Q2 2023 Brixmor Property Group Inc Earnings Call
Participants
Angela M. Aman; Executive VP, CFO & Treasurer; Brixmor Property Group Inc.
Brian T. Finnegan; Executive VP & Chief Revenue Officer; Brixmor Property Group Inc.
James M. Taylor; CEO, President & Director; Brixmor Property Group Inc.
Mark T. Horgan; Executive VP & CIO; Brixmor Property Group Inc.
Stacy Slater; SVP of IR & Capital Markets; Brixmor Property Group Inc.
Alexander David Goldfarb; MD & Senior Research Analyst; Piper Sandler & Co., Research Division
Anthony Franklin Powell; Research Analyst; Barclays Bank PLC, Research Division
Caitlin Burrows; Research Analyst; Goldman Sachs Group, Inc., Research Division
Craig Allen Mailman; Research Analyst; Citigroup Inc., Research Division
Dori Lynn Kesten; Senior Analyst; Wells Fargo Securities, LLC, Research Division
Floris Gerbrand Hendrik Van Dijkum; MD & Senior Research Analyst; Compass Point Research & Trading, LLC, Research Division
Greg Michael McGinniss; Analyst; Scotiabank Global Banking and Markets, Research Division
Haendel Emmanuel St. Juste; MD of Americas Research & Senior Equity Research Analyst; Mizuho Securities USA LLC, Research Division
Jeffrey Alan Spector; MD and Head of United States REITs; BofA Securities, Research Division
Juan Carlos Sanabria; MD & Senior U.S. Real Estate Analyst; BMO Capital Markets Equity Research
Ki Bin Kim; MD; Truist Securities, Inc., Research Division
Linda Tsai; Equity Analyst; Jefferies LLC, Research Division
Michael William Mueller; Senior Analyst; JPMorgan Chase & Co, Research Division
Todd Michael Thomas; MD & Senior Equity Research Analyst; KeyBanc Capital Markets Inc., Research Division
Presentation
Operator
Greetings, and welcome to the Brixmor Property Group Second Quarter 2023 Earnings Conference Call. (Operator Instructions) As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Stacy Slater. Thank you. You may begin.
Stacy Slater
Thank you, operator, and thank you all for joining Brixmor's second quarter conference call. With me on the call today are Jim Taylor, Chief Executive Officer and President; Angela Aman, Executive Vice President and Chief Financial Officer; and Brian Finnegan, Executive Vice President, Chief Revenue 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.
Given the number of participants on the call, we kindly ask that you limit your questions to 1 or 2 per person. If you have additional questions regarding the quarter, please requeue.
At this time, it's my pleasure to introduce Jim Taylor.
James M. Taylor
Thank you, Stacy, and good morning, everyone. Our results this quarter once again demonstrate that platform and rent basis matter. As this long-awaited tenant disruption providing us the opportunity to bring in better tenants at better rents, continuing to drive our transformational value-added plan and importantly, setting us up for future outperformance.
Consider that in a quarter where we recaptured nearly 300,000 square feet of space associated with tenant failures, we still grew overall in small shop occupancy to platform records. We realized new leasing spreads of 22.4% and set an all-time high new lease rate of $24.30 a foot, bringing our average in-place rent to $16.60 a foot, up 4.4% on a year-over-year basis. And as our record high net effective rents once again demonstrate, we continue to be disciplined with capital as we drive this high ROI activity.
Importantly, we're not only leveraging this disruption to drive growth in rents and returns. We are also bringing in more vibrant uses to our well-located centers in the segments of grocery, specialty grocery, value apparel, quick-serve restaurants, health, beauty and home. We can see the follow-on impacts in terms of not only traffic, which continues to trend very well but also in our small shop demand.
And as we drive attractive ROI. We are also substantially improving the value of the centers impacted in terms of applied cap rates. In fact, when you consider our forward leasing pipeline, we expect our ABR from centers with a grocery anchor to increase over 80% as we signed deals for new stores with tenants like Publix, Whole Foods, Sprouts, Trader Joe's, ALDI and others.
Speaking of our forward leasing pipeline, it continues to rapidly build, as Brian will discuss. And that pipeline continues to convert into our pool of signed but not commenced leases which at quarter end stood at $56.7 million of ABR that will rent commence as Angela will discuss in a minute. Those rent commencements will allow us to continue to deliver top line growth at the top of the sector, just as we did this quarter with base rent contributing 520 basis points.
During the quarter, we continued to deliver highly accretive reinvestments, bringing our total since we began to over $890 million at an incremental 11% return. We also grew our in-process reinvestment pipeline with $77 million in new projects including adding specialty grocers at Roosevelt Mall in Philadelphia in Middletown Plaza in New Jersey. Importantly, as we've demonstrated, these reinvestment projects also have a flywheel effect on our returns through growth and follow-on occupancy and rate at the centers impacted.
Beyond that, our shadow pipeline includes over $900 million of additional investment that will allow us to continue to drive attractive ROI and growth in cash flows for the next several years, even in a rising rate environment. Remember, our plan is self-funded through free cash flow and importantly, driven by opportunities we own and control.
From an external growth perspective, we remain disciplined, holding on acquisitions and continuing to build dry powder through opportunistically harvesting noncore assets and through retained free cash flow. I believe that discipline will begin to pay off in the coming quarters as we are now seeing acquisition opportunities coming back to us, the pricing meaningfully less than the same assets were priced as recently as 18 months ago.
Importantly, these are assets where we can leverage our value-added platform and tenant relationships to deliver compelling returns. More to come there. Finally, I'd like to give a shout out to the Brixmor team who across all fronts, continues to exceed expectations, delivering exceptional value to our stakeholders and in so doing, continuing to drive us towards our purpose of creating and owning centers that truly are the center of the community they serve.
Now I'll turn the call over to Brian, who will provide additional color on the strength of tenant demand to be in our centers. Brian?
Brian T. Finnegan
Thanks, Jim, and good morning, everyone. As Jim highlighted, the broad depth of tenant demand to be in our centers is not only evident in our results during the quarter, but in our forward leasing pipeline as we continue to attract best-in-class operators at the highest rents we've ever achieved. This quarter, we executed on 375 new and renewal leases totaling 1.4 million square feet, the highest number of new and renewal leases executed in the past year.
Included within this activity were new leases with the top tenants and open-air retail such as Burlington, TJX, Ross, Chick-fil-A and Five Below. In addition, we added several exciting new tenants to the portfolio during the quarter, including the company's first new lease with Tesla, backfilling a 64,000 square foot box in the Houston Suburbs for Tesla showroom and repair center concept.
Our team also continued to capture the upside embedded in our below-market leases with this activity as well with new and renewal spreads of 15.4%. New lease spreads were at 22.4%, reflecting a larger mix of small shop leasing during the quarter and the eighth consecutive quarter of new lease spreads over 20%, with our record new lease ABR of $24.30 per square foot representing a 46% increase versus our in-place ABR.
The strength of the overall leasing environment and the desire for tenants to remain in the Brixmor portfolio was also demonstrated in our renewal spreads, which is 13.6%, is 200 basis points above our trailing 12-month average. The consistent execution in driving rate higher is a testament to our team and how they have capitalized on the transformation of this portfolio.
We continue to make progress on our bankrupt tenant space as well, out-leasing the vacancy we took back during the quarter to continue to grow portfolio occupancy to new heights, specifically on Bed Bath were either leased assumed or at least on approximately 2/3 of our Bed Bath space with the top operators in the open-air space at rent spreads that are consistent with the 30% to 40% we communicated last quarter.
We expect the majority of this income to come back online in 2024 as we are primarily negotiating with single tenant users for these spaces. This expected tenant disruption provides us a great opportunity to lease to better tenants at much higher rents.
Looking forward, we are encouraged by the resiliency of the leasing environment with more anchor leases currently being negotiated than we've had in over 3 years and more new rent in our legal pipeline than we've ever had. The forward pipeline, along with the lack of new supply in a completely transformed Brixmor portfolio, put us in an excellent position to drive long-term sustainable growth.
With that, I'll hand the call over to Angela.
Angela M. Aman
Thanks, Brian, and good morning. I'm pleased to report another quarter of continued execution as we quickly and accretively capitalize on the strength of the current environment to address recent tenant disruption. NAREIT FFO was $0.52 per diluted share in the second quarter driven by same-property NOI growth of 2.7%. Base rent growth contributed 520 basis points to same-property NOI growth this quarter despite a drag of approximately 50 basis points related to recent tenant bankruptcies. In addition, net expense reimbursements, ancillary and other income and percentage rents contributed 80 basis points on a combined basis.
As anticipated, revenue seemed uncollectible detracted 330 basis points from same property NOI growth, primarily due to the ongoing moderation of out-of-period collections of previously reserved amounts. As highlighted last quarter, out-of-period collections in the second quarter of 2022 were materially higher than in any other quarter during the year, creating the most difficult comparison period during 2023. We remain pleased with the significant velocity we continue to experience within our signed but not yet commenced pool.
During the second quarter, we added newly executed leases, representing approximately $16 million of annualized base rent while commencing leases representing nearly $15 million from the pool. As a result, at June 30, the signed but not yet commenced pool totaled 2.7 million square feet or a record high $57 million of annualized base rent, of which we expect 1.3 million square feet for $25 million of annualized base rent to commence during the remainder of this year. These commencements will more than offset an additional 440,000 square feet of occupancy loss expected from Bed Bath & Beyond, Christmas Tree Shops, Tuesday Morning and David's Bridal in the second half of the year as we harvest the below-market rent basis embedded in our portfolio.
Our fully unencumbered balance sheet remains well positioned to support our balanced business plan with debt-to-EBITDA of 6.1x, 100% fixed rate debt, total liquidity of $1.3 billion and only $300 million of debt maturities through year-end 2024.
In terms of our forward outlook, we have raised our 2023 guidance for same-property NOI growth to a range of 2.5% to 3.5%, reflecting improved expectations for base rent and revenues deemed uncollectible at the lower end of the range. Our assumptions for revenue seemed uncollectible have been modified to a range of 75 to 85 basis points of same-property total revenues for the full year versus the prior range of 75 to 110 basis points.
In addition, the midpoint of our same-property NOI guidance range now reflects approximately 125 basis points of year-over-year impact related to lost rent and recovery income from recently announced or anticipated bankruptcy activity. Approximately 100 of the 125 basis points is related to store closures or lease rejections that have occurred or been announced to date, while the remainder will accommodate additional disruption that may be experienced during 2023.
We have also raised our guidance for 2023 NAREIT FFO to a range of $1.99 to $2.04 per diluted share. As the $0.01 gain on extinguishment of debt this quarter was factored into our guidance raise last quarter, this quarter's $0.02 FFO increase at the low end reflects the change in same-property NOI growth guidance and revised assumptions across a variety of other line items, including noncash GAAP rental adjustments, G&A and interest expense.
And with that, I'll turn the call over to the operator for Q&A.
Question and Answer Session
Operator
(Operator Instructions) First question, Todd Thomas with KeyBanc Capital Markets.
Todd Michael Thomas
Jim, first question, I just wanted to ask about the investment environment a little bit in light of your comments around assets coming back to the market at more favorable pricing. What's the company's appetite like today to deploy capital on new investments? And can you talk about what that change in pricing equates to in terms of either higher yields or IRRs that you're underwriting today with some of this new product coming back to the market?
James M. Taylor
Yes. I'll let Mark comment a little bit, but maybe just to set the table, it's going to be driven by the returns that we see available in the assets that are coming back. So we are really focused on those assets where we can drive outsized IRRs through lease-up density, better tenanting, leveraging our national relationships to basically take what will typically be privately held assets and drive returns.
In terms of the pricing move, they're starting to move to places where we believe that we can even in this higher rate environment, higher cost of capital, acquire them accretively. But it's going to be driven, Todd, solely by where those assets ultimately price. So we'll -- expect us to remain disciplined. We just are encouraged by what we're seeing in terms of the movement in price, some of which is being occasioned by the lack of asset level financing or the constrained credit environment as well as tenant capital requirements as we see tenants moving out.
Mark?
Mark T. Horgan
Yes. What I'd add is volumes continue to be somewhat low, but I'd say real time, we're starting to see more sellers willing to meet the market. As Jim mentioned, from a value perspective, we're seeing assets settle out at pricing that starts to make more sense from our perspective. And you're seeing probably the biggest hit to value on those assets from a really deemed this core over the last few years, releasing those show the biggest hit to value.
You asked a bit about IRR. We think we can underwrite deals into the high single-digit, low double-digit unlevered IRRs for what we're seeing today, given the yield and growth that we expect to see in assets that we'll be acquiring. And the other piece I would add is we're starting to see more interesting yield opportunities in larger deals, say, about $50 million to $60 million. We think there is kind of a pocket of opportunity there in those larger deals that show some higher yields and some good growth opportunities from here. So more to come hopefully in the next quarter or so.
Todd Michael Thomas
Okay. That's helpful. And then are these one-off assets that you're seeing? Or is there anything of size, any portfolios that you might affect to sort of transact? And then separately, you increased your redevelopment and value enhancement pipeline spend during the quarter. Are you seeing more opportunities to accelerate projects there, given maybe the lack of available space? And set pretty good leasing demand that you're seeing, should we expect to see that pipeline continue to build further vis-a-vis what sounds like a better environment for acquisitions?
James M. Taylor
Yes. We're seeing, obviously, the most compelling return still within opportunities that we own and control within our redevelopment pipeline. And part of what's accelerating some of those opportunities is, frankly, the recapture of some of this bankrupt space where with 30% to 40% spreads, for example, on the Bed Bath boxes, we can drive some highly accretive not only in terms of ROI projects, but as I highlighted in my comments, the cap rate that would otherwise be applied when you backfill a Bed Bath with a specialty grocer with a more vibrant soft goods retailer.
In terms of the transaction market, most of what we're seeing and where we think the opportunities are going to be is single larger assets, we are seeing some small portfolios, too. But it's really going to be driven by the opportunity and the type of returns that we think we can deliver because importantly, we do have a lot of great opportunity in what we own and control. So as we way our capital allocation decisions, I think the good news for us is we're not wanting for opportunities. So as we think about external growth, it really has to make sense in light of what we own and control.
Operator
Next question, Juan Sanabria with BMO Capital Markets.
Juan Carlos Sanabria
Maybe a question for Angela. On the bad debt assumptions that you've improved here given the results to date, how should we think about that flowing through to occupancy for the second half? How much base is kind of coming back vacant temporarily? And is that the main driver for the implied decel in FFO from the second quarter run rate stripping out that $0.01 from the debt against?
Angela M. Aman
Yes. Thanks, Juan. As I mentioned in my remarks, we're expecting something like 440,000 square feet to come back in mostly the third quarter, but a little bit into the fourth quarter from the currently announced bankruptcy activity. So Bed Bath, Christmas Tree Shops, Tuesday Morning and then David's Bridal. We do have, in the signed but not commenced pipeline, about 1.3 million square feet that's expected to commence over the second half of the year as well. So even with some natural sort of attrition from normal course lease expirations, we're in a good position, we think, to grow occupancy through the second half of the year as well. So we feel good about that.
In terms of the FFO deceleration, I'd note a couple of things as it relates to the second quarter. One is the gain on debt extinguishment. That was a component of the $0.52, that's about $0.015 per share. We also had some straight line rental income reestablishment that were, again, just under $0.01 a share. So those 2 things together were about $0.025 in the second quarter, stripping those out and using that to annualize for the second half of the year, plus first half actuals gets you to about the midpoint of our range.
From there, whether we come out at the low end or the high end is very much going to be dependent on the bankruptcy activity we just talked about as well as any unanticipated tenant disruption we might see in the second half of the year.
James M. Taylor
And timing of rent commencements. It's something that we're continually focused on is bringing that signed but not commenced pool into occupancy and rent paying. And we've done a pretty good job, as Angela highlighted in her remarks, getting it rent commenced.
Juan Carlos Sanabria
And my second question, just curious on what you guys are hearing or seeing from some of the pharmacies. You've seen Walgreens kind of cut headcount, CVS came out today and said he was going to cut some corporate headcount. So just curious on latest discussions with the pharmacies and space usage and kind of just how you're feeling about that business and changes that we might expect going forward?
Brian T. Finnegan
Yes, Juan. This is Brian. I think if you look at the pharmacy real estate that we have across the portfolio, we've got some very attractive upside, particularly on some of those like older Rite Aid locations or older CVS locations that might have been in line. We backfilled one of them with Ulta recently. You have seen some of the pharmacies look for smaller units too. So we executed a couple of Walgreens locations in Texas for their smaller concept.
I think if you look at some of the pad locations that they have, that they were really focused on kind of in the early 2000s of expanding, those are some of the most high-profile outparcels that we have across the portfolio. So to the extent there would be a few closures, which we did experience after Walgreens purchased some of the Rite Aid boxes, we feel really good about the demand for those overall.
So certainly changing dynamics in terms of how they're thinking about their real estate. But as we said, overall, we feel like we have some pretty good attractive upside in our pharmacy space.
Operator
Next question, Ki Bin Kim with Truist Securities.
Ki Bin Kim
Just going back to the bad debt reserve. Can you just remind us what that reserve was? I think it was like 75 to 110 basis points, not including the known budgeted move-outs, how that's evolved by 2Q and what your projections are for the remainder of the year?
Angela M. Aman
Right. Yes. So the 75 -- our current guidance for revenue seemed uncollectible are 75 to 85 basis points. The prior guidance for that was 75 to 110 basis points. That's pretty much in line with our longer-term historical average when you take out some of the disruption during the pandemic. So we do think on a net basis for this year, we're going to come out kind of in line with the historical average for that number.
On a year-to-date basis, we're running a little bit below that. We're about 50 basis points within the same-store pool year-to-date. We were closer to the low end of that range at about 70 basis points in the second quarter. So that does imply a slightly higher run rate in the second half of the year, but feel good that we're going to be within and actually towards the lower end based on the revised guidance of where we've been historically.
Ki Bin Kim
Great. And just a high-level question. When you look at some of the at-risk tenants like JOANN, Michaels or Big Lots, any high-level commentary you can share on what the potential upside or challenges might look like compared to the current slate of bankruptcies that you had to deal with such as Bed Bath, Party City and so forth?
Brian T. Finnegan
Yes. Ki Bin, this is Brian. I mean, not to get into individual tenant names, but as we've talked about on prior calls, we keep a watch list. Many of the names that you would think would be on there are on there. And I think over the years, our team has done a fantastic job of proactively addressing this space. We're talking about Bed Bath today. We went ahead and took back four Bed Bath spaces. So as we look ahead of the bankruptcy and we've seen very attractive leasing, we've gotten ahead of those. We got ahead of the Tuesday Morning as well.
So as we look out, we are certainly looking at those opportunities. We have been aggressive in terms of recapturing space where we have the availability to do so. And in terms of the rents, overall, I mean, we feel pretty good. I think those rents are in line with $9 and change rents that are expiring here over the next 3 years, and we've been signing those leases between $14 and $15 a foot. So you look at the upside there, and it's pretty much what we see in some of that watch list tenancy as well.
And the other thing I'd point out is you've just seen how tight the box environment is today in terms of what you saw at the auction for Bed Bath with retailers bidding on space, competition for our box space across the portfolio. So we feel pretty confident to the extent we do get a few of those boxes back for the names that are on the watch list here in backfilling them quickly with better tenants at higher rents.
Operator
Next question, Caitlin Burrows with Goldman Sachs.
Caitlin Burrows
Maybe on small shop lease occupancy. It's at a record 89.4%. So when you consider that 10% plus of availability, can you give any description of that vacancy kind of what's frictional in process to be replaced quickly? Maybe what's been vacant longer and what that kind of means for the path for small shop occupancy and ultimately, overall occupancy over time?
James M. Taylor
Yes, I really appreciate the question, and you're highlighting on an important growth lever for this platform, in particular, in part because within our active reinvestment pipeline, we have a couple of hundred basis points of drag on occupancy for assets where we're replacing anchors or doing facades or doing larger reinvestments that we fully expect that we'll lease those spaces as we deliver the reinvestments.
In fact, our experience has been that we pick up our small shop occupancy and reinvestment projects by several hundred basis points. And it's not only the pickup in occupancy, but the growth in rate can be 20%, 30%, 50% in the small shop spaces when we've substantially improved the center. So we have that growth, if you will, in reserve.
The other thing to think about is as we continue to transform this portfolio, we'll continue to set new records in terms of small shop occupancy, and we see we have more than a couple of hundred basis points to run there. So it is an important growth lever. As I mentioned in my remarks, it's somewhat of a flywheel growth effect to you replace a tired anchor with a vibrant soft goods or specialty grocery use you see the benefit throughout the property even those spaces that you don't impact directly.
So it is something we're very focused on we're managing our portfolio for growth, not occupancy. I want to highlight that. And our strategy of keeping spaces vacant reinvestment projects speaks to that.
Caitlin Burrows
Got it. Makes sense. And maybe just back to the acquisition topic. So when we look at that leverage is now at 6.1x. To the extent you were to identify an opportunity, I guess, how would you think about funding that maybe up until a certain size, just retain cash, but over a certain amount, like debt dispositions or how you're thinking about that?
James M. Taylor
Well, obviously, free cash flow first, asset dispositions as we continue to harvest some noncore assets. And then we'll look at the investment opportunity relative to what our overall cost of capital is as we always do, to make a decision to responsibly fund it. We're not going to lever up. We're going to continue to be disciplined from a capital standpoint in mind our balance sheet.
Operator
Next question, Craig Mailman with Citi.
Craig Allen Mailman
I just wanted to follow up on the acquisition piece a little bit. I know Jim, you and Mark kind of went through the yields there. But I'm just kind of curious, as you guys are evaluating (inaudible). How much weight you're putting on that current going in yield versus the longer-term opportunity on the IRR side and kind of balancing the accretion versus cost of capital near versus long term?
James M. Taylor
It's a great question. And we're focused on that going in yield. That's the in-place cash flow, right? But we're also looking for opportunities where we can grow that. And importantly, very visible opportunities. In other words, they're not really having to spec a lot because of our understanding of tenant demand to be in that particular center, our understanding because we are in the markets where market rent is and our understanding of how we can densify the site, add out parcels and other uses to drive returns.
And really, it's a focus on that going in return, yes, but also within very highly visible growth opportunities within the first 3 to 5 years. If you look much past that, I think it becomes anybody's guess. So as you overlay that sort of thinking and you think about what we've done historically, you'll see our pattern has been very consistent. Acquisitions like Granada Shoppes or Benita or out in California and Brea, where we have actually exceeded our underwriting in terms of rents achieved and overall growth and returns.
So think about it as more fuel for our value-added furnace. And if we don't see the opportunity, it's not evident, we're just not going to be as competitive. One of the things that we find encouraging is that in this environment, we are seeing the pricing and you speak to that upfront yield moving to a place where it becomes logical for us to consider it. Stay tuned. We'll see. But expect us to remain disciplined.
Craig Allen Mailman
That's helpful. Then switching gears, I know Brian was talking about the anchor pipeline that you guys have. And I'm just kind of curious, given limited supply, there's clearly more people looking to newer spaces but how you balance kind of getting that last dollar of rent versus just portfolio diversification between the off-price retailers themselves or other kind of verticals? How are you guys looking at given some of the anchor troubles that pop up every 5 to 10 years, just how to manage that risk going forward?
James M. Taylor
It's a great question and something we're laser-focused on as we think about tenants going forward that we want to do more business with. We obviously have a very diversified tenant base, one of the most diversified in the sector. We don't have any tenants constituting really any significant part of our rent. And we do think about tenant diversification and credit quality as we make those decisions so that we're not just making a decision about growth, which you see in our results, but also the stability of the tenants and their creditworthiness as we make those decisions.
We do a lot of credit underwriting led by Angela and team, but we're also really using data more than we've ever done before to understand how productive a tenant is going to be in a particular location. Because it's not just the credit quality of the tenant, it's also how successful are they going to be. Are they going to drive good sales? Do you have a high likelihood that they're going to renew and they're going to renew at a higher rate? So those are the types of things that we think about.
And if you just look at our top tenancy over a long time series, you can see the continued improvement in the credit quality. It's part of why we outperformed through the shock of the pandemic. But it's also, I think, going to be a crucial part of our outperformance going forward.
Operator
Next question, Greg McGinniss with Scotiabank.
Greg Michael McGinniss
Could you just provide some more color on the outcome of the Bed Bath bankruptcy process, including number of leases assumed and specific tenants that won those leases at auction or tenants that are signing new leases and LOIs?
Brian T. Finnegan
Sure, Greg. This is Brian. So we had 9 boxes remaining at the end of the quarter. We're taking 6 back here in the third quarter. Two were assumed by cost plus, 1 was assumed by Burlington. We also took back 1 box in the Northeast as well. And just to piggyback on what Jim was just talking about, I mean, the depth of demand that we're seeing overall for boxes has been very encouraging. And we signed a lease on one of the boxes last week with one of the top operators in the off-price space. We've been seeing specialty grocery home fitness.
And I think outside of that, you see operators in the sporting goods sector, you see operators in the wellness sector. We mentioned our first deal with Tesla this quarter, operators like that, that are competing for box base. So overall, we're very encouraged about what we see so far on the Bed Bath space and really all the bankrupt space that we took back. I mean the team has done a fantastic job quickly addressing the Tuesday Morning with the likes of Five Below and JD Sports and Ulta.
So as we proactively have taken and we're getting some of this space back, overall, we've been pretty encouraged with the depth of that. And you'll see us continue to communicate on the types of tenants that we're able to bring into the portfolio.
Greg Michael McGinniss
Great. And then thinking about potential for occupancy loss as opposed to credit concerns or bad debt aside from Sally Beauty Holdings, are there any other tenants pursuing store optimization plans that might be a headwind over the next 12 months? And then to clarify one point, when you mentioned growing occupancy in the back half of the year, is that both in place and leased occupancy?
Brian T. Finnegan
Greg, I can take the first part. I mean, again, not to get into individual tenants, but we're constantly monitoring tenants. Our watch list is not just credit. Our watch list is also tenants that are looking at pulling back on some of their store openings. What we've seen though, particularly in the small shop space, is just an incredible depth of demand. And we hit on some of the anchors, but if you look at Boutique Fitness, if you look at QSR restaurants, if you look at all the mall-native retailers that we're attracting to the portfolio, there's a significant depth of demand that's there to backfill any closures that we may get back.
And as Jim mentioned, as we continue to bring more anchors in as we continue to reinvest in the portfolio, we still see occupancy on the small shop side, getting into the low 90s. I mean, look, in terms of occupancy declines, as Angela hit on, we are facing some potential occupancy headwinds here in the third quarter from those banker tenants. But with the pipeline that we have, we feel long term, a good trajectory to grow occupancy by year-end.
Angela M. Aman
Yes, I think that's right. The comments I made were specifically about build occupancy and the flow-through to the same-property NOI growth. But as Brian highlighted, we feel very strong about the pipeline, about the continued transformation of this portfolio and our ability to continue to push both build and leased occupancy higher over the near term.
Operator
Next question, Jeff Spector with Bank of America.
Jeffrey Alan Spector
Maybe just a quick follow-up on the earlier conversation on anchor space and anchor space for a small shop. I know it almost feels like every few years, it changes on the mix. I guess, Jim, to confirm, I guess, from your analysis, are you saying that is there a certain right mix between small and anchors. Have small shops basically held up a lot better over the years than expected that you would want to shift a bit more to small shops?
James M. Taylor
It really depends on the center. It's a great question and also the other follow-on question of what's needed in that particular submarket. We like that our centers generally have a great mix of anchors, junior anchors and small shops to allow us to drive the best growth. You get more consistent annual embedded rent bumps in the small shops, both national and regional in terms of the intrinsic growth but you also need the anchor. So it's really asset by asset decision. But when you look at the portfolio overall, I think we have a great mix.
And we'll make decisions to downside junior anchors into small shops will similarly in a particular market and asset based on demand and based on returns, consolidate small shop space into a junior anchor. It's one of the great flexibilities of our asset class, which I really like. It's basically a simple industrial building with a pretty facade, where you've got the HVAC on the roof, power comes in the back. So you have the ability to optimize the center to serve a particular community and get the mix right.
Jeffrey Alan Spector
Okay. And then second, there's clearly some concern today, let's say, over some slowing. And I'm just, again, thinking about all the remarks on leasing and the bankruptcies. Just to clarify, on the BKs for the year, is it -- are they in line with your expectations, let's say, if we go back to December, a bit higher? And maybe more important is as we think about the next year again, is it still kind of in line? Or again, are you flagging it's a bit worse or higher than expected?
Angela M. Aman
Yes. I mean I think we've given really explicit guidance as it relates to the impact on the portfolio and on same-property NOI growth from bankruptcy activity over the course of this year, and that number has clearly improved. So our original guidance was a drag on a year-over-year basis of 150 basis points. We've tightened that into 125 basis points this quarter. I think the names we're talking about that make up sort of that known bucket, which includes Bed Bath & Beyond and Christmas Tree Shops and Tuesday Morning and David's Bridal, or bankruptcy situations we've been following or monitoring for some time. So not a lot of surprises within that pool.
And we haven't seen additional filings that we have continued to recognize that there's a potential for those in the second half of the year, but nothing's really materialized over the last quarter. So overall guidance has clearly improved on the bankruptcy front.
Jeffrey Alan Spector
Okay. Great. Just wanted to confirm. And then last, if I could just confirm on commencements. How -- are commencements happening on schedule? How does it compare to, let's say, 6 months ago or a year ago? And how are you thinking about commencements over the next 6 to 12 months?
Angela M. Aman
Yes. I mean, we're really pleased with the degree to which we've been able to continue to not just commence the leases we have coming online -- on time but actually continue to accelerate some of those commencements into earlier periods, which we did in the second quarter as well. I think we outperformed our expectations on commencements by $2.5 million to $3 million, just pulling forward some leases that weren't expected to commence until the third and into the fourth quarter of this year.
So that's a pretty stable trend and has been over the last couple of years as we really work to sort of optimize the process and recognize efficiencies in order to get tenants open and operating more quickly. As I mentioned in my prepared remarks, we've got about $25 million of ABR coming online in the second half of the year. It's 1.3 million square feet. And we will continue to focus on getting those tenants not just open on time, but continuing to accelerate some of those commencements and even commencements expected in the first part of 2024.
Operator
Next question, Dori Lynn Kesten with Wells Fargo.
Dori Lynn Kesten
Have you seen any notable improvements or slowing in the timing of rent collections within a small shop of late?
Angela M. Aman
We really have not. The collections rates across our portfolio, looking at different merchandise categories, looking at anchor versus small shop has stayed very consistent over the last 6 to 8 quarters. So we're really pleased to see that trend continuing to hold up and can't point to any deterioration. I'd also point to my earlier comments, when you look at the total amount of revenue deemed uncollectible that we've recognized in the portfolio on a year-to-date basis, it's about 50 basis points which was below the low end of the guidance we had given and allowed us to really tighten in our expectations for the full year.
Dori Lynn Kesten
Okay. And then on your -- I think you said $900 million shadow pipeline, can you compare these developments to your existing pipeline, maybe just return expectations, time to completion, any, I don't know, regional leanings?
James M. Taylor
The returns are equally compelling. And the reason it's our shadow pipeline as we have these pesky things called leases that are in place today. But if you look at our rolling lease expiries and the mark that we have of over 50% between where those anchor leases are rolling and where we're signing rents today. It gives you a very clear view of our path to be able to continue to tap into that opportunity as it ripens, as it comes due. One of the other things that I think is important to appreciate is that we're not committing substantial capital until we've got those projects largely pre-leased.
So as you think about the coming economic environment, whatever it might be, it's really an all-weather strategy. We're really not taking substantial risk. So we've identified the opportunities, we're working towards them, and it really represents several years of a forward pipeline, driven in part by when the leases expire and when we can take control of the space.
Things like Bed Bath allow us to pull some of that forward and we added a couple of projects into the pipeline this quarter that reflect some of that. So it truly is a very visible pipeline for us and you can see it based on the marks that are embedded in our anchor rent.
Operator
Next question, Anthony Powell with Barclays.
Anthony Franklin Powell
A question on lease spreads. They were strong in the quarter, but I guess they were down sequentially on the new side especially. Is there anything to be aware of in terms of either a mix shift or comps on a lease spread in the quarter?
Brian T. Finnegan
Anthony, this is Brian. Yes, I talked about it in my opening remarks that, that was really a mix issue. We had a higher percentage of small shop leasing during the quarter. We did sign leases at the highest rents that we ever have, 46% ahead of our in-place ABR. But we still feel very good long term about our team's ability to bring leases to market.
As we've highlighted a couple of times on this call, as we look out 3 years, we've got anchor leases expiring in the high single digits over -- just over $9 and we've been signing those between $14 and $15. So long term, we feel good about our ability to continue to drive new lease growth. You may see some fluctuations in a given quarter. But really this quarter, it was due to the mix.
Anthony Franklin Powell
And maybe one more on the base rent growth, 520 basis points year-over-year. That's pretty strong. What's the split between occupancy and rent growth there? And do you think that number could stay above 5% in the next few quarters as you deal with these tenant bankruptcies and new leasing?
Angela M. Aman
Yes. I mean if you look at our full year guide for base rent sort of at the midpoint of the range is probably about 425 basis points. So we are expecting deceleration as you get into the back half of the year. I would say that's driven by 2 things. One is, as you pointed out, the impact of some of that vacancy that's coming back to us through some of these -- the bankruptcy situations, which really didn't have really any impact in the first quarter and a more muted impact on the second quarter. So that's certainly part of it.
The other factor I would just point out, when you think about that as a year-over-year contribution is the ramp we had in base rent between the third and fourth quarter of 2022. There was substantial growth there. So some of it is just a more challenging comparison period. That gets you sort of to again, at the midpoint of the range more like a 425 basis point contribution from base rent.
I would say on a net basis within that 425 basis point contribution, it's about 100 basis points, give or take, that relates to occupancy growth outside of -- on a net basis for the bankruptcy activity. So clearly, the degree to which we're increasing build occupancy is definitely driving some of that outsized performance over the course of the full year. The rest is really rent growth.
Operator
Next question, Haendel St. Juste with Mizuho.
Haendel Emmanuel St. Juste
First question, maybe for you, Angela, I appreciate the color on the expected ABR in the back half of the year. I think you mentioned $25.3 million. But I was hoping you can get a bit more color on a good starting point for quarterly ABR as you start thinking about the portfolio's growth potential near term in light of the recent BKs. And if there's any impact from FAS 142 (inaudible)
Angela M. Aman
Yes. Nothing really to note at this point in terms of FAS 141 impact related to the bankruptcies. I think we provide some disclosure in the 10-Q that kind of gives you a sense of what to expect in terms of FAS 141 for the balance of the year, but no real outliers from that perspective. On a quarterly basis, I can say, if you look at all the bankrupt space we had that we expect to come back that ties back to that 440,000 square foot number I gave earlier in terms of occupancy loss expected in the third quarter. related to the bankruptcy situation. That translates into about $1.5 million of quarterly ABR that would have been recognized in the second quarter. That will be lost as we get into Q3 and on a full quarter basis in Q4.
Haendel Emmanuel St. Juste
And then more perhaps on CapEx and certainly the CapEx absolute and percentage of NOI has steadily grown in the industry in the last couple of years. But I'm curious if and when the recent leasing velocity, the higher occupancy, less big boxes to fill and improved centers that you outlined, will start helping that line item. So maybe some thoughts on how we should be thinking about CapEx or your expectations near term?
James M. Taylor
An opportunity we saw when we came in was to make the centers look better. So you certainly saw us increasing in earlier years, the CapEx per foot. As we get through this program, and we're already seeing it, we expect the CapEx on a recurring basis to decline given the improvements we've made to the centers. The other area where I think we continue to show discipline is within net effective rents.
And we actually show you our net effective rents, which is not common practice. I think it should be because to really understand how much ROI we're driving, you've got to look at not just the spreads, but you've got to look at what you're giving in terms of TAs and other capital. So I feel really good about our ability to continue to drive high ROI in this environment, given our rent basis and given the discipline that we've approached that capital question with.
Operator
Next question, Mike Mueller with JPMorgan.
Michael William Mueller
Curious, how does the return expectations on the $900 million shadow reinvestment pipeline compared to the current returns? And if you're looking within that pipeline, are there any larger scale projects in it, like Point Orlando or Roosevelt in it? Or is it just more smaller scale?
James M. Taylor
It's a mix. We do have some larger projects. The returns are high single digit, low double-digit incremental returns, Mike. And I think that's important because not everybody is showing you what their incremental returns are. And it's -- with some of the larger projects, we continue to phase them to manage our capital at risk. And frankly, we find through phasing that we drive even better rents in subsequent phases. So there are some larger projects in there, many of which we've already started initial phases like Point Orlando.
Angela M. Aman
Yes. Just note, Mike, we do provide some disclosure in the supplemental that list by project, the projects that make up that $900 million to $950 million of future redevelopment pipeline, and we break that down between major redevelopment projects and minor redevelopment projects. So while we haven't given specific expected dollar amounts by project, I think you can get a sense of where some of the larger opportunities in the portfolio are from that disclosure.
Operator
Next question, Floris Van Dijkum with Compass Point.
Floris Gerbrand Hendrik Van Dijkum
Jim, a question getting back to the small shop opportunity because to me, that's one of the more exciting things that you guys have historically lower occupancy. Remind us again what your average occupancy is in your shop once assets have been redeveloped and a significant portion of your portfolio is now redeveloped, so it should be a meaningful indication for where you can take your shop occupancy going forward.
James M. Taylor
It's low to mid-90s typically within a few years of the project delivering. So we see -- typically, we'll let some of the small shop go vacant as we execute upon the redevelopment then we see several hundred basis points of improvement as we deliver the anchors and deliver the overall reinvestment.
Floris Gerbrand Hendrik Van Dijkum
So that implies a low -- take 92.5%, 93%, I mean, it's 250, 300 basis points potential upside, it's still left in your shop. Is that the right way to read about or think about it?
James M. Taylor
Yes, we're not going to be so precise, but we think it's in that range.
Angela M. Aman
Yes. I would just also note, Floris, when you -- the math you just did sort of compares the build occupancy number that Jim is talking about and some of the stabilized redevelopment projects versus where we stand from a leased occupancy perspective today. The build occupancy in small shop is actually 84.6%. So I would note that there's a lot of opportunity relative to where we stand on build occupancy within the small shop pool today.
Floris Gerbrand Hendrik Van Dijkum
And then maybe -- I noticed a couple of big -- your biggest projects or biggest most valuable properties like Roosevelt, obviously, you're getting spreads now that, that will become grocery-anchored, and that should be very positive. I mean that if, I recall, I mean, the average rent in place in that property are still relatively low, although the shop -- some of the shop rents are in the 60s or higher. So that's potentially an exciting growth opportunity on a large site. But -- so I guess maybe if you can expand a little bit on some of these larger assets and the growth opportunities that you see? And also talk about the residential component at Mira Mesa? And would you look to offload that or partner with a local developer?
James M. Taylor
Well, let me take the last part of that question first. We have several opportunities like Mira Mesa across the portfolio where we could add additional uses, additional density and we're working to get that entitled. Whether or not we would pursue that directly, my instincts are that in most circumstances, as we did in College Park, Maryland, will harvest the entitled land value and let somebody else build it to a 6 type development return. I think that's the way to -- for us to maximize value.
In terms of larger projects, you mentioned Roosevelt, we're launching the first phase, which includes Sprouts. We have some exciting additional densification opportunities there, that were rapidly leasing and getting ready to launch. So big value creation both in terms of density, but also rate, as you mentioned, projects like Wynnewood outside of Dallas, a large site where we're bringing in a target. We're bringing in other great uses into a very well-located older shopping center or Davis, UC Davis, where we have the opportunity to add a really compelling lineup to an existing Trader Joe's.
So we have several projects like that across the portfolio, where, as I mentioned earlier, typically, we'll deliver them and execute them in phases, leveraging the leasing momentum, the upgrade in tenancy, the ability to add density. And then as it relates to complementary uses, we'll work to get those entitled. But typically, when you do the math, it may make sense to harvest that value versus taking the capital risk of development.
Operator
Next question, Connor Mitchell with Piper Sandler.
Alexander David Goldfarb
It's actually Alex. I'm pulling a [Bilerman], so asking for Connor. So 2 questions. First off, on insurance, Obviously, we're all well known of the property insurance issues. From a tenant business insurance perspective, are there similar issues on the business operation insurance or insurance that tenants will get? Or are the issues that we're reading about with insurance rates solely property and is not affecting tenant's ability to get their own business type insurance?
Brian T. Finnegan
Alex, this is Brian. We haven't heard any tenants talk about ability to access insurance. I think some rates have gone up, particularly in some parts of the country, you think about Florida, but it really hasn't impacted in terms of the availability of getting insurance and look, we look at our insurance from a platform perspective, and our team is well ahead of that and understanding what some of those increases could be on the property side, but hasn't really come up from a tenant standpoint yet.
Alexander David Goldfarb
Okay. And then going back to Haendel's question on cash margins. Let me ask the question this way. As the portfolio leases up and gets near full occupancy, do you see that your cash flow will naturally increase? Or is it because you're always going after under market space and doing the small-scale redevelopment that, that cash, whatever cash you save by the occupancy getting up near full is going to be used for reinvestment? So that way, net cash flow that the company is generating really won't increase. It's just a matter that it gets redeployed.
James M. Taylor
No, the net cash flow should continue to increase as we're investing that at high single-digit, low double-digit incremental returns, and we're actually delivering those projects, and we're recommencing them sooner than what we have budgeted. So you see the follow-on impact to our cash flows. And I'm very pleased that our cash flow is off of a portfolio of 370 assets are in line with what 520 or 530 were really reflecting that discipline with capital.
And what I was referring to also is the recurring capital that occurs at the center, your recovery rates obviously improve upon that as you drive occupancy in addition to our reinvestment program brings down that recurring CapEx load. So all 3 of those things continue to contribute to growth in our net cash flow.
Operator
Next question, Linda Tsai with Jefferies.
Linda Tsai
I think historically, the industry might have seen more retailer closures and bad debt in the first half of the year versus the second half. And while you improved your overall bad debt guidance, guidance implies more bad debt in the second half. Do you see this as a function of building -- closures building as we head into next year? Or was there anything specific to the first half, second half cadence this year?
Angela M. Aman
I mean -- I think if you look back over the last couple of bankruptcy cycles that historical concentration of bankruptcy activity right after the holidays is really evened out over the course of the year. We've seen more filings in the late summer and fall as tenants work so to build inventory for back-to-school or holiday periods. And so you have seen more later in the year bankruptcies than you would have 10 or 15 years ago.
I think given the complexities of the environment these days, including interest costs and all kinds of stress on lots of different businesses across lots of different sectors. We're maintaining, I think, a thoughtful approach as we look at guidance for bad debt in the second half of the year. But as you pointed out, we are running a little bit below that, the low end of that level year-to-date.
Linda Tsai
And then in terms of the depth of demand across small shops, is there a particular space size where you're seeing more demand?
Brian T. Finnegan
Yes. Linda, this is Brian. I would say just from a category, it's outparcel space, for sure. I mean, in that kind of 2,000, 3,000 square-foot QSR restaurant, that probably is a little bit smaller if you look at the in-line 1 to 2,000 square feet from whether that's health and wellness, smaller Boutique Fitness operators, specialty desserts like Crumbl Cookies, they've been a really exciting tenant we've added across the portfolio in a number of locations.
So overall, I think we've been pretty pleased. But if you're thinking of a specific size range, I'd say it's in that 2,000 to 3,000 for outparcels and the small shops and then 1 to 2 as well for inline.
Operator
There are no further questions. I would like to turn the floor over to Stacy Slater for closing remarks.
Stacy Slater
Thanks, everyone. Enjoy the rest of your summer.
Operator
This concludes today's teleconference. You may disconnect your lines at this time, and thank you for your participation.
