rents. And while we may see some short-term fluctuation in occupancy as we recapture this space, we're excited with the traffic-driving tenants we'll be adding to our centers over the next several quarters, many of which we expect to start paying rent in late '25 and 2026.

Switching to reinvestment. Included within the $36 million of new projects we added during the quarter was the expanded scope of the company's first Whole Foods redevelopment in the Philadelphia suburbs, where we were able to capitalize on that lease at a new Barnes & Noble that opened last month to add a new multi-tenant outparcel with Chipotle and First Watch driving rents in the mid-70s. On the stabilization front, we were excited to open another Sprouts Farmers Market location in suburban Tampa in a former Bed Bath box which we executed last year at close to 3.5x the prior rent.

As we approach the end of the year, we remain as confident as we ever have in our business plan. The list of retailers that want to grow with us continues to expand, which not only gives us good forward visibility on growth but acknowledges the work our team has done in transforming this portfolio. With that, I'll turn the call over to Steve for a more detailed review of our financial results. Steve?

[Steven Gallagher, executive]

Thanks, Brian. I'm pleased to report on another quarter of strong execution across our platform as we continue to position the company for long-term sustainable growth. NAREIT FFO was $0.52 per share in the third quarter, driven by same-property NOI growth of 4.1%. Base rent growth contribution to same-property NOI growth accelerated from 380 basis points last quarter to 520 basis points this quarter, reflecting strong commencement activity, continued strong leasing spreads, and growth in build occupancy. In addition, net expense reimbursements contributed 80 basis points, driven by our growth in build occupancy.

As discussed on the last call, we expected revenue deemed uncollectible to be a headwind to same-property NOI growth in the second half of the year due to lower out-of-period cash collections and the impact of current quarter bankruptcies. Accordingly, during the quarter, revenues deemed uncollectible detracted 200 basis points from growth. We still expect revenues deemed uncollectible to end the year at 50 to 75 basis points of total revenues, reflecting the continued improvement in credit strength of our tenants.

We continue to capitalize on the strong leasing environment as we ended the quarter with a 370 basis point spread between leased and build occupancy, a 30 basis point decrease from last quarter despite commencing approximately $18 million of annualized base rent in the quarter. Our signed but not commenced pool totaled $59 million, which includes $52 million of net new rent. The size of our signed but not commenced pool over the last year has provided a strong foundation for growth. We expect that growth to continue into 2025 as this rent commences ratably over the next year at an average rent per square foot of $22.12, which is 27% higher than our current in-place rent.

From a balance sheet perspective, we took advantage of our improved cost of capital and transacted under our ATM for the first time since 2022, raising $20 million in equity at an average gross price of $27.92. At September 30, we had total liquidity of $1.7 billion and a debt to EBITDA on a current quarter annualized basis was 5.7x, leaving us well positioned to execute on our business plan.

In terms of our forward outlook, we have increased our same-property NOI growth to a range of 4.75% to 5.25%, comprised of a 450 to 500 basis point contribution from base rent. In conjunction with the increase in our same-property NOI expectation, we have raised our guidance for 2024 NAREIT FFO to a range of $2.13 to $2.15 per share. Our continued outperformance has positioned us to raise our dividend to an annual rate of $1.15, an increase of 5.5% while maintaining a conservative payout ratio.

Looking forward to 2025, we expect same-property NOI growth to exceed 4% driven by the cumulative impact of 2024 and 2025 rent commencements, embedded rent growth, and continued strong renewal spreads. We are excited about the visibility we have into our future growth as our transformation has positioned us with a significant signed but not commenced pipeline and value-accretive reinvestments that will stabilize in the coming year. And with that, I turn the call over to the operator for Q&A.

[Operator]

[Operator Instructions] Our first question comes from the line of Juan Sanabria from BMO Capital Markets.

[Juan Sanabria, analyst]

Just hoping you could comment a little bit about the investments market. You raised some ATM like you said for the first time since '22. So just curious if that is a sign that you're seeing more opportunities, or just if you could talk a little bit more about the rationale for raising some equity at this point if it's not for future acquisitions.

[James Taylor, executive]

Thank you, Juan. We do see an improving outlook in terms of external growth. We, as I mentioned in my remarks, have about $250 million of assets under control that are accretive, importantly, that further cluster our investments in our key markets. Mark?

[Mark Horgan, executive]

Yes. As far as the overall market, it's very healthy for open-air retail currently. We've certainly seen some core buyers stretch into the 5s for certain assets, but it does really feel like the need of that market is well into the 6s, particularly for the assets that we've been looking and the assets that we've been transacting on.

I think what's most striking about the market today is that you're certainly seeing a lot more institutional interest in open-air retail today. And I think that's really driven by the performance of platforms like Brixmor over the last few years. I think institutional investors kind of missed the boat earlier on open-air retail, and they're rushing in to try and get additional access and I think that's very healthy for our space.

[James Taylor, executive]

Yes. And I think what's also important to recognize is the investments we're looking at really do leverage our platform to drive continued growth and outperformance. And so as we look at that, we see some very accretive opportunities, including through issuance under our ATM.

[Operator]

The next question is from the line of Greg McGinniss from Scotiabank.

[Viktor Fediv, analyst]

This is Viktor Fediv on with Greg McGinniss. I just wanted to ask a follow-up question on your signed not occupied pipeline contribution, and in general, kind of whether tenants are pushing out their expected lease commencement. So in terms of 2025, is this contribution from signed not occupied pipeline evenly distributed to 2025 or more back half weighted?

[Brian Finnegan, executive]

This is Brian. Just first, I guess, on the second part of your question, we're not seeing tenants really push things out. If anything, we're seeing kind of more demand, particularly in that box category in terms of store openings. 2025 is getting fairly full for tenants at this point. The deals we're talking about, which is really encouraging are starting for 2026 on the box side.

Look, as it relates to the signed but not commenced pool, it was $59 million at the end of the quarter despite commencing $18 million in the quarter. I mean, that speaks to the leasing that we continue to add to that, and as Jim touched on, gives us really good visibility on future growth. So in terms of the overall environment and conversations with tenants, we remain really encouraged but also good to see the growth in the signed but not commenced pool.

[Operator]

The next question is from the line of Todd Thomas from KeyBanc Capital Markets.

[Todd Thomas, analyst]

I just wanted to go back to the questions around the investment environment and the ATM issuance again. I'm just curious, should we expect the company to keep utilizing the ATM at current levels? And then relative to the comments about having $250 million tied up or in advanced negotiations, should we assume an increase in net acquisition activity from a more balanced position that we've seen over the last number of years? Or should we expect an increase in disposition activity to match those acquisitions as you further look toward your clustering strategy?

[James Taylor, executive]

Yes. I mean, I think our primary source of funding for external growth will continue to be capital recycling. And we look to opportunities under the ATM to match fund acquisitions that we nonetheless believe will be accretive given our cost of equity. So it's going to vary quarter by quarter but expect over several quarters for us to be relatively balanced.

Obviously, we've gone into the year being a net seller of about $150 million of assets with $80 million of acquisitions, but we do expect to see a ramp-up in acquisition activity that will be funded again through a mix of dispositions and, if appropriate, ATM issuance.

[Operator]

The next question is from the line of Jeff Spector from Bank of America.

[Jeffrey Spector, analyst]

Just 1 follow-up on the transaction market. With rates rising, potentially less cuts going forward, do you think that puts a damper on the transaction market? Or has something really changed here that is sparking sellers to come to the market or again, that buyer-seller gap has narrowed and you expect that to continue?

[Mark Horgan, executive]

Yes. What I'd say about the overall market today, you're seeing a little slower market but that's certainly not driven by rate movement. That's really driven by the election. I think a lot of folks wanted to be in the market earlier this year and be out of the market right now. And certainly, as we build towards, for example, the December ICSC, we're getting tons and tons of inbounds on get ready, assets are coming. So I do think you're going to continue to see a pretty healthy investment market going forward, particularly for smaller assets, right?

That's really where we've been taking advantage of selling assets into the small asset market and recycling assets pretty attractively. So we're not really seeing a slowdown today in the market other than, again, that small around the election that we expected.

[Operator]

The next question is from the line of Floris van Dijkum from Compass Point.

[Floris Gerbrand van Dijkum, analyst]

My questions on capital raising has sort of been addressed a couple of times, but let me ask you a question on the leasing front and on the operations front. You obviously still have a pretty substantial SNO pipeline. Maybe you can talk about the split between the anchor and shop in that pipeline. And also, where do you see -- how much more room -- everybody is pushing occupancy to record levels and beyond. How much more room do you see in your occupancy, particularly in your shop side, where your occupancy is probably a little bit lower than some of your peers?

[James Taylor, executive]

Yes, Floris, thank you. We continue to see opportunity for upside in occupancy. I think a key differentiator of our growth strategy is that we're also driving spreads so we're bringing in a lot of new ABR not just simply through gaining and occupancy but by replacing lower rents with better rents and better tenants. That continues to drive, importantly, the momentum that we're seeing in the small shop space. And we fully expect that to continue to grow and have great visibility on its growth because of the drag of what we have in our reinvestment pipeline.

The other thing I would just highlight with respect to that SNO pipeline is it's stacking growth. As I mentioned in my remarks, we commenced $47 million of new ABR in the first 3 quarters. We expect that trend to continue in the fourth quarter, which we won't see the full benefit of from a growth perspective until '25 and '26. So it's both elements. It's not only driving better occupancy but even more importantly, driving better rate. It's part of what gives us confidence in being able to outperform over the long term not simply through lease-up alone.

[Brian Finnegan, executive]

Yes, Floris, and I would just add to your question on the breakout in SNO pipeline, about $27 million of the $59 million is an anchor. What's even more encouraging is those anchor rents at $16 a foot, which would be a record in terms of where we signed those over the last year and is well in excess of the 9-and-change that our anchors that are expiring without options over the next 3 years. So we remain encouraged in terms of that overall SNO pipeline, but even more so, the quality of the tenants and the rents in which we're signing them at.

[Operator]

The next question is from the line of Ki Bin Kim from Truist Securities.

[Ki Bin Kim, analyst]

In terms of your total redevelopment pipeline of about $500 million, what is the total pre-leased percentage? And second question to that is that, what is a sustainable level of the redevelopment pipeline going forward?

[James Taylor, executive]

Yes, I'll let Brian take the first part. But the second part, we see great visibility on $150 million to $200 million of reinvestment over the next several years. We have $500 million underway today, which is going to take us through a good part of '26. But as Brian highlighted in his remarks, we're backfilling the pipeline with incredibly exciting reinvestment projects such as the addition of Whole Foods at Barn Plaza. So we have several years of reinvestment opportunity. And that, as we've talked about many times before, is really driven by that lease expiry pipeline, which limits the amount that we can get at in any 1 year.

[Brian Finnegan, executive]

Yes. And Ki Bin, we're generally at 80% pre-leased before we bring those projects on to the pipeline. It's even more encouraging as we brought some of these bigger projects on in the last year, like Naperville in the Chicago suburbs, Davis, California, Roosevelt, even on those larger projects, we've had them pre-leased with great tenants. So we've been really excited in terms of our ability to get those projects going and with the leasing activity to ultimately bring them forward.

[Operator]

The next question is from the line of Craig Mailman from Citi.

[Craig Mailman, analyst]

I just want to go back, Steve, maybe your commentary on same-store growth being above 4% for next year. I appreciate that you guys aren't giving guidance yet here, but it's a pretty -- if it's closer to 4%, then where you are today kind of at 5%, it just feels like the market is anticipating the acceleration for the group next year. Could you just kind of talk about the puts and takes at this point on maybe commencement timing and space coming offline that would keep you from at least kind of hitting where you are this year and maybe exceed that next year as the SNO pipeline starts to deliver?

[James Taylor, executive]

Yes. I mean, we expect to be above that. We're not going to give guidance for '25. But it just all points to the rents that are commencing as you talked about, the reinvestment deliveries, the rent steps, and the occupancy gains, we think, put us above that long-term growth rate, which we've highlighted before of 4% or better. So we don't see any slowdown. If to the contrary, we see good strength.

And it's highly visible strength in terms of signed leases, redevelopments that are delivering and the continued improvement in the intrinsic terms of our leases as we accrete those embedded rent steps. So when you look collectively, we feel pretty confident not just in our growth in '25 but in '26 and beyond, given these signed leases, given the pickup in occupancy and given the better rents with better tenants.

[Brian Finnegan, executive]

I think just the only thing to add, the other thing just to think about in there is bad debt for the first 9 months is well below our historical run rate of 59 basis points of total revenue. So right, as you're thinking into '25, obviously, that could prove to be a headwind depending on where we ultimately expect that debt to come out as well.

[Operator]

The next question is from the line of Alexander Goldfarb with Piper Sandler.

[Alexander Goldfarb, analyst]

It feels like a drive through express line with the queue, with the questions this morning. Just on the bad debt, Steve, can you just walk through and clarify, the 200 bp headwind in same-store versus the 59, I think you said basically 60 bps year-to-date and I think you said still expect the previous range, I think it was 75 to 100. Is the 200 just the year-over-year comp?

And what -- it just seems like the tenant credit market remains healthy as ever. So just trying to understand better the 200 bp headwind that's in the same store versus the comments that you just mentioned year-to-date. And then holistically, as we think into next year, is there really a reason to think that bad debt would get back to the historic range or that's really just sort of a plug? But right now on your watch list, you don't really see that happening?

[Brian Finnegan, executive]

Yes. I think the most important way to think about it and how we often talk about it in our guidance, right, is just to think about the bad debt as a percentage of total revenue. That takes some of the comparability from year-over-year [ up ]. And as of 9/30, we're sitting at right around 60 basis points of total revenue. Our historical run rate and our expectations coming into the year was 75 to 110, right, so well south of that.

And as I said in my prepared remarks, we still believe that we would end the year at the 50 to 75 basis points that we updated on the last call. So I think that hopefully just helps frame like where we are within bad debt in the year, and we are at historically lower levels than what we've seen. I think you're right on. And when you think about the 200 basis points of headwind that you're seeing in the same-property NOI growth, it's really to do with an anomaly in the prior year due to some added period cash collections associated with 2 of the larger sort of items headed back all the way to the COVID period.

So that really just created a difficult comp in that year. But so far, we're still very impressed with the overall creditworthiness of the portfolio. And then we'll update sort of our expectations on where we think that, that will end in '25 when we issue guidance next quarter.

[James Taylor, executive]

Yes, I would just add, we continue to see fundamental improvement in the credit quality of the portfolio. And the recent bankruptcies have really proven to be an opportunity for us to recapture space in one of the greatest demand environments we've ever seen. So it's a source of growth for us going forward.

[Operator]

The next question is from the line of Samir Khanal from Evercore ISI.

[Samir Khanal, analyst]

Maybe on the sort of this preliminary 4% NOI growth, I know you gave some building blocks there but help us understand the flow-through of the $59 million of rent commencements, how to think about that over the course of next year.

[Brian Finnegan, executive]

Yes. I think Jim hit on earlier sort of the building blocks of where we think that growth is going to come in, right? It starts with your embedded rent growth in your existing leases. And I think most importantly, what you're starting to see, and Jim just mentioned it, is the compounding impact of that SNO pipeline coming online, right? So the $47 million we've commenced year-to-date along with the $18 million we expect to commence in Q4, that's only really benefiting your growth for a partial point of this year.

When you head into next year, you're going to see growth on top of that, along with the SNO pipeline that's going to commence in that year, right? So that's where you get the layering impact of that SNO pipeline that's been higher for really about a year now coming into the contribution. So that's why we feel really comfortable that we're going to be in excess of that 4%.

And then obviously, the significant readout pipeline that we have and the contribution that, that provides as well into the line item. So I mean, it's generally those pieces as being better rent bumps, the SNO pipeline commencing and then the readout pipeline as well.

[Operator]

The next question is from the line of Dori Kesten from Wells Fargo.

[Dori Kesten, analyst]

You hit on this a bit in a few of your answers, but the rent on your '25 lease expirations is somewhat low versus the remainder of the portfolio, both on the anchor and the small shop side. Should that be setting you up for a particularly strong year for spreads next year? Or is there something maybe syncretic to that group of expirations to note?

[Brian Finnegan, executive]

Yes, Dori, I would just say broadly, I mean, our team has consistently demonstrated the ability to take advantage of the low rent basis across this portfolio. We're going on 3 years now of renewal growth over 10%. You mentioned those expiries. We've been signing those anchor deals around $16 a square foot. And as we look out long term, we continue to see the ability to bring rents to market not just next year but going forward.

And it really goes to not just the environment but what we've done to this portfolio, the tenants that we've added to this portfolio, the percentage of grocers that we added to this portfolio. We're driving traffic at the top of the peer group. So you put all that together as well as the work our team has been able to do in terms of capturing that upside, gives us really good visibility going forward not just into '25 but beyond.

[Operator]

The next question is from the line of Haendel St. Juste from Mizuho Securities.

[Haendel St. Juste, analyst]

So I guess my question is just stepping back and thinking about the near-term and intermediate-term opportunity within the core portfolio, right? So I guess curious how we should read some of the dynamics from the quarterly results here. Leasing was robust but a bit slower than prior quarters. The SNO pipeline is still sizable but it's down a few quarters in a row here. And your portfolio is sitting here at all-time high.

So I guess, curious how we should interpret this. Does this perhaps suggest that your core growth potential is perhaps peaking this year? And then on the 4% you mentioned for next year, is that base case or more the low end of an expected range?

[James Taylor, executive]

Yes. So the 4%, Haendel, thank you, is not guidance and we've said we expect to be better than that. And we'll provide more detail as we provide detailed guidance. But the bottom line is the business continues to fire on all cylinders. And as you look at the leasing, you would expect leasing volumes to moderate a bit as the portfolio approaches full occupancy.

But the benefit of the leasing, importantly, is going to be felt in '25 and '26. As you look at the compounding effect of those stacking rent commencements, over $18 million of new rent in the quarter, we've commenced almost $50 million year-to-date, you're going to see the full benefit of that plus the $50 million that we have in signed but not commenced plus what we have in legal, continuing to provide tremendous visibility along with the delivering reinvestments for growth into '26 and beyond.

So we're very confident in our business model being able to continue to outperform because that growth is not dependent only on growth and occupancy, the biggest driver of it is growth and rate. And we expect, as Dori mentioned in her question, to have pretty attractive rent bases from which to grow in '25, '26, and beyond particularly as we've transformed the portfolio and also continue to set new records in terms of rent and occupancy. So we actually like how we're positioned and we like how we will continue to outperform.

[Brian Finnegan, executive]

I would just add, Jim alluded to it, that legal pipeline, it's close to 1 million square feet in new lease GLA today. It's the highest it's been in a year and we're starting to address some of the boxes that we're taking back here at the end of the year. So to Jim's point, as occupancy approaches or continues to hit all-time highs, you would expect that new lease volume to moderate a bit. But with the activity that we see in that legal pipeline, we actually expect it to grow here over the next few quarters.

[Operator]

The next question is from the line of Caitlin Burrows from Goldman Sachs.

[Caitlin Burrows, analyst]

I did have just a follow-up on that last point. I think you were mentioning the term "legal pipeline", which I'm not familiar with so wondering if you could clarify that. But my real question was on, if you could go through the acquisition of Acton Plaza, maybe some details on cap rate, the upside, how quickly you could achieve it and how competitive the process was, how the deal was sourced, those sorts of details. And maybe what's specific to that property? Or anything we could take for like the broader market?

[Brian Finnegan, executive]

Caitlin, real quick, that's legal pipeline for us is leases that we have out for signature, actual leases versus LOIs.

[James Taylor, executive]

And it continues to remain robust. Mark, do you want to talk about Acton?

[Mark Horgan, executive]

Yes, sure, Acton. So we have an excellent operating platform up in Boston. We've come to market, we have now the assets we'd like to buy in that market. This 1 was owned by a well-known institution. It came to market through a broker, and we thought we had some unique opportunities to drive both near- and long-term growth through the rents we saw there. And again, we're really leveraging a very excellent operating platform in Boston, a market that is tight and performed very well so we did want to have some exposure there. That's really how it came.

From a competitive perspective, it was a competitively bought asset. Ultimately, one of the benefits why we think the seller went with us is because we are an all-cash buyer, and that is a great benefit to the market because buyers don't worry about us having to fund stuff through the CMBS market or otherwise. And when we say we can close on a date, we do.

[James Taylor, executive]

And similar to our existing portfolio, a lot of below-market rents that we believe we can capitalize on as well as some opportunities to add density.

[Operator]

[Operator Instructions] The next question comes from the line of Mike Mueller from JPMorgan.

[Michael Mueller, analyst]

With build occupancy moving higher, when do you think the lease to economic occupancy spread can be at normalized levels? Do you think that's some point in 2026?

[James Taylor, executive]

I think so. It's out there a ways when you look at the delivery of what we've signed and are commencing. I think that's fair.

[Operator]

The next question is from the line of Paulina Rojas from Green Street.

[Paulina Rojas Schmidt, analyst]

When talking about Acton, you mentioned that you wanted to increase your exposure to Boston. So as you think about your clusters, are there any markets where you'd like to increase your exposure? And related to that, have you found a common theme in the areas where you are seeing the most demand from retailers? Or is it largely homogeneous across geographies and formats?

[James Taylor, executive]

We've been very pleased with the demand from retailers who are thriving today to be in our portfolio across nearly all of our markets. And we continue to focus on clustering in those markets to capitalize on what we know the demand to be from retailers. A common theme to our investment strategy is finding assets that are under-rented, under-leased, under-reinvested in, but nonetheless very well located, where we can capitalize on the platform to drive real long-term value.

So as you look ahead and think about some of the acquisitions we have under control, they're in markets that we have great presence in and know extraordinarily well, such as Florida, coastal Carolinas, the upper Northeast, in California and Texas.

[Operator]

We have a follow-up question from Caitlin Burrows from Goldman Sachs.

[Caitlin Burrows, analyst]

Just on the acquisitions and dispositions, it sounds like you guys are expecting to generally be balanced going forward. So I was wondering just from like a cap rate perspective and what it means for earnings impacts, do you think we're at a point where the acquisition cap rates can be higher than the dispositions? And if so, by how much? Or is the opportunity there more of like a longer-term higher growth from the acquisitions versus the dispositions?

[Mark Horgan, executive]

Well, I'd say -- well, first of all, year-to-date, when you think about what we've sold, we have had a positive spread between acquisitions and dispositions, given that we sold Mall at 163rd for an extremely low cap rate. So year-to-date, it's been a positive contributor. As we look forward, what we really focused on is hold IRRs from an investment perspective, so we really try to sell assets where we think the hold IRR is low and buy assets where the hold IRR is higher. I would expect there may be a slight cap rate difference between those 2 but not a material one.

[James Taylor, executive]

So effectively, we look at that on a near-term basis as neutral.

[Operator]

[Operator Instructions] The next question comes from the line of Alexander Goldfarb from Piper Sandler.

[Alexander Goldfarb, analyst]

Brian, a question on leasing and on store performance. Obviously, the past few years since COVID have been great for mark-to-market of rents and boosting of occupancy and retailer performance. But as we get into a more normalized environment, do you see that the mark-to-market of rents is more driven by just simply rolling old lower rents to where the market is today? Or do you guys have confidence in the store productivity such that tenancy, this store is continuing to outperform, let's say, inflation, such that we can continue to see healthy mark-to-market on rents?

[Brian Finnegan, executive]

Alex, it's a great question, and it's both, right? We have -- we do have a low rent basis across the portfolio that we expect to be able to take advantage of as we continue to deliver reinvestments, as we continue to add great traffic-driving tenants. But our tenants are performing. You look at the tenants in the specialty grocery space, operators like Sprouts and ALDI and Whole Foods and Trader Joe's. You look at the off-price operators, which continue to have very strong performance, quick-serve restaurant operators.

The expansion of wellness and how people think about wellness today and our fitness operators are very strong. So if you look at that on a whole and then you look at the traffic that we're driving to our shopping centers, we expect to be able to continue to drive rent as our tenants continue to succeed. But then we also have a very low rent basis to take advantage of as well. So you put that together, I think it puts us in a very good position going forward.

[James Taylor, executive]

Yes. And what we're also really encouraged by from a productivity standpoint is traffic by banner, which we think compares very favorably across the marketplace, particularly when you think about the in-place rent. So as Brian mentioned, it's really both. It's the rent basis as well as the productivity of the tenants, which we're excited about driving even further productivity in the years ahead.

[Operator]

The next question comes from the line of Floris van Dijkum from Compass Point.

[Floris Gerbrand van Dijkum, analyst]

Getting back to the capital allocation. Obviously, you raised a tiny bit of equity in the quarter. You're still trading at a marginal discount to where we think your NAV is, but you're getting closer. As you think about equity as a source of capital now, I think -- and your peers are in the same -- some of them already exceeded NAV, by the way.

But as you start to be able to consider equity, do you -- how much of an opportunity do you see for you to replicate what you've done to your own portfolio on new acquisitions? And how big of a pipeline, potential pipeline is there out there for you guys to potentially acquire? And would you get more constructive on some of that as your share price continues to move higher?

[James Taylor, executive]

We always are very careful with our equity and recognize that it's precious. And so when we think about the issuance of equity, it's really with a mind towards what you are saying, which we're seeing, which is attractive acquisition opportunities that can be accretive in terms of a net value-add. And as we look at the pipeline going forward, we're encouraged by some of the opportunities that we're seeing that have been owned by platforms that don't have the redevelopment, national accounts, and leasing and operating strengths that we have as a platform, where we see as we bring these assets into our platform, we actually outperform our underwriting. So we're excited about, as Mark was talking about, the volume of new opportunities that we're seeing currently, those that we have under control as well as what we see coming forward.

[Mark Horgan, executive]

Yes, in terms of that pipeline, I think it's important to note that the vast majority of open-air retail is not owned institutionally. It's probably 80% to 85% is not owned institutionally. And so when we look at our current pipeline, for example, we're buying from 2 institutions that we think we can operate better than, clearly. And then we're also from 2 families that have held the assets for a very long time that we think will generate some very interesting growth because they've held them for a very, very long time and are not first-in-class operators. They were just great real estate buyers 50 years ago. So we're really excited about the future pipeline and believe we can continue to backfill acquisitions when we think the market is correct.

[James Taylor, executive]

Yes. As we like to say, it's more coal for our growth furnace so We're excited about what we see ahead. But again, Floris, to your point, equity is precious and we'll always be very disciplined.

[Operator]

The next question is from the line of Conor Peaks from Deutsche Bank.

[Conor Peaks, analyst]

On the uncollectible income, it's been talked about plenty on this call. But if I could ask about the Big Lots specifically and how the announcement pertains to your portfolio and what you see going forward there.

[Brian Finnegan, executive]

Yes. Conor, it's a good question. We're very pleased with the activity that we've seen on the Big Lots spaces. These boxes are coming back at a time of historic box, low box vacancy across the entire industry as well as the portfolio. We've got 10 that are going to be in our possession by the end of the month. Seven of those are already resolved with great tenants at rent spreads are again in excess of 50%. It kind of remains to be seen. Bankruptcy's a fluid process in terms of how many more we ultimately will get back.

I would just say on the whole, though, we're seeing great demand from the boxes with tenants that we've continued to execute a lot of deals with in the specialty grocery, off-price apparel, fitness and wellness space. So as Jim touched on earlier, this is an opportunity for us. The rents on those boxes are [ 7 50 ] and we've been signing anchors at $16. So we're pleased with the progress that we're making out of the gate and look forward to being able to remerchandise these boxes quickly with better tenants at higher rents.

[James Taylor, executive]

Yes. And the team really has been playing towards this for a while. It hasn't been a surprise, which is part of why we're already resolved on 7 of the 10 boxes. So we're excited about the potentially get back more because with that low rent basis, we know we're going to deliver a lot of value and accretion.

[Operator]

As there are no further questions, I now hand the conference over to Samantha Strong for closing comments.

[Samantha Strong, executive]

Thanks, everyone. We'll see you at NAREIT, and have a Happy Halloween.

[Operator]

The conference of Brixmor Property Group has now concluded. Thank you for your participation. You may now disconnect your lines.