Yahoo Finance Brixmor Property Group Inc. (NYSE:BRX) Q1 2024 Earnings Call Transcript
Brixmor Property Group Inc. (NYSE:BRX) Q1 2024 Earnings Call Transcript April 30, 2024
Brixmor Property Group Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Greetings, and welcome to the Brixmor Property Group Incorporated. First Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Stacy Slater, Senior Vice President, Investor Relations. Thank you. You may begin.
Stacy Slater: Thank you, operator, and thank you all for joining Brixmor's first quarter conference call. With me on the call today are Brian Finnegan, Interim CEO and President; and Steven Gallagher, Interim 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. Before turning the call to Brian, please note that out of respect for Jim's privacy, we will not be addressing any questions regarding his temporary medical leave and look forward to his return in the near future. We do ask that he join our Brixmor family in wishing Jim good health. As always, please limit your questions to one or two and re-queue for any follow up. At this time, it's my pleasure to introduce Brian Finnegan.
Brian Finnegan: Thanks, Stacy, and good morning, everyone. I'm pleased to report another quarter of outstanding execution by the Brixmor team as we continue to capitalize not only on the positive trends in open-air retail, but on the work our team has done in transforming this portfolio. That transformation is evident in every observable metric, including same-property NOI growth during the first quarter of 5.9%, and our improved same-property NOI and NAREIT FFO outlook for 2024, as Steve will provide additional detail on shortly. And in conjunction with the tailwinds from the record $68 million of annual base rent and our signed but not commenced pool. And our highly accretive, low-risk reinvestment pipeline, we continue to position this portfolio for long-term sustainable growth.
That growth starts with leasing and we delivered another quarter of excellent results, executing 294 new and renewal leases totaling 1.3 million square feet, including 700,000 square feet of new leases with tenants across a wide range of categories in the open air space. We added another three grocers during the quarter and now derive 80% of our base rent from grocery-anchored centers, while again adding thriving retailers to the portfolio such as Ulta Beauty, Ross Dress for Less, Chipotle, Chick-fil-A and JD Sports. We achieved several noteworthy records this quarter, including for overall anchor and small shop occupancy of 95.1%, 97.3% and 90.5%, respectively, with a sequential small shop gain for the 13th consecutive quarter. We also hit a high watermark in new small shop rents at over $30 per square foot as the improvements we have made at our centers along with a high demand, low supply, retail leasing environment is allowing our team to drive rate across the portfolio.
That ability to drive rate and capture the upside embedded in our below market rents was also apparent in our new and renewal spreads of 20% and our new leasing spreads of 40%. We're also encouraged by our move-out trends, which were the lowest first quarter result this portfolio has had and led to record retention at over 89% of GLA. In addition, tenant disruption has so far this year remained muted which is a significant factor in our improved outlook for the year, as Steve will highlight further. But to be clear, the positive trends we continue to see in move-outs and retention are not simply a result of the environment we are witnessing in open-air retail but indicative of the transformation of this portfolio and the durability of our underlying tenant base.
The cumulative effect of robust leasing, record portfolio retention, low move-out activity and a stable tenant base, are also reflected in our improved same-property NOI outlook for the year of 3.5% to 4.25%. As the team remains laser-focused on accelerating rent commencements across the portfolio including from space we recaptured last year. Moving to reinvestments. Our team stabilized $11.6 million of projects at an incremental 12% return and now has an active pipeline of over $400 million of projects and an incremental 9% return, of which we expect to stabilize approximately $200 million of this year. This includes some of the company's most high-profile projects like Roosevelt Mall and Plymouth Square in the Philadelphia market and the first phase of Pointe Orlando across from one of the busiest convention centers in the country in Orlando, Florida.
On the external growth front, as Mark can touch on in Q&A, we are beginning to see transaction activity increase and more opportunities to put our platform to work. Particularly following the $69 million of attractive capital that Mark and team raised in the first quarter through dispositions. We took advantage of one of those opportunities last week in Long Island, New York, where we purchased a grocery-anchored asset adjacent to a center we already own, consistent with the clustering strategy we have deployed with great success over the last few years in places like Southwest Florida, Southern California, Houston, Atlanta, Philadelphia and Chicago. And while we expect to see more opportunities in the transaction market in the balance of the year, we will remain disciplined as a higher interest rate environment persists, and our self-funded internal growth strategy allows us to be patient on the external growth front.
Before handing it over to Steve for a more detailed review of our financial results, I would like to thank all of you that have reached out with your thoughts and well wishes for Jim. The outpouring of support has been overwhelming, but not surprising, given both the person that he is and the impact that he has had on this industry. As Stacy noted out of respect for Jim and his family, we won't be answering any questions outside of what was in the release. but do look forward to his return in the near future. With that, I'll hand the call over to Steve for a more detailed review of our financial results. Steve?
Steven Gallagher: Thanks, Brian. I'm pleased to report on a very robust start to 2024 as we continue to capitalize on the strength of the current leasing environment and the momentum generated by our portfolio transformation initiatives. NAREIT FFO was $0.54 per share in the first quarter, driven by same-property NOI growth of 5.9%. Base rent growth contributed 380 basis points of same-property NOI growth this quarter, reflecting continued strong leasing spreads growth in build occupancy and a historically low level of first quarter move-outs. In addition, net expense reimbursements contributed 90 basis points driven by the growth in build occupancy. Revenues seemed uncollectible, was slightly positive in the quarter and contributed 60 basis points of same property NOI growth due to the lower tenant disruption and the timing of annual real estate tax reconciliations collected from cash basis tenants.
Also of note, as indicated in our initial guidance for 2024, first quarter FFO benefited from $0.01 of savings associated with the CFO transition, including the reversal of stock compensation expense. As Brian noted, we are very pleased to have achieved portfolio records for our total, anchor, and small shop lease rates, reflecting the demand from retailers to locate in our centers and the substantial progress we have made in leasing space we captured in bankruptcy last year. As such, we ended the first quarter with a 450 basis point spread between lease and build occupancy and our signed but not yet commenced pool totaled a record $68 million, which includes $60 million of net new rent. The size of the pool continues to grow despite commencing approximately $12 million of annualized base rents since the end of the year.
In addition, the blended annualized base rent per square foot on the signed but not yet commenced pool is $21.11, approximately 23% above our portfolio average, reflecting the below-market rent basis in our centers that our team continues to capture the upside on. We expect approximately $41 million or 61% of ABR in the signed but not commenced pool to commence in the remainder of 2024. From a balance sheet perspective, we continue to hold the proceeds from our $400 million January bond offering in stable, high-yield accounts in advance of repaying $300 million of our 3.65% bonds when they mature in June. At March 31, we had a total liquidity of $1.7 billion, and our debt-to-EBITDA on a trailing 12-month basis was 5.9 times, leaving us well positioned to execute on our business plan and with the flexibility to opportunistically access the capital markets.
And since last quarter's call, our credit rating has been placed on a positive outlook by Moody's, recognizing the improvements that have been made to the balance sheet over the past several years. In terms of our forward outlook, given the continued strength in the leasing environment, we have increased our same-property NOI growth to a range of 3.5% to 4.25% and comprised of a 425 to 475 basis point contribution from base rent, which includes approximately 40 basis points of top line drag at the midpoint from national tenant disruption. As we have better visibility at this point in the year. With respect to revenue deemed uncollectible, a significant portion of the outperformance in first quarter, as I indicated earlier, was timing related.
As such, we still expect revenues being on uncollectible to end the year within our historical run rate of 75 to 110 basis points of total revenues. But the signs we are seeing in our tenant base are encouraging with strong payment trends illustrating the improvements in the credit quality of our tenants. In conjunction with the increase in our same-property NOI expectation, we have raised our guidance for 2024 NAREIT FFO to a range of $2.8 to $2.11 per share. In summary, we are grateful for the continued execution by the Brixmor team as we continue to create value for our stakeholders. And with that, I turn the call over to the operator for Q&A.
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