Q4 2019 Earnings Call

Greetings and welcome to bricks more property group fourth quarter 2019 earnings Conference call.

At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad.

Please note this conference call is being recorded.

I'd now like to turn the conference over to your host Stacy Slater. Thank you. Your may begin. Thank you operator, and thank you all for joining brick more its fourth quarter conference call with me on the call today or Jim Taylor, Chief Executive Officer, <unk>, President and Angela honest Executive Vice President and Chief Financial Officer.

Well, Mark where again executive Vice President and Chief Investment Officer, and Brian Finnegan Executive Vice President leasing who will be available for acuity before we begin let me remind everyone that some of our comments today may contain forward looking statements there based on certain assumptions and are subject to inherent risks and uncertainty.

As described in our FCC filings and actual future results may differ materially we assume no obligation to update any forward looking statements.

So we will refer today to certain non-GAAP financial measure further information regarding our use of these measures reconciliations are these measures to our GAAP results are available in the earnings release and supplemental disclosure on the Investor relations portion of our website.

Given the number of participants on the call. We kindly ask that you limit your questions to one or two per person. If you have additional questions regarding the quarter. Please re queue. At this time, it's my pleasure to introduce Jim Taylor. Thank you Stacy good morning, everyone and thank you for joining our call. This breaks more team has again delivered both.

For the quarter and for the full year importantly, the acceleration that began last quarter.

By delivering sector, leading same store NOI growth of 5.1% and we brought the full year or 2019% to 3.4%.

More importantly, the continued execution of our balanced plan to generate significant momentum for us into 2020 and be on a period of time. When some platforms may begin to struggled to deliver growth in short the results. We're delivering now position us to continue to outperform on all fronts allow me to dig into the results and show.

You how during the quarter, we signed an additional 1.7 million feet of new and renewal leases continuing our blistering pace for the year.

We achieved cash spreads of over 33% on those new leases and drove record small shop occupancy to 86.2%.

We commenced 17 million a baby are in the quarter and importantly have an additional 45 million up new hbr side that will commence over the next several quarters I.

I would also note that our anchor leases rolling over the next several years or nearly 40% below where you are where we are signing leases today.

We signed key leases with relevant thriving and growing tenants like Burlington home goods, all the Ulta beauty old Navy, an L.A. fitness demonstrating both the continued strong demand for our older well located centers and are increasing market share with retailers who are relevant to today's consumer we also leverage that.

Demand to continue to reduce our watchlist tenancy.

Which is down over 10% for the year and as many of you noted one of the lowest in our sector.

This robust leasing activity continue to drive our pre leased reinvestment pipeline, which yearend at year end represents over 410 million of in batsmen at an average incremental return of 10%.

During the quarter, we delivered another 47 million of projects, bringing our year to date deliveries to over 160 million also at a 10% incremental return.

Those deliveries in 2019 created over 100 million of incremental value above our investment while also improving the appearance of our centers and importantly, the momentum of our small shop leasing as I've said before our reinvestment program is they value multiplier not only driving accretive returns.

Fronts, but also increasing the intrinsic value and future growth of our centers.

I mean, a pause in observed at the 410 million now underway, it's the equivalent of over one and a half billion of ground up development in terms of value creation.

And we're creating that value at much much lower risk and that much shorter timeframe at sector, leading incremental returns simply put the best way to deliver value in this environment is reinvesting in existing shopping centers, where you have upside bronze and can realize double digit growth, both an ROI and an intrinsic value.

Yes.

That value multiplier simply does not exist, where you have rents that are out about or above market or where you are developing ground up.

We also continue to drive operational enhancements that are shopping centers implementing solar power generation efficient alley de lighting.

An attractive low maintenance landscaping improvements.

That are not only environmentally responsible they generate double digit returns through expense savings you can see some of the impact of these initiatives and our same property operating margins, which improved 60 basis points and nearly 74% for the year I.

I expect that we will continue to see enhancements in margin as we cannot signed leases and continue to improve the operations of our assets.

From a capital recycling standpoint, we close an additional 52 million of dispositions during the quarter, finding attractively priced liquidity and some very tertiary markets, while bringing our year to date activity to a little over 300 million.

We also closed on approximately 78 million of acquisitions during the year as discussed in prior quarters, we have pivoted and 2020 to being more balanced and I'm correct I am encouraged by the opportunities we have in our acquisition pipeline that fit with our thesis of driving growth in ROI through leveraging our platforms strikes.

Stay tuned in here.

From a balance sheet perspective, we had virtually nothing drawn under our $1.2 billion credit facility as of yearend and no debt maturities until 2022 that together with our free cash flow in excess of our dividend provides us ample flexibility and capacity to fund our balanced business plan for the next several years.

In short the Brixmor team continues to deliver on plan on time and as promised I'd like to turn the call over to Angela for a more detailed review of our results and guidance before providing some additional commentary on our outlook Angela.

Thanks, Jim and good morning, I'm pleased to report a successful conclusion to 29 team as we fully delivered on the expectations. We shared with you at the beginning of the air and continue to set the stage for long term growth and value creation.

I thought FFO in the fourth quarter was 47 cents per share or 48 cents per share excluding items, the impact comparability, including litigation and other non routine legal expenses for the full year I thought that was $1.90, 1% or dollar 93 per share excluding items that impact comparability.

Same property NOI growth in the fourth quarter was 5.1% is the contribution from base rent further accelerated to 390 basis points due to significant rent commencement activity in the third and fourth quarter.

We also experienced positive contributions across all other line item. That's our property management team worked to drive margin improvement through continued proactive Opex management and Capex deployment and our specialty leasing team continued to expand on opportunities for ancillary income generation across our portfolio.

On a full year basis same property NOI across the 3.4% 15 basis points in access of the high end of our previous guidance range. Our sector, leading growth was achieved despite approximately 20 basis points year over year, not drag associated with the Sears Kmart bankruptcy.

As of the end of January we have taken back all 11 of the Sears Kmart locations, we had at the time of the filing.

And already during the fourth quarter, we delivered the first two anchor repositioning projects related to these basis.

In addition, we have executed leases or are currently at Alu eye on all of our meaning boxes, indicating the strength of tenant demand for these locations and the ability of our team to quickly capitalize on disruption in the market to transform our asset base and create significant value within our portfolio.

We have initiated 2020, I FFO guidance of $1.90 to $1.97 per share, which reflects same property NOI growth expectations, 3% to 3.5%.

We have great confidence in our ability to again post same property NOI growth at the top end of our sector as our balance business plan to harvest the value embedded in our portfolio well located below market assets delivers.

On our fourth quarter call last year, we reported a spread between building leased occupancy of 350 basis points, representing approximately $47 million of contractually obligated, but not yet commence rent.

These leases, where a significant driver of our 3.4% same property NOI growth in 2019, but despite the fact that we hit our commencement dates in 2019 and delivered on the growth. We had expected the efforts of our leasing team have continued to refill the pipeline and as we move into 2020, we have $45 million I've signed but not yet commence rent again.

And providing us with significant visibility into our forward growth profile.

As Jim highlighted in his remarks, we have made significant progress over the last several years in improving the credit of our tendency and the quality of our cash flow that said our 2020 same property NOI range includes a bad debt expense assumption of 75 to 100 basis points consistent with our historical experience.

This assumption is in addition to specific property level and come assumptions for recently announced were anticipated store closures and a portfolio level assumption for an identified or unanticipated closures. We may experience during the year, we're cognizant of the retail environment and believed that we have appropriately addressed the associated risks in our fourq.

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As always we would remind you that same property NOI growth isn't inherently volatile metric and we do expect some quarterly variability in our results as we move through the year.

In terms of possible as we've discussed on many prior calls we do expect continued deceleration from noncash GAAP rental adjustments, including straight line rent and Fas 141.

Below market rent income.

Well these items have no impact on alpha FFO or other cash flow metrics. They are expected to detract one to three cents per share from they read off a growth in 2020.

In addition, please remember that our guidance does not assume any litigation or other nonroutine legal expense as well all legal proceedings related to the 2016 audit Committee investigation or behind Brixmor. The company does remain obligated for certain expenses related to ongoing proceedings against the individual.

Turning towards our balance sheet and overall financial flexibility. We were rewarded early in 2020 with a positive outlook from Moodys, which follows the positive outlook. We received from beds in 2019, recognizing our financial stewardship. The significant improvements we've made to our balance sheet over the last four years and the successful execution of our portfolio transformation.

During the quarter, we also reinstated both our share repurchase an ATM equity program, ensuring that we retain our ability to capitalize on a wide range of equity market conditions.

With that I'll turn the call Dr., Jim for some final remarks, thanks, Angela whenever we look forward, we always expect ongoing disruption in the retail sector, it's a healthy inevitable and recurring part of our business and as Angela just discussed I believe we've been appropriately conservative in our outlook and guidance for 2020.

With that said I know that many of you are focused on what retail or might be next or whether the pace of disruption will be greater this year than it was last.

That's very important questions, but from a durability standpoint, I think the most critical question to consider as an investor is whether you can make money and create value as well as consider what you have risk during these inevitable periods of disruption.

I'm excited that we've already begun to reveal in this environment, how well positioned bricks more is to not only continue to perform but significantly outperform.

Given the prudent demand for our older well located shopping centers by tenants that are actually growing today as demonstrated by our sector, leading leasing volumes in market share of new store openings, our leasing redev construction and operation teams that have earned the trust of these key tenants to deliver on time into.

Type.

Our below market in place rents and not only drive growth on rollover, but allow us to accretively reinvest in our shopping centers and drive growth an ROI.

Our 45 million dollar pipeline of signed but not commenced hbr in the back there will continue to deliver over the next several quarters.

The diversity and credit strength of our top tenants a watch list that is one of the lowest as a percent of baby are in the sector.

And finally, the incredible quality of our overall team for whom I beyond grateful and who continue to exceed my expectations every day, our best performance as a company lies ahead.

With that operator, we'll turn the call over for questions.

Thank you at this time will be conducting a question and answer session.

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One moment, please why we poll for questions.

My first question comes from Christy Mcelroy with Citigroup. Please proceed with your question.

Hi, Good morning, and thank you I'm just in regard to your dispositions completed in the fourth quarter, but also as you look to do more deals in 2020 wondering if you could sort of give us a general sense for what you're seeing in terms of pricing and other trends and the transaction market and where the opportunities are in your view for both asset sales as well.

The acquisition.

Yeah, Let me, let me start and Mark maybe you can shut down I mean first as I alluded to in my remarks, we're pleased to still find attractive really price liquidity event in tertiary markets as we continue to consolidate our portfolio into our longer term markets and from an acquisition standpoint, I'm encouraged by what we're seeing.

Being a as opportunities to really leverage our platform to drive ROI. You know, we're not simply trying to find assets that are core we're trying to identify those assets that are in the markets that we currently own and operate shopping centers and where we're not relying on a third party to tell us what the round SAR, but where we were.

Really have an opportunity to take our national account coverage team our redevelopment team construction team operations team and assess whether or not we have the ability to not only are earn a good current return, but but drive that growth and returned over time and I think that's an area where.

Platforms like ours, we're certainly not the only one.

Have a pretty distinct advantage in this environment. So similar to what you saw its do this past year with Plymouth meeting expect us to make some acquisitions that really fit with the context of our portfolio. It is competitive the capitals out they're chasing deals, but I think.

Where there's opportunities for us a significantly upgrade tenancy, we're going to stand apart and have the ability to really creates and values. So mark I don't know if you want add anything.

Well Jim.

I agree and what I would say on the overall market is that for open air retail the markets very healthy units liquid and whats occurring in the market today is that.

The whole business is benefiting from what we're seeing over in the mall space. So as those tenants are seeking to move out of malls and open air retail given the cost savings and ability to transfer sales some of that capital that traditional looked at regional malls is also following so we're seeing more interesting open air retail today than we have over the last couple of years as Jim said, we're not really platform looking at it.

Out there today, but.

Our benefit is really our platform and our ability to see assets, where we can take advantage of the ops team, but the leasing team to result in team that we have to really drive value.

Okay, and then just in the context of the remarks around capital allocation, but also just given the projection for cash EBITDA growth in 2020, maybe Angela how should we be thinking about the leverage trajectory over the next year.

Yeah, we're very committed to continuing to work our leverage level down to the six times debt to EBITDA range acknowledging that obviously, given how how far below market the portfolio as that that number is going to we're going to continually trend towards that number as we as we marked the portfolio to market and execute on the redevelopment plan.

Between now and getting there you're going to see some quarterly volatility I think in the metric that's really going to speaks to the pace of redevelopment spend and how much capital. We have in redevelopment projects that are not yet fully stabilized or producing the EBITDA associated with those but as those projects deliver and as we demonstrated they delivered over.

The course of 2019, you're going to continue to see that metric worked down towards the six times number and that's really going to be the key driver from here is the delivery of that EBITDA, that's and the 410 million of redevelopment that we have underway, but much of which is preleased, we think it's low risk and.

At very attractive incremental returns much less gross returns, which are several hundred basis points higher than what we're showing as an incremental return as those returns kick and it really allows us to turbo drive if you all that debt to EBITDA number.

Okay. Thank you all do that.

Our next question comes from Craig Smith with Bank of America. Please proceed with your question.

Yes, I guess my question is on leasing spreads.

You guys had better than average leasing spreads for the past 14 quarters I wondered.

Is that expected to kind of trend down now that you're starting to take advantage of the lower rents.

But I just curious what you think the run rate is on the the strong performance and leasing spreads you know there kind of two parts of that question and both of them are drivers for the first part is what do we have rolling over the next three to four years and as I alluded to in my remarks, you know the average rents of the anchors that.

We have rolling or in the $8 range and we're signing new anchor deals 40, 50, even 80% higher than where those in place rents are so as those rents role we have a lot to harvest and I would say, it's several years of rollover that remains for us to harvest, but there's another element that.

I'm equally focused and excited about and that is as we continue to improve our sat or the market rate in those centers continues to improve as you replace a tired old kmart with the specialty grocer at great fitness use maybe a value retailer you see an appreciable pick up in those small shop.

Fred.

Craig as we've talked about many times, that's not factored into our incremental returns where we're not touching the space. So <unk>. The short answer is it's a saying it's a sustainable and durable plan. So that gives US you know many years of view on that outperformance, which I think if you're so.

Sitting on a portfolio that Scott rents that are at or above market. You don't have the same levers to pull you're certainly not going to drive growth and ROI as we've been doing.

So what I'm most excited about honestly in this environment is we're starting to show the relative strength of this platform even in a year with some turmoil you know I think we'll be at the top of the chart in terms of same store NOI and we've got great visibility on it one and two we're not taking great.

Risk to deliver that Brian.

Jim I think you hit it on the had a the team has done a great job in.

Taking advantage of the mark to market opportunity that we have in the portfolio and the visibility we have to Jim's point is several years out so as we continue to make investments as we continue to bring better anchors and to backfill the space that we're taking back.

We're going to continue to see that upside in our base rents.

Okay, and then do you know what percent of the rents that are expiring in 20 have already been renegotiated.

Craig This is Brian this time of year.

In terms of the expirations that are coming up if that's your question, we're usually about half of our expirees throughout the year. Many of our anchors typically have expirations at the beginning of the year and we're addressing a lot of those and have addressed a lot of those in 19, but at this point in year I'd say, we're around half of those that have been addressed.

Okay. Thank thank you. Thank you.

Our next question comes from Todd Thomas with Keybanc Capital markets. Please proceed with your question.

Hi, Thanks, Good morning, just first a quick follow up.

Question on the leverage it did increased slightly in the quarter.

Do you expect to see leverage rise further in the near term as as you bring on more redevelopment spend.

Maybe you could just talk about the base case for where leverage might be at year end also.

You know on a trend basis, we expected to continue to go down in a particular corridor remember that metric is an annualized number for that particular quarter. So you can have timing of transactions in the quarter impacted but importantly, we're going to continue to see that trend down and also importantly youve.

Got remember a lot of signed rent there that's not yet in that number so it gives us tremendous visibility and delivering that growth in EBITDA as we move forward.

Okay, and then Angela you talked about the bad debt reserve of 75 to 100 basis points switch, which is in addition to the property level ground up budgeting that you completed for for 2020 and I think there was another assumption in there as well that you mentioned can you just run through the mechanics of that.

The provision for doubtful accounts and sort of that more general assumption. It sounded like you you've also embedded in the guidance.

Just trying to understand that a bit further if you can clarify your comments there sure absolutely. So we and this has been consistent with the way we provided guidance over the last several years, we typically assume from a bad debt expense perspective about 75 to 100 basis points per year 2019, not level was 89 basis points 2018, It was about 80 base.

This point, so we've always been kind of.

Right in the middle at that range and that feels like a good level going forward bad debt expense really capture its revenue that's already been recognized in the income statement that may or may not be collectible, but it doesn't really pertain to future distressed or disruption that might occur down that route. So 75 to 100 basis points as the bad debt assumption, but what I mentioned in my prepared remarks was that in addition to that.

We obviously on property by property as we do our based budgeting process I count for any anticipated are known store closures or move outs. We expect to have during the course of the year, which obviously includes things like Dressbarn and an assumption around something like an east anymore, but in addition to that afterwards.

Along with our space by space budgeting process, Jim and Brian and I sit down and look at the watch list and really kind of probability weight, our assumptions for anybody that might be unexpected credit event in the course of 2020 as well and so all of those roll up into our assumptions, which gets us to the 3% to 3.5% same property NOI guide for 2020.

Okay got it that's helpful. And then as we think about some of the lines below the base rent.

They have bounced around a bit.

Prior quarters are there any headwinds or is there any volatility I guess in tenant recoveries or ancillary and other income or anything else worth noting is as we move into 2020, well I think the first thing we'd note as Angela referred to in her remarks is that on a quarterly basis. All of these metrics are inherently volatile right. They jetstar.

A couple undergrad to excess recoveries can help you won corridor hurt you in the next but importantly from a trend perspective, and what we see in the overall year.

We feel very confident about that guidance range, we've given yet.

And then what I'm honestly trying to highlight for folks and how people begin to focus on is look at all it look at the trends also and our NOI margins as we drive occupancy as we continue to improve operations become more efficient with our span importantly from an E.S.G. perspective invest in making our.

Centers more efficient as it relates to water electricity landscaping et cetera. So those are all things that you know our small things individually, but really across the board continue to drive a better and better performance and you know a I'm real pleased with how the.

Team has embraced that challenge and frankly, how what they're executing is already showing in the numbers, but you know Todd one quarter recoveries may be up may be slightly down and in inevitably on a quarterly basis and I think that's why Angela sort of processed in their remarks, and a why will be.

Volatile quarter to quarter.

Right, Okay, great. Thank you Beth.

Our next question comes from Alexander Goldfarb with Piper Sandler. Please proceed with your question.

Sure Hey, good good morning.

Two questions from us off first.

Great job, obviously on on starting to track the build versus occupied and obviously good to hear that you have a better rents coming out of small shop, but just a question right. Now you guys around 86, when do you think that we could see this get towards 90% of is that something that you think is achievable this year or next.

Or this sort of 85 86, maybe we get to 87, this sort of where small shop is.

Because of whether its churn or what have you well as as I've talked about it. It's a great question, Alex and as I've talked about on prior calls.

You well see that continue to trend and we think over the next couple of years three years or so that will trend closer to 90%, but remember part of what we're doing is reinvesting in the shopping centers and if you look at our overall occupancy statistics, there actually dropped by 190 to 200 basis points if not more.

What we have actively in the reinvestment pipeline some of which is delivering 18 to 24 months out. So as we continue to deliver that we do expect small shop growth to accelerate and then again everything else that we're doing is making sure that we re.

Our lives that growth responsibly, what do I mean by that it's not as simple target of let's get to 89%, let's get 89% through bringing the best tenants. The growers the ones who are going to be relevant to the community versus trying to manage for a particular statistics. So you won't see.

You that that metric move up and down at any given quarter, but you're going to see it continue to climb and frankly, if we continue to deliver growth on an unlevered basis, where we are and we still have some gas and the tank on the small shops I'm going to be very excited.

Okay and then the second question is if we just look at your FFO growth for Ciena, why obviously, otherwise very strong I suppose muted part of that is from portfolio repossession, Jimmy just spoke about the small shop, but the other thing the keeps coming up is the the IPO legacy the Fas.

So Angela is this sort of are we getting towards the end of the burn off or do you see several more years, we're going to have the upper end three cents of drag as the size Burns off.

What was one point that I just want to make on that Salixs you raise it is we're talking about a noncash item.

Right. The Fas 141 adjustment Angela sure. So you know if you you look and we do have some disclosure on that's in our 10-K as well, but the regular deceleration from Fas 141 income, which is really the IPO legacy item. There is about a penny to a penny and a half a year. So all else being equal you should expect that over the next several years four or five years, we can.

You'd have a penny to a penny and a half Fas 141 deceleration the impact is potentially more significant this year or as we move into 2020 because of the impact of deceleration of straight line I talked pretty extensively on the last call about the fact that straight line at outperformed our expectations in 2019 as a result of how wide the gap.

Between Belden leased occupancy had grown to and how many tenants weren't in possession of space prior to rent commencement and we began straight lining it that the possession dates that created sort of an outsized straight line impact in 2019 that we expect to decelerate as we move into 2020 I would expect that you see most of that deceleration between 19 and 20, but again we'll have.

The one to one and half sense of Fas 141, deceleration on a longer term basis.

Thank you Angela.

Our next question comes from Greg Mcginnis with Scotia Bank. Please proceed with your question.

Hey, good morning.

Jim I appreciate the earlier commentary on the transaction market and we know that bricks more plans to take a more balanced approach to acquisitions dispositions. This year, but we're curious if this balance is gonna be primarily based on transaction value to help match funding or on an NOI contribution to minimize dilution or any guidance you could provide on you know expected transaction.

Volumes or cap rates on acquisitions, and dispositions would be appreciated well, we don't provide specific levels of transaction guidance I think as an owner you can appreciate that we're going to always be very disciplined and opportunistic about identifying investment opportunities and the real bar for us as I was alluding to before.

Or is finding assets that are in our existing markets, where we had the opportunity to apply our poor our platform strengths to drive outperformance. So by necessity, we will be opportunistic importantly, we have liquidity to be opportunistic we've got the balance sheet strength to be opportunistic and Ah. We also.

So have demonstrated through our disposition activity just how disciplined we've been we've not been trying to hit specific targets, but rather we've been selling assets one at a time, where the valuations are the greatest and when you look at the billion six over time that we've sold I submit to you that we've probably.

Rick recaptured well over $100 million of additional proceeds by being patient an opportunistic. So the good news is as we look forward the balance sheet strong we've exited most of the markets that we want to exit. So now we can just shifted being a bit more opportunistic.

And I'm, particularly encouraged by the what we have in the pipeline today I can't promise that we'll execute on any of it but I'm I'm, particularly encouraged by what we're seeing even with an environment and backdrop as mark was alluding to.

There's there's no shortage of liquidity I chasing shopping centers I think you know our our focus is going to be I know shopping centers, where we have the ability to add value.

Great. Thanks.

Angela Angela I, just wanted to talk about same store NOI growth, a little bit as well, obviously addressing tenant bankruptcies known move outs with effective leasing has been a fairly significant boost to same store growth over the last couple of quarters.

There's also the benefit from a healthy development pipeline. So I'm curious what that ultimately means for more reasonable long term same store NOI growth expects expectation just 3% fair over the long term.

Yeah, I think if you go back to the Investor Day, we held at the ended 2017, as we really talked about our longer term expectations for the portfolio. It's certainly included strong core growth and an ongoing benefit of 50 to 100 basis points from redevelopment activity and so I think certainly the the levels that we put up in 2019 and 2020.

Based on continued <unk> continued execution of the plan on and continued progress on the redevelopment pipeline you know should put up growth.

That's an end around these level.

Okay. Thanks, and then to 3% for over the next five years [laughter] well, obviously, we gave guidance for Tony Tony We're not giving guidance for 21 art art anytime after that but we do feel like what you're seeing what you signed 2019 and what you're seeing in 2020 on is representative of the.

Plan and what this portfolio and the platform can deliver and you know I think what's what's also important to recognize his.

That opportunity and that growth is embedded in what we own and control today.

And much of that growth is already in the bank. If you all with respect to leases that are assigned and reinvestment that's underway and we are delivering that growth against a backdrop of ongoing tenant disruption. So I think really what it speaks to overall is I think we have better visibility than many platforms.

On how we're going to grow going forward and it's not based on a hope or a premise that rents in certain markets will continue to inflate its based on what we have in place the tenant demand to be in our centers and the leasing activity that were that we're generating coupled with really the balance of better operation.

And as well as really getting and a better improvements to our shopping centers that you know, it's what honestly excited me so much when we joined a almost four years ago now and it became what we set up at our Investor day.

And I know that oftentimes people I've investor days and they they make big promises about what's going to happen we've delivered.

And you know I couldn't be prouder of how we've executed in this environment and spot us an environment, where theres no tenant disruption and then we're really cooking with gas, but what's interesting about this environment of tenant disruption is it's accelerating if you all the pace with which we can reinvest in <unk>.

That's Angela alluded to this on prior calls, but kmart turned into a huge opportunity for us and remember that you know when we joined we had 22 Kmart boxes. We've got nine now and we are at least or delivered on all levels that we just recaptured in the in the bankruptcies.

So I think that really speaks to not only the opportunity embedded in the asset but.

The team that's all over and you know.

I'm I'm convinced that as other inevitable disruptions occur we're going to outperform.

Okay. Thank you both from the perspective you bet.

Our next question comes from Jeremy Metz with BMO capital markets. Please proceed with your question.

Hey, Angela going back to that your last comments there can you tell us exactly how much benefit redevelopment did adding 2019, what's in 2020.

For comparison and does that include.

Anchor repositioning work as well as the redevelopment activity.

Yeah, I mean, if we look at just a redevelopment sort of a larger scale redevelopment projects on their own as we talked about throughout the course of there and I go back to what I. Just said in response to the last question, which was the Investor day, we talked about it being a 50 to 100 basis point impact on an annualized basis as we were at that kind of consistent spend and delivery level up one.

Hundred 50 to 200 million as we moved into 2019, originally I think I communicated that we thought it'd be a little bit below the low end up that range really because we're incorporating all of the drag associated with Sears Kmart into the impact in 2019. So I think it's fair to say redevelopment again, the largest calorie development projects, probably how to 25 to 50 basis point.

Impact on the 3.4% same property NOI growth that we posted in 2019 as we look forward to 2020, I think it's fair to say that the on the redevelopment contribution embedded within the 3% to 3.5% guidance at the higher end up that range. So call. It 50 to 75 basis points.

Contribution within the 3% to 3.5% same property NOI growth numbers.

And as anchor repositioning on top of that or is there any downturn now those are just the larger scale redevelopment projects. The anchor repositioning is not included in the numbers I just caught it.

All right and just sticking with the pipeline.

Well over 400 million is this the comfortable level, where where you think you'll be at or do you think you ramp. It further here and just to confirm it sounds like the 150 to 200 million of spend is how we should be thinking about it again for this year.

I think that's right, we maybe towards the higher end of that spend level just given the opportunities that we have and you should expect to see what we have underway and that's active it's generally preleased.

Around that 400, perhaps 450 million and you know what I'm proud of and Weve highlighted in several quarters. As you know we delivered 160 million of redevelopment last year and anchor repositioning our pipeline has actually grown a little bit from around 390 million to 400 into.

And.

As we continue to work hard on what's in the pipeline and delivered to the active will have additions while at the same time, we do expect our deliveries this year to be in that 150 to 200 million of deliveries of investments. So you know you think about it and what was not an exceptionally long period of time.

We not only identified these reinvestment opportunities lease them, we've executed and began delivering so that we're now at a pretty steady run rate, we're not telling you hey, wait or hey, we're really ramping up.

We don't need to and that's part of I think the benefit if you all of having relatively shorter duration type projects in a pipeline like this so you know expect us to be kind of at a.

Similar level this year, and frankly next year and the year that follows.

<unk>. Thank you.

You bet.

Our next question comes from Ki bin Kim with Suntrust Robinson Humphrey. Please proceed with your question.

Thanks, just a follow up on a jeremys question, how much of the anchor Repositionings additive to your 2019 same store NOI and during 2020 guidance.

Yeah, we don't really provide specifics on that because when you think about the anchor repositioning. It generally something that's just impacting the anchor box. So it's it's leasing what I like about what we show though.

Is we actually show NR supplement all of what we're doing from a significant leasing standpoint through those anchor repositioning. So you can see my fundamental point and my fundamental point is we're putting capital to work Accretively as we get these boxes back and release them.

But that's more part of our core a core growth.

And when you look at your Shadow development pipeline.

<unk> is the mix of assets that you're going to be working on the future years are they as attractive as the first batch because presumably the lower hanging fruit or easier money you go first.

You'd think that intuitively, but you've got these pesky things called leases in place that really govern when you can get to the opportunity and some of our very best opportunities aren't even in our active pipeline. Yet. So you know it I'd expect us to continue to be generating these types of nice incremental return.

And we do have and we don't talk a lot about complimentary uses that that could increase density on some of our sites, but I don't expect us to really talk about that for the next year or two and when we do expect us to be responsible about how we're putting capital to work to realize the highest and best.

In some of these properties.

But you know the good news is we've got plenty in the larder in our core.

Competency, which is retail and I'm.

Actually even more excited about some of the opportunities that we have in the pipeline in terms of asset level transformation enroll value creation.

And then if I could squeeze third one.

Do you have a line item called other value enhancing capex is about 33 and a half million in 2019 compared to almost 15 million 2018 has been increasing.

How do you differentiate what you call other value enhancing capex, which if you look at a footnote sounds like if that makes it includes things like LCD lighting upgrades and things like that versus putting it in same store expenses.

Oh, I guess remember taking a big step back all of our activity isn't the same store pool, our same store pool represent 98 or 99% of our properties. So it really is all same store the distinction between a core expense versus a value enhancing expense has no determination on whether or not it's in the same store pool. So just to clarify on.

Point, but what does show up and not line like you mentioned include a smaller scale projects solar lead the lighting some other things that Jim called out in his remarks other assets beautification projects that specific assets that aren't keyed off of a major leasing transactions, but we think are driving on improvement and rate across the balance of the center.

Projects or additional capital spend that really are justified by returns that are in line with what you're seeing on our other value enhancing projects, but are generally small dollar amount.

Okay. Thank you.

Our next question comes from Mike Miller with JP Morgan. Please proceed with your question.

Yes, Hi couple of questions first I guess, where do you see the 89.3% occupancy trending by year end with what's embedded in guidance. There and then can you talk about.

Rough ranges for cap rate expectations for what you're seeing on the acquisition side and disposition side.

Yeah, I mean, I do think you're going to continue to see you know, our our build occupancy and leased occupancy trend higher as we move through the year on obviously, you're going to see some fluctuations and not on a quarter to quarter based that one thing I would notice that our occupancy numbers at 12 31 do you still stewing still include a the dressbarn space you're gonna see.

Dot roll off in Q1 in some volatility early in the year associated with some of those known event, but we do expect based on that $45 million have signed but not yet commenced rent.

310 basis point spread between leased and dealt occupancy that you will continue to see both numbers move higher over the course of there and I. Just you know on your on your question about cap rates on cap rates is always are only part of the equation right, but in terms of where we think about asset sales is likely going to continue to be in that seven to eight.

Percent range that we've been reporting all along and then on on the acquisition side likely probably 100 to maybe a 150 basis points inside of that it's really going to be driven the Mike by what do we see is the growth in ROI, what's our ability to take that initial in place return.

And really grow it and and what kind of visibility do we have on growth again, not betting on market rate inflation, but rather on known tenant demand from the tenants that we do a lot of business with and and and we have a very kind of clear view in terms of how they might be allocating their capital which is really import.

And benefit as a large scale platform to understand as well as you know opportunities to reposition.

Add outparcels did kind of bring our whole tool box. If you all to bear to drive that ROI creatively. That's that's really where I think you make money in this environment and.

So I I, just really want to highlight that because I appreciate from a modeling perspective, they need to sort of have an idea of where cap rates are but.

We're not we're not.

We're not focused on cap rates with blinders as it relates to the investment side.

Understood. Thank you you bet.

Our next question comes from floors Van Dyke them with Compass point. Please proceed with your question.

Hi, Thanks, Thanks for taking my question morning, guys.

Just a question on as I look at your your future development pipeline I see Davis I see Mira Mesa Arbor land mobile 160 Threerd Street.

Bigger projects.

Some of them as a couple of them in fact or mixed use.

We'll what's the update on the entitlement process. There I guess, the first question and number two when you're doing.

Mixed use as you would be in Davis, and Mira Mesa potentially.

In particular will those get included in your same store pool would that be.

Because you're adding a new use will that not fallen to your your same store and thus not boost your.

Same store NOI growth.

Well you know, we take kind of a comprehensive view of what should be included and your same store pool and you know we include reinvestment in that.

Pool.

You know do you think about where we are on entitlements on these projects, we're working really hard across the board not just for the few that you've mentioned, but frankly all of our projects to make sure that we can bring additional uses to these sites because honestly Flores where are you create the most value is in getting those entitlements.

Your your almost all of your quote Unquote development profit then gets reflected in that land value.

What we're going to be very careful about though is to be simple in our execution in another words, leveraging others capital to deliver some of those additional uses on our sites and sticking to our core competency, perhaps co investing so that we can retain some control of what happens with the site but.

But I think we will generate the most value for our shareholders by sticking to our core competency, which is retail and by getting the entitlements in place in places like you see Davis and Ann Arbor Mall at 160 Threerd.

Wynnewood down in Dallas, I mean, there lots of great sites is this company has where we have the ability to create additional value beyond retail, but I think you should expect us to be smart and stick to our knitting, Oh really retail first.

And so thanks jump for that so it but if you work too.

Stick to your knitting does that imply that youre going to find a.

An operating partner to JV with you in those things are you looking for institutional capital to partner with you on that or how should we think about that best in class partners and whatever the product type might be and you know we're in a position to have competition amongst those best in class form platforms, whether its market rate.

Multifamily student housing senior housing.

Limited service hotels, I mean, there are a lot of additional incremental and I think contributory uses at our properties that we don't need to stake the majority of the capital and to deliver I think real value to our shareholders.

Great. Thanks, Jim.

Yeah.

Our next question comes and Samir I know with Evercore. Please proceed with your question.

Yeah, Good morning, Jim.

When I look just getting back to same store NOI growth when I look at that sort of 3% to 3.5% same store growth.

It seems like it seems like a pretty narrow range with all that sort of tenant disruptions we've talked about.

Attention on the call I mean on the positive side, we got the visibility. So you've got 45 million so that will commence over time I.

I guess, what gives you that confident that confidence that using that sort of same similar credit loss reserves as you did last year.

It's going to be enough, what sort of potentially more disruption this year.

Well, we're not using the same reserve I think Angele did a really nice job I'll, let her answer this kind of laying out for you. The detailed steps we take as we assess what is going to happen over the next four day corridors. Yeah. I mean, just to reiterate the 75 to 100 basis points, we have a lot of history with the portfolio and what the credit loss.

As far as our relative to outstanding a our balances has done across the portfolio and even in this environment, which we've been operating over the last few years that has continued to be the right level and we have lot of confidence, especially based on Jim's remarks in his prepared comments that you know all the improvements we've made to the watch list allow us to keep the number.

And then around that band on because we've made so many improvements in that the quality of the tendency but in addition to that we have known store closures that are already out of our forecast and reflected in the number it's not represents between dressbarn and and what may happen on a Seymour basically 60 basis points of I know why that's already kind of addressed and out of the three to three.

And how person outlook.

And then in addition to that the third piece really reflects unanticipated store closures bankruptcy activity any other kind of disruption that we think might occur over the course of the year based on everything we're hearing directly from our tenants everything we're hearing from other industry participants and probability weighted for for what we think will happen or what the impact will be on this portfolio.

In particular, but stepping back from all of that I would I would really stressed that as Jim's comment sort of underlying we expect they take the current environment attendant disruption to continue and possibly even accelerate and so you should expect that that third bucket embedded in our our 3% to 3.5% guidance related to an end.

Dissipated store closures or bankruptcy activity is is higher than it was at the same point last year and we still feel confident remember going into 2019. We also had a 50 basis point range, we were 2.75% to 3.25% and ended up exceeding that expectation.

I felt comfortable and in the narrowness of the range based on everything we know about this portfolio and.

Our own execution.

Okay. Thanks for that.

You've got.

Our next question comes on Dallas, and Juicy with Mizuho. Please proceed with your question.

And like I like things you say.

Two [laughter] good morning.

So first question for you I guess Jvs I know, we've talked about on the past.

And your preferences to keep the story simpler cleaner, but I'm curious if your view on that might have evolved at all we've seen some of your peers.

Print some fairly advantageous in pricing and come Davies of last year too so I'm curious.

If that could play a role in your capital plans at all if your view on that has changed.

The only time it ever would is if you actually get a value through the joint venture that's better than through a sale of the fee and I still don't think the market has moved to that plays. So you know as we as we look at being efficient and our capital recycling of course, we'd love to set up joint ventures, but I would I would maybe.

Quibble with the point that you're getting a better execution through the joint venture than you do through an absolute sale are based on what we're saying so that that from a capital allocation standpoint as is somewhat how we think about it we did mention joint ventures as it relates to additional uses on our properties, where you're bringing operate.

Leading partner in who might be a best in class student housing operator, that's not our business, we might roll our land value into the joint venture, but we would expect that partner to contributed the majority of the capital.

And that that would be another way that you might see a joint ventures enter into our strategy, but big picture a joint venture clouds the balance sheet. It also clouds. Your your control over what to do with Viasat and I think people sometimes don't.

I don't think about from a capital allocation standpoint that encumbrance that a joint venture by necessity places on the asset and you know <unk> and for that reason you know, we're just always going to be very measured as it relates to implementing a joint ventures strategies.

Got it got it thanks for that.

And then maybe a follow up on the acquisitions.

There's been some chatter the last couple of months about.

Institutions wanting to reduce.

Retail exposure and not being able to fell ball. So I guess I'm curious if you're seeing more evidence of that.

As maybe some of these guys look to sell perhaps.

Shopping centers and then how are you thinking about the underwriting are you more focused on higher ours or maybe initial cap rate because there are some.

Perhaps some great growth assets out there that may require a lower day, one yield but could ramp up fairly quickly.

We're always a total return investor nothing about the return as ever more certain than what you have in place today. So obviously, we are focused on where that going in return as an importantly, where we can take that return over the intermediate timeframe say three to five years.

Which I believe is where you have to best visibility in terms of where the rents are versus market, what's rolling what additional investment opportunities do you have and importantly, as we think about being a total return investor we always assume that cap rates at the end of the whole period are higher than whatever work going on so that puts.

Additional focus if you all on how are we going to drive that return Mark I don't know if you're still on but maybe you can address the first part of the question, which relates to what we're seeing in the market as institutional investors lighten up on retail.

I'd say, it's been a mix certainly as I mentioned earlier seeing institutional investors recycle out of mall. So the extent they can that's definitely increase some interest from some investors into open there while we've seen deals come to market from institutional investors, who are saying that they just want to reduce retail exposure and ultimately.

Having a platform like we do that's that's really an advantage for us to find those assets, where folks are saying I'm out and we're saying jeez. It's a great example, our grid opting for us to drive value. So we're excited about.

Assets that are out there to buy.

Great.

Thank you guys.

Thank you.

Weve reached the end of the question and answer session I'd now like to turn the call over distinct slated for closing comments, thanks, everyone for joining us today.

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