Brixmor Property Group Inc. (BRX) Earnings Call Transcript & Summary

Welcome to Citi's 2026 Global Property CEO Conference. I'm Craig Mailman with Citi Research. And we are pleased to have with us today Brixmor and CEO, Brian Finnegan. This session is for Citi clients only and disclosures have been made available at the corporate access desk. [Operator Instructions] So Brian, I'm going to turn it over to you to introduce your company and team, provide any opening remarks. Tell the audience the top reasons and investors should buy your stock today, and then we can jump into Q&A.

Thank you all for being here today. With me, I have Steve Gallagher, our Chief Financial Officer; Mark Horgan, our Chief Investment Officer; and Stacy Slater, our Head of Investor Relations and Corporate Strategy and capital markets. We are one of the largest owners of open-air shopping centers across the U.S. We have 348 assets in the major markets across the country. We're among the largest landlords to TJX and Kroger, Publix, Ross and Burlington, Whole Foods as well. Our strategy is a bit differentiated in the sense that we have a very low rent basis in well-located shopping centers. And over the course of the last 10 years have gone on a strategy of continuously reinvesting in those being able to recapture below-market rents and put better tenants in that are driving a lot more traffic at higher rents. And you can see that coming through in almost every observable metric in the portfolio and why you should own our stock today is the best is yet to come because all the things you like about the portfolio in the past relative to the low rent basis, the redevelopment opportunity, the platform in place to drive outsized growth is still there from the best foundation that we've ever had relative to our underlying cash flows, relative to the CapEx that we have to deploy both because of the environment and what we've already touched across the portfolio. And the redevelopment pipeline going forward is as exciting as it's ever been. If you think about the pipeline that we have with Publix, the centers that we have in places like Plano, Texas and Atlanta and Metro, New York that we're starting reinvestments in. So we're in a fantastic position to continue to drive growth and really excited about what we have going on in the business.

And given that this is the first time you're in the hot seat having taken over more recently, as you kind of take the position. I know Brixmor has been a little bit of a machine with the redevelopment over this cycle. What as the incoming CEO are you looking at to tweak or change on the margin as you take the seat?

It's a great question. So I'd say the first part in terms of the aggressive operation of our assets, the focus on reinvestment that's not going to change. If anything, we're putting resources in place to be able to drive that faster. I oversaw the realignment of the team 18 months ago when we went from 4 to 3 regions, when we invested in more execution resources that we could move around more seamlessly across the portfolio depending on capital needs, and we've seen tremendous benefits from that. So we're operators at heart, and that is not going to change. And as I mentioned earlier, I'm even more excited about what we have in front of us and what we've already completed. Mark is up here and acquisitions is not a core part of our business strategy. It's not something that we need to do to grow, but we have been net acquirers for over the last 5 years. 40% of the acquisitions that we've done as a company have been in the last 5 quarters, and we've found fantastic opportunities to replenish that redevelopment pipeline but also where we can put the platform to work in places like Houston and Denver and South Florida. So we expect to be opportunistic there, and we expect to continue to find opportunities, but we're going to remain disciplined. I think the third thing is we've always leveraged technology very well here. What can we do to lean into that. We've seen some early initiatives in AI and automation really pay off, particularly on the legal front, allowing us to negotiate leases a lot faster from a leasing perspective, more information in terms of how our tenants will perform shopping centers, allowing us to make merchandising decisions and understanding our tenant health a bit. We have 8,000 leases. We have 900 million visits through our portfolio over the last year, that's a lot of data and how can we utilize that to make better decisions. So I expect us to lean into technology a bit more there.

Since you opened the door with technology, I'll jump to my AI portion of the show right off the bat here. I mean you had mentioned legal is one place that you guys are finding efficiencies. Can you describe kind of how deep the initiative is that at Brix on this kind of AI implementation outside of maybe legal, where you're seeing the opportunity? And how you guys evaluate the ROI on this or how you evaluate maybe the go, no go on putting time and effort and money into some of these new technologies versus waiting maybe and being the follower on some of these things versus more of a first mover.

I think if you could take the crawl, walk, run approach sometimes people can sprint past you. So we have been measured in terms of how we're approaching things. But you asked coming in, we challenged every leader in every function to look at their process and say not particularly just with AI. But what are some things that with technology, we can do faster, whether it's automating, whether it's some level of AI tools, our teams are using it every day to be more efficient to get faster information. And I think what we've seen across the portfolio, Craig, that's been really interesting is we've seen people step up and find things that make themselves more invaluable. For instance, we talked about legal. Some of the things we do in terms of how we're abstracting leases and finding certain things out and different ways we're doing that across the portfolio was a bit inefficient. We were able to save thousands of dollars with one individual just utilizing some tools to figure out, okay, what consents do we need to put solar on our roofs rather than things that were taking us a couple of weeks, we're taking us 10 to 15 minutes. That individual is now business liaison is helping other people deploy as a tool. Some of the things in tenant health, right? You may ask about that today. We may have a sense, everybody in the room of who's on a watch list or what tenants you're paying particular attention to. But for us, can we go a bit deeper to say, all right, well, who was paying on the second of the month that's now paying on the fifth or sixth" where we might not get a flag on that because they're still not technically paying late here within their grace period. But we can start to get some early signals that, hey, maybe we need to send a leasing rep in there. Maybe we need to send a property manager in there. We've cut back to the legal front. We've cut 3 to 5 hours out of drafting leases through automating those out of the gate and just think of okay, well that's time to be able to work on another lease to be able to do that faster. Our time and legal was down 10% last year. So we're continuing to find ways. To your point about where we're investing, we are looking at the tools that we have and what some of the embedded options are within that, like with Salesforce and other things and ultimately, where we spend time with what we're doing on our own. But we've been very encouraged by what we've seen to date and are going to continue to leverage it to make better data-driven decisions.

And do you guys have a preference for platform, Google, OpenAI, anthropic? Is there any...

We're in the Microsoft suite today. So Copilot has been a tool that we've used, and we like it so far, and it ties into everything else that we're doing from a share point perspective across the portfolio. So from that standpoint, that's a tool that we've used, but also leveraging what's embedded in some of the other tools as well.

And do you anticipate you guys would be more of a off-the-shelf user products coming from these providers? Or with your IT team, is there an initiative to try to build out Brix specific tools internally and spend the time and money there?

I think it's a balance, and I wouldn't have an exact percentage of it today. We try to think about these things as like what are the gaps we're trying to solve for? Or what are the initiatives that we want to focus on and then think about what are the tools. And always looking, okay, what do we have in place today? Or what are we doing today that we can leverage, Steve oversees the data analytics team. And we've been going through a process across the portfolio. One of the things that we did when we did the realignment was enable us to figure out how we were measuring certain tasks differently in regions and get that with some standardization across the entire portfolio, primarily through Power BI initiative. So from that standpoint, it will still be a mix but we do think there's tools that we have in place today that we can certainly leverage. And we're talking a lot about how we utilize AI. But I think it's important to recognize, even if we -- you may want to shift the discussion, but we'll get there relative to our tenants. Our tenants have more data today on their customers than they ever have. They understand what happens when they open a store in a given market, how that store will impact other locations, how that will impact their online sales. So as you see the tenants that are performing well, right, and continue to make investments in expanding their fleet, they're utilizing data and AI more so than they ever have to give visibility in terms of how that store is going to perform.

And we'll jump into the tenant side and the second because this question somewhat dovetails into tenant health is as you guys are looking at it, is it -- as you guys look at headcount future today versus future and the benefits of AI, is it more of a headcount reducer or just a slower of headcount growth because you improve productivity?

Yes. I'd probably answer it this way. We have maintained the headcount reduction that we did from 2 years ago and are still operating incredibly efficiently across the portfolio. I mean we are challenging ourselves when we do have open positions to say, "Hey, is this something that we can ultimately absorb," but I go back to -- there are going to be individuals that spend the time that are curious that are going to improve their skill set, and we've seen it in our company that are going to make themselves more invaluable. And that's the encouraging thing. I think with this and any other forward-leaning technology is those that are early adopters are going to be able to increase their value, we've seen it, and we expect to continue to see it going forward.

And I guess pivoting to the tenant side, you echoed some of the comments I've heard from some of your peers, just in maybe better margins by your tenants, better inventory management. But then on the other side, there's the talk of Agentic commerce and what does that do to brick-and-mortar versus that just create bigger winners in the e-commerce space. So I'm just kind of curious, your views on that and then juxtapose that with sort of your tenant composition. And how maybe you guys feel you're positioned if there is that push towards some of the bigger players versus maybe the role of the off-price retailer and the grocer, right? And some of the roles that these different tenants can fit into.

The best tenants today meet the consumer wherever the consumer wants to meet them. And whether that's in the store, whether it's online, whether it's pickup, whether it's on their phone, and you see that with operators like Ulta, you see that with great grocery operators. Off-price is a bit differentiated but those operators are succeeding today because the brands that they're carrying in their store are the best that they have ever been. And you have seen a shift in terms of consumers from an apparel standpoint, looking for value at a discount, and that's why they continue to succeed. So I think as it relates to merchandise mix, it's something that we're always thinking about. It's a center-specific discussion, but we love grocery. We love what's happening in the grocery space from the specialty operators that are differentiating themselves through our traditional operators, both the regional players and nationals continue to invest in their stores. We talked about off-price. Wellness is becoming more essential. People care more today than they ever have about how they look and feel. So we're seeing folks less apt to give their gym membership up. You're seeing health and beauty operators like Ulta and Sephora continue to perform and then the quality of service operations around that. And then you're also seeing that tie into quick-serve restaurants. The quality of operators that we're bringing to our centers like the Cavas of the world, Shake Shack. They're providing value, but they're also providing more of a healthy option than you saw previously from fast food. So from that perspective, I think we have been nimble and that merchandising mix has changed from a consumer standpoint over time and something that we'll continue to focus on. I do think still though, if you talk to retailers that have an omnichannel platform, they're going to say they're trying to make the store the center of what they do. And the store is still the most profitable way to deliver goods to the consumer.

And on the continued kind of tenant health here, leasing has been strong, continues to be strong. You guys are pushing kind of shop occupancy higher. The SHOP pipeline has grown. As you guys assess sort of the portfolio today and then look at sort of the redevelopment tail you have. How should we expect near term and long term frictional vacancy, I guess, in that SHOP portfolio? Like where do you think today's portfolio can handle it versus once you're even further through the redevelopment, what long-term potential for your portfolio could be assuming similar type supply-demand dynamics of today?

So we have always said that we expected this portfolio to be at a low 90s shop occupancy. So it's 92.2%. What is encouraging about what we still have in terms of the growth opportunity there is if you were to look at the future redevelopment pipeline. [Audio Gap]

And then maybe turning to acquisitions. Mark looks bored down there. So we'll put him into the mix. You guys have been fairly active, but you're match funding things, right? And so the -- it feels like the game plan has been more IRR arbitrage on upgrading the portfolio, harvesting some value. Could you just talk about -- is that the trend that we should continue where sort of market cap rates going? And how much could you do that's more immediately accretive versus longer-term accretive.

Well, I'd say a couple of things on, I would note, as Brian said earlier, we've been a net acquirer of assets now for the last 5 years. So we have been growing externally. I think 100% right. Our focus as an investor is long-term IRR. And when we think about our marginal dollar, we're certainly directing that dollar towards redevelopment today, given the yields -- incremental yields that the team has been delivering. So when we're looking at acquisitions, we're comparing that dollar and making sure that we're buying assets where we can put our platform to work and really drive IRRs into that high single digit, low double digit on an unlevered basis. So that's how we're going to continue, I think, to think about it. From a market perspective, the open-air retail market today is quite robust. It's one of the sectors, I think, relative to a lot of other ones that is -- has a lot of new capital coming in on the margin cap rates compressing particularly for assets that are smaller. So from our perspective on that IRR recycling question you had, we're able -- we've been able to sell some assets in our portfolio at pricing where we think we're selling them at a low high 6, low 7 IRR and reinvesting at that 9% to 10% IRR range. So we like that about the market today. If you look at what we've invested over the last couple of years, the deals have been bigger. So our average deal size was somewhere in that, I think, 150 last year. And what's interesting about those bigger deals is that they are a little bit higher yielding generally, there's less competition for those assets. And more importantly, they usually have more moving pieces that we can put our platform to work in today's environment. So we're excited about that piece of the environment. For us, acquisitions, as Brian said, it's not necessary for us to grow. We're excited about the opportunity that acquisitions incrementally can add to our company. But the other thing I'd leave you with is that it's always going to be opportunistic for us. So it's not a quarter-by-quarter plan. It's let's find the right deals to put our platform to work on.

And as you guys think about that time frame to capture that 300 basis point -- 200, 300 basis points of IRR lift. Like what's the -- is there a time hurdle internally. What is it?

Well, what we -- we've done a lot of back testing on our acquisitions. They've generally been good deals. And what we're finding is it's a 3- to 5-year business plan generally when we buy. And it's driven by a variety of factors. We're focused on assets that have rent mark-to-market. Last year, we bought some assets with occupancy gain. The year before we bought Britain Plaza in Tampa, which is really backfilling the redevelopment pipeline but that plays out over 3 to 5 years.

And what is -- what's kind of the opportunity pipeline look today as you kind of evaluate the redevelopment IRRs and incremental returns versus acquisitions that you kind of need to do for the long-term backfilling growth? I mean what's the deal pipeline look like for you? And how do you kind of ultimately decide here's the bucket of capital. We need this. Maybe you could just sell more to fund it, but kind of how do you guys divvy that up internally?

I'll take the first part, and Mark can talk about the pipeline, maybe Steve can chime in here. So our focus is going to continue to be on accretive reinvestment. We're funding that with free cash flow. And as I mentioned earlier, I'm even more excited about what we have in that future pipeline than what we've already done to date because the projects are larger in scale, but still derisked in the sense that they are pre-leased, and we have good visibility on cost, and we have them in great markets. And so that's going to continue to be the first focus of our capital dollars. And Mark, I don't know if you want to touch any more on the market.

Yes. From a pipeline perspective, the market was quite active in Q4. Q1 has been a little slower. When we think about the pipeline we've been building, it's -- we've been talking to some of these families that we're trying to acquire from for 5, 7 years at this point. And what's interesting is that we are seeing more activity from some of the private families who are saying to themselves, "Hey, I kind of see where the market stabilize, I need to make a transition with my business, and we're seeing some more activity on the private side." It's always going to be, as I said, opportunistic for us. We don't need to do it every quarter. We're trying to fund the right deal to put money to work. And to your question, we are comparing that marginal dollar to anything we can spend on their development pipeline. If the returns on the acquisitions don't match those, we're really past -- we really are trying to find the right deals to drive long-term value for shareholders here.

And I think implicit in your question, Craig, is the impact on growth in the short term, right? And we've been net acquirers now for the past 5 years. We have continued to grow FFO at the top of the peer group so this has been additive. We are excited with what we're seeing in the market, and we want to grow because we have a platform that we feel can drive outsized and incremental results than ultimately what can be achieved by whoever is owning the property today. So we're excited about it. And generally, we're growing in markets that we know very, very well. And then we have a good understanding of what the leasing demand is and how far we can push things to drive outsized returns and value.

And we just had a question come in. You mentioned the deals that you're tracking are with private families. How much do marketed opportunities play in your consideration?

The way we think about that question is how many deals have we bought off-market versus on market. It's about 60% on market, 40% off market. That's kind of the way it generally trends. It's a pretty -- it's a widely brokered market.

And generally, I would just say, Mark, chime in here if I'm off on this. But even some of the off-market deals will have some level, sometimes of broker assistance, and we're generally not getting them I would say, at a steep discount, we are just getting ahead of them before they're broadly marketed and there's more competition for them.

100%. The beauty of the off-market deal, the ones that you've been tracking for many years is that you kind of know the business plan day 1. You're not getting a broker package saying, "Hey, this is kind of interesting." You're saying, I wanted to buy the center for 10 years. And so that's the beauty, I think of off market. You can control that price and really get to your business spend much faster.

And I brought this up with one of your peers earlier. I'm just kind of curious on your answer. As you guys underwrite different markets, clearly, some states and cities are more tax-friendly and others are less tax friendly and some are moving even more unfriendly, right, speaking of New York City and some other places. But just how do you underwrite that political risk and which ultimately translates into operating expenses and limits the ability to push rents, right? And maybe impacts demographics in an area where you thought was X and maybe it changes to Y. I know it doesn't change quickly. But just how much time do you guys think about that versus those are maybe 10-year changes and it's past the point? Or are you guys thinking internally now about that? And maybe is that leading you towards not only the buy, no buy decision, but also hold-sell decision on assets that you currently have in the portfolio?

That's where we start. It's more of the existing -- not as much on -- it's certainly a consideration, Craig, on external growth, but understanding that the decision to hold an asset it's an investment decision as well. And so as we look out and say, okay, what's happening over the next 10 years, what's happening in that market from a tax and legislation standpoint, what's happening in that market in terms of the competition there. One of the benefits of clustering and having a lot of assets and being the largest landlord in places like Philadelphia, Atlanta, among the largest landlords in Houston is that you have a good understanding of ultimately what's happening in a given market. We've done some very accretive reinvestments in some high-tax states and others that have been much more accommodating from an overall tax perspective. So I think where we sit today in terms of the markets that we're in, and we have a large presence in we like, but it's certainly a consideration not just from what we're buying, but more importantly, for what we already are in control.

I think importantly, too, just the size of the portfolio gives us that diversification, right? So not any one market is that impacted by any one decision by a local jurisdiction.

And I would remit Brian, so when we think about new deals that we're buying, the reason why we buy in our footprint is because we know the markets well. We think we understand where taxes are going. We think we -- not we think we know where operating expenses are going and so that's an advantage for us to take -- to use to find good deals in the market. If you see where we bought, we bought a lot in Texas recently, we bought a lot of assets in Florida. We bought some deals in Chicago that have been big home runs for us because we understood the opportunity some of those assets presented. We're a big landlord in Southern California, and that has a lot of headline risk in that market. Our portfolio in California performs extremely well. We just put money to work in that market at a high 6, low 7 going in yield with growth that we think is 4% to 5%. So you have to buy the right assets in these markets, and we do think our platform gives us that advantage to do so.

We have another question come in. Can you paint a scenario that would lead to FFO growth in 2026 that trends above the high end of guidance.

Yes. I think Steve can chime in on this, too. It's pretty simple for us. It's ultimately on the execution front. What can we still get done now that we can open this year? What might we be able to pull in from next year, can we continue to see the compelling move-out trends that we've had across the portfolio were normal course move-outs or now 4 years running of historic lows. So it's kind of simple, but it's more on our ability to continue to execute throughout the year, and we're pretty encouraged out of the gate.

Yes. I think it always comes down to the same property NOI, that's the largest component of our growth, and it's what Brian said, it's getting leases open sooner. I think we didn't spend a lot of time talking about tenant disruption, but obviously, our watch list compares favorably to a lot of the other companies out there. And to the extent that is muted as well, I think you could see us drive to the higher end of our same-property NOI guidance. I mean for the rest of it, I think on the interest rate side, we only have a little exposure left, right? So I think like we saw in '25 to the extent there are opportunities for us proactively to get paid to take back space and then ultimately backfill that with more relevant tenants, you may see an opportunity for lease settlement to be higher, but we feel very comfortable where we are set today with our range.

And from a funding perspective, where you guys kind of sit? What were you anticipating? I don't know how much debt raising was in guidance, if any. But just from a spread perspective, some of your peers have put out -- have issued debt at record type spreads there. I mean how does that factor into what you have kind of baked in?

Yes. I mean we have an upcoming $600 million maturity. We prefunded some of that back in September. So we were sitting on about $350 million of cash so the remainder exposure for the year is pretty limited. Obviously, we saw those trends, they were a great spread in our fixed income. I know there's some of them in here today. Our fixed income support has been very, very strong with investors. Obviously, there's a lot more volatility in the 10-year today and where spreads are going. But I think still think we would probably do a 10-year sort of in the 5, 10-ish range, plus or minus. So it's still very strong cost of capital of what you've seen over the last couple of years. And then we'll continue to look for a window to be opportunistic in the market as we get closer to that maturity.

And then just to remind us, I know you talked about a bit on the call, but how much of the bankruptcies from 1.5 years ago are still need to be addressed in the portfolio versus where have been leased. And then the commencement timing, again, I know that we talked about the still pipeline today, but the tail of that from a commencement standpoint.

Let's say -- answer it this way. Our occupancy was down 10 basis points year-over-year despite the fact that we took back 1.6 million square feet last year and grew at over 4% while we were doing that. So I think it gives you visibility in terms of what we've addressed. Now the bulk of the leases, it generally takes about a year, if you think about it, maybe a little bit more depending on the work that you're doing in the space. So thinking about the bulk of the anchors that we signed in the fourth quarter, starting to come online in the fourth quarter of 2026. And what we're signing today, Craig, will -- generally, there's still some anchors that you can get in for the year, but primarily, that's going to be for 2027 and beyond. And then even thinking about -- I mean, we signed close to 1 million square feet of new leases in the fourth quarter. That's only a small fraction of what's coming on in 2026. The bulk of that, the full year impact is coming on in 2027.

And Steve, as you mentioned, the tenant credit watch list type exposure and guidance, it's eased a bit, right? Like remind us again what you have been there for known versus maybe a cushion for potential.

Yes. I mean the way we approach budgeting has been consistent going back ever since I've been here as we go space by space, property by property, right? So to the extent there is an individual bankruptcy at a property, we would remove that out of the underlying amount. But where in the previous years, we've given that range of possible outcomes because there were more material larger bankruptcies out there. I mean we're not seeing that today. When you look at -- you'll still see drug stores, cloth stores, container store. We had one Saks had a great property we had in Naples, but there's just not a lot of exposure out there. And then on the traditional revenue deemed uncollectible, where our historical run rate was 75 to 110 basis points based on all the work we've done on their portfolio and the improvement of that underlying tenant credit profile, we've tightened that into 75 to 100 just to reflect that improved underlying tenant.

And I would just add, I know we're coming up on time here to leave everybody with what I said at the beginning was this is the strongest underlying tenant credit profile that this company has ever had. And if you were to screen a perceived watch list versus us and any of the peers, the category Steve mentioned, individual names, we would screen very favorably. 4 years running of normal course move outs being historic lows for the portfolio, retention rates close to all-time high. So the position that we're in today is very strong from an overall tenant credit perspective.

Before we run out of time, same-store for the retail group next year.

3.5.

And more, fewer, the same amount of companies.

Less.

Thank you, guys. Enjoy the conference.

Thanks. We appreciate it.