Stacy Slater - SVP, IR Jim Taylor - CEO and President Angela Aman - EVP & CFO Mark Horgan - EVP and CIO Brian Finnegan - EVP, Leasing.

Craig Schmidt - Bank of America Jeff Donnelly - Wells Fargo Christy McElroy - Citi Ki Bin Kim - SunTrust Todd Thomas - KeyBanc Jeremy Metz - UBS Michael Mueller - JPMorgan Vincent Chao - Deutsche Bank Daniel Santos - Sandler O'Neill Linda Tsai - Barclays Karin Ford - MUFG Securities Haendel St. Juste - Mizuho.

Good morning, and welcome to the Brixmor Property Group Fourth Quarter 2016 Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today's presentation, there'll be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded.

I would now like to turn the conference over to Stacy Slater, please go ahead..

Thank you, operator, and thank you all for joining today's call, Happy Valentine's Day.

With me on the call today are Jim Taylor, Chief Executive Officer and President; and Angela Aman, Executive Vice President and Chief Financial Officer, as well as Mark Horgan, Executive Vice President and Chief Investment Officer; and Brian Finnegan, Executive Vice President, Leasing, who will 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 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..

Thanks, Stacy. Good morning everyone and thank you for joining our fourth quarter call. I am very pleased to report on our team's progress and how our progress is reflected both in our results and our outlook as we execute our balance in self-funded plans to drive sustainable growth.

Following that report, I'll turn the call over Angela for more detailed review of our financial results outlook and capital plans before opening the call up for your questions. Allow me first to cover some of this year's highlights.

Bottom line, we delivered FFO per share of $2.07 for the full year, which represents 7% year-over-year growth when you exclude non-cash GAAP income and lease term fees. Reflected with that growth, we also grow our dividend by 5% in the third quarter while still maintaining a dividend payout ratio of 48%, one of the lowest in this sector.

We signed a record volume of leases of 13.7 million square feet and achieved an overall lease occupancy of 92.8% at year end, including a record level of small shop leased occupancy of 85.1%.

Importantly, for new and renewal signed during the year, we achieved an average cash spread 16.5%, again our productivity and growth back up very well, which as I've said before speaks to the quality of our team and our real estate.

From a value-add redevelopment perspective, we completed and delivered 28 anchor repositioning, 12 outparcel buildings and one redevelopment during the year representing nearly $70 million of investment at an average yield on cost of 12%. Importantly, these projects were completed on time and at our projected returns.

We also ramped up on our capital recycling activity, completing a 107 million of dispositions of non-core assets at an average cap rate of 6%, in closing on the acquisition of 48 million in assets including Felicita Town Center, a phenomenal Trader Joe's anchored center directly across the street from one of our existing shopping centers in Escondido, California, also at a fixed cap.

We continue to strengthen our balance sheet, reducing leverage, increasing our unencumbered ratio, extending our weighted average tenure, and amending and extending our bank facilities to provide over a $1 billion of access capacity. And finally and importantly, we successfully remediated the material weakness in our system of internal controls.

Angela and team have done a truly outstanding job, not only addressing the immediate issue, but going much further in designing and implementing robust internal control and reporting framework that underscores our absolute to transparency; well done.

These are all great results, but I'm equally excited about the progress we're making and setting the table for long-term growth and value creation.

It begins with leasing where we're replacing obsolete leases with tenants such as LA Fitness, Sprout, Party City, Michaels, Ross, AMC Theaters, Kroger Marketplace, HomeGoods, Sierra Trading, Petco and many others at much better rent.

And importantly, when we replaced obsolete anchors, we see well over 800 basis points of improvement in our small shop occupancy. Accordingly, this box recapture and re-tenanting is a key element of our strategy for sustainable growth.

Take for example Sports Authority, which I previewed last quarter where we had executed leases at three of our five locations and expect shortly to execute leases on the balance to combine overall spreads well north of 50%.

We backfilled these boxes with great tenants such as Dave & Buster's, HomeGoods and ALDI, we expect to see follow-on benefits in our small shop occupancy in rate of these center, which again is an important engine for long-term growth.

And with the box recapture, we've also successfully unlocked outparcels that will drive additional value as we execute on them.

Building on its success, we continue to mine opportunities within our portfolio to unlock value, in fact our attractive rent basis and identified tenant demand let us proactively recapture additional anchor boxes this past quarter at Villa Monaco and Mira Mesa.

We also continue to have conversations with Kmart about their plans with respect to the remaining 18 locations within our portfolio as well as other Kmart boxes that are adjacent to our near existing centers.

Our average in place rent on the balance of our location is in the $4 range, which gives us tremendous flexibility to create long-term value through re-tenanting or in many instances through much broader scale redevelopment.

Many of you may have seen Party's announcements that Sierra's retired our colleagues at Eastfield market over a $1 billion of their own real estate. Needless to say, we're very focused here, stay tuned.

In addition to proactively mining value, we're also focused from a leasing perspective on broadening our lease with retailers in growing segments such as theaters, entertainment, fitness and restaurants where we have a demonstrated and growing opportunity to drive competition for our space.

In 2016, we executed approximately 900,000 square feet of new leases with tenants in these categories, up nearly 20% compared to the past three years. Further, we continue to build an active pipeline of transactions with a much broader mix of tenants than ever before. They deepen the relevance and productivity of our centers.

We're also focused on reducing options in new leases, allowing us to control the space at lease churn. In fact, we produced the number of new deals with options from over 50% in 2015, to 38% this past year. And importantly, where we do get auctions, we're focused on increasing the implied growth of the option rent.

And finally we're focused on achieving embedded growth through contractual rent bumps in the leases themselves. This year, we increased the percentage of new deals with rent bumps from 78% in 2015 to 92% this year, and increased our weighted average growth rate from 1.7% in those deals to just over 2% across both anchors and small shops.

Brian and Mike have brought tremendous leadership here and responding to my challenge of continually improving how we execute our business. These may seem like small matters, but that focus drives tremendous value. Our progress again towards achieving these goals speaks for the quality of our team and our real estate.

Speaking of our locations, I'm also pleased to report that under Haig's leadership we successfully weaned ourselves from relying on third-party service aggregators.

By eliminating a middleman and directly contracting with our key property level service providers, we are now able to implement higher property operating standard without incurring drag on our margins. And most importantly, our centers are improving in periods.

We are measuring that improvement through property score cards, tenant feedback and secrete shoppers. Our tenants are responding very favorably to our efforts, not to mention the communities that our centers serve.

Under Mike Wood’s leadership, we successfully integrated redevelopment teams in each of our four regions which is allowed us to make significant progress in ramping our active redevelopment pipeline which stood at zero dollar at the beginning of the year to 113 million at year end.

In the fourth quarter, we added two new redevelopment projects to our active pipeline, which were Sagamore Park Center in Lafayette, Indiana; and Collegeville Shopping Center in Philadelphia. Expect to see additional progress each quarter as we are well on our way to our goal is delivering 150 million to 200 million of redevelopment annually.

You will note that we have added additional projects as well to the shadow pipeline, which is quickly approaching $1 billion in scale, supporting several years of activity and assets that we own and control. Mike and team have done an outstanding job here.

Finally, as previously mentioned, Mark and the investments team have successfully kicked off our capital recycling program. I want to emphasize the couple of things about this activity. First, we’ve maintained discipline with the capital that we’ve been interested with on both the sale and divide.

Transacting asset-by-asset is difficult and more laborious in portfolio trades, but in this environment the execution is far, far better. Second, and importantly, we are redeploying proceeds and retail notes where we already have an existing presence, reducing risks and allowing us to achieve greater ABR growth as we gain more critical math.

In fact, I’m excited to report that we already have a new lease at Felicita at 10% higher than our original underwriting. I’m also excited about some of the deals Mark and team have in their pipeline. Again stay soon, but count us to remain disciplined and balanced.

Looking forward, our guidance reflects this progress we continue to make in the execution of our plan.

As Angela will cover in a bit more detail shortly, our overall same-store guidance at the mid-point of 2.5% is in the range of our long-term plans before redevelopment despite; one, the impact of these recent kind of bankruptcies where we’ve made excellent progress releasing space to better time, most of which will commenced later this year.

And two, our investment and proactively recapturing space to ramp up our redevelopment activity, which in total, we expect to drive our NOI growth by 10 to 20 basis points this year and then gradually bring our overall growth rate above 4%, as we've built our annual rate of redevelopment delivery to 150 million to 200 million.

We also believe that we’re striking the right balance at the bottom line. As we expect to grow our asset growth before lease term fees and GAAP non-cash income by 5% at the mid-point of our guidance while also investing in our long-term growth by executing upon our capital recycling plan and by opportunistically accessing the unsecured debt markets.

In summary, we are almost nine months end with the new team at Brixmor, and I couldn’t be more pleased with our execution and outlook on all facets of our plan to drive shareholder value through leasing and operations, value-added redevelopment and capital recycling.

Given the history of this company, our below market rents, the average age of centers and their locations with improved and retail notes, I believe that the scope and scale of our opportunity to drive sustainable growth truly stands apart within the open air sector.

And importantly, that opportunity is self funded and largely embedded in what we own and control today. I'll now turn it over to Angela to address our results and guidance in a bit more detail. I look forward to your questions and as always appreciate your interest in Brixmor..

Thanks, Jim, and good morning. I am pleased to report a strong quarter of financial and operational performance, as we continue to position Brixmor to deliver sustainable long-term growth and create meaningful value for shareholders.

As Jim noted earlier, last night, we filed our 10-K which confirms the remediation of the material weakness disclosed last year.

We have focused our efforts on, not only addressing the prior material weakness, but also on continuing to enhance the overall internal control environment and demonstrating our ongoing commitment to transparency and best-in-class disclosure.

FFO for the fourth quarter was $0.53 per share, $0.02 above the prior year while FFO for the full year was $2.07 per share, $0.01 above the high end of our previous guidance range and $0.10 above the prior year.

Excluding non-cash GAAP rental income and lease termination fees, FFO per share grew 7% year-over-year, primarily driven by growth in same property NOI, lower interest expense as we have refinanced high cost secured debt in the unsecured market at lower rate and lower total G&A expense.

Same property NOI growth was 1.6% in the fourth quarter driven by base trends, which contributed 240 basis points during the period largely in line with the third quarter despite additional impact from recent retailer bankruptcy.

However, as you'll recall one-time adjustments recognize in the fourth quarter of 2015, related to the previously announced audit committee review as well as certain one-time ancillary in other income items also recognized in the fourth quarter of last year, significantly limit the comparability of NOI on a year-over-year basis in Q4 '16.

For the full year, same property NOI growth was 2.5% and was driven almost entirely by higher base trends, which contributed 250 basis points of same store growth despite approximately 40 basis points of impacts related to retailer disruption, including the bankruptcy of A&P in 2015 and the bankruptcies of several retailers in 2016 including Sports Authority and Hancock Fabrics.

With respect to the balance sheet at the end of 2016, our debt to cash adjusted EBITDA was 6.9 times, down from 7.3 times at the end of 2015, driven by those debt reduction and growth in EBITDA. Importantly, during 2016, we made significant strides in also improving our overall financial flexibility.

These efforts which included two unsecured bond issuances, totaling $1.1 billion the repayment of over $900 million of high cost secured debt and the amendment and extension of our primary credit facility have expanded our unencumbered asset base to over 76% of NOI versus 62% at year end 2015, while also increasing our weighted average maturity.

During 2017, we have just under $300 million of natural mortgage maturities and then additional $97 million of secured debt maturing in 2020 that we expect to prepay without penalty at the end of September with a combined rate on all expected 2017 debt repayments of 6.4%.

Associated with this prepayment, we expect to recognize a gain on debt extinguishment of approximately $2 million to $3 million or just less than a penny a share. With over $1.1 billion of availability on our revolver at year end, we are well positioned to be opportunistic in 2017 with respect to capital market activity.

Turning to guidance, we introduced 2017 guidance with an FFO range of $2.05 to $2.12 per share, which represents year-over-year growth of approximately 5% at the midpoint of the range, excluding non-cash GAAP rental adjustments and lease termination income, which is driven by same property NOI growth of 2% to 3% and modest savings in total G&A.

As a reminder, our guidance does not include expectations of one-time items including but not limited to non-routine legal expenses.

Our same property NOI growth guidance reflects approximately 20 basis points of drag from 2016 bankruptcy activity primarily concentrated in the first half of the year, and 10 to 20 basis points of net drag related to the acceleration of our redevelopment program.

We currently expect the contribution from base rent to drop in the first quarter as a result of the continued impact of 2016 bankruptcy activity as well as seasonal move out activity, before reaccelerating in the second quarter.

In addition, I would remind everyone that same property growth in the second quarter of 2016 benefitted from the completion of annual CAM and tax reconciliations, which contributed 80 basis points of same property NOI growth in the second quarter.

As we do not expect this benefit to reoccur in 2017, this will act as a headwind to same property growth in Q2.

As a result, our same property NOI growth rate in the first half of 2017 maybe at or below the low end of our full year guidance range, although we expect to be at or above our full year guidance range in the second half of the year based on a strong pipeline of already executed anchor rent commencements related to our resettlement pipelines and the backfill of a portion of 2016 bankruptcy impacted space.

This pipeline of executed leases gives us significant visibility to the acceleration we expect to see as we progress through 2017. Our current guidance range contemplates our expectations for acquisition and disposition activity as well as capital market activity during 2017.

As it relates to both of these items, we'll be opportunistic with respect to execution.

As previously mentioned, our guidance range represents approximately 5% year-over-year growth at the midpoint of the range after adjusting for non-cash capital income and lease termination fees, and we're delivering this growth will also initiating a capital recycling program and ramping our redevelopment pipeline, demonstrating our commitment to prudently balancing near-term and long-term growth as we execute on our business plan.

And with, that I'll turn the call over to the operator for Q&A..

Thank you. We will now begin the question-and-answer session. [Operator Instructions] And our first question comes from Craig Schmidt with Bank of America. Please go ahead..

I wonder if you could describe what inning you're in, in terms of anchor repositioning, how many of you've touched and how many you think you still have to go?.

I think we're in the early innings of that effort.

When we came onboard, we proactively went through the portfolio to look at not only opportunities that exist in '16, '17, and '18, but we're looking beyond that because it's really a key part of our plan, Craig, to reposition a center; and as I mentioned in my remarks, benefit from the small shop, follow through in leasing, which we believe is really the best engine for long-term growth.

So, I'd say we're in second or third inning..

And where would you say stabilized occupancy lease space would be for the small shops?.

That is driven by couple of things. One is driven by again the active redevelopment pipeline. If you look at where the occupancy is for those assets that are moving into that pipeline is 400 to 500 basis points below our portfolio average, which is already too low.

Then as we release those anchor boxes, we see over 800 basis points of benefit in that occupancy. And importantly, we also see significant improvement in rate. The other element and I've alluded to this before Craig is that, we do have assets that we owned at our single assets and single markets.

And part of our capital recycling strategy is focused on addressing those investment decisions and determining whether or not we should exit that market or grow our presence in it. Where we only have one asset in a particular market are small shop occupancy lags the portfolio, again by about 500 basis points.

So, I think through those sort of parallel efforts, if you all redevelopment and capital recycling, you should see overtime our small shop occupancy approach 90%..

The next question comes from Jeff Donnelly with Wells Fargo. Please go ahead..

Jim just since you've brought it up in your remarks, I’m just curious any insights you can share about opportunities you think that might come of Sears and maybe how you're thinking about those for Brixmor?.

Well, as I mentioned, what was announced on the Friday was the Company’s decision to sell a $1 billion of its real estate. So, at that relates to us, it’s really more applicable to boxes that are adjacent to or proximate to our centers.

A lot of our dialogue has also been focused on our existing 18 locations and seeing where we can get control of that space back early where it fits with their business plan or doesn’t. And I think, you should expect to see some announcements from us on that.

If you look back to company’s history over the last three years, we’ve already recaptured and successfully tenanted five to six boxes. We have 18 less in the portfolio and again, I think based on our rent basis in these assets, we have some flexibility to create some value.

But listen, they are partner of ours and we’re working with them to understand, if they think about their plans to going forward, which of our locations may be less integral to them..

And since it’s a Valentine's Day maybe Stacy let me squeak in like a two part here. Is that -- I guess maybe first for Angela and I apologize I miss this. In your bridge from 2016 or 2017, I think the zero entered for the impact of capital recycling.

I just want to clarify, is the 2017 guidance have no assumption for net acquisitions or dispositions? Sorry, if I miss that.

And maybe as a follow-up, can Mark maybe -- can Mark maybe just talk about what he's seeing in pricing before assets on disposition? I’m curious maybe the contrast sort of the dominate grocery power centers versus more commodity or secondary market?.

Well that is the combo..

I would say with respect to sort of capital excitement and what's assumed in guidance. Well, we didn’t give specific assumptions around transaction volumes. Our expectations for what will execute on over the course of 2017 is absolutely embedded in that bridge, we've provided in the press release from 2016 to 2017 FFO.

That outline also includes the gain on debt extinguishment I mentioned in my prepared remarks, which is $2 million to $3 million, but the capital recycling activity, we expect to achieve this year is definitely represented in that line item as well..

Jeff, from a capital recycling perspective in the transactions market and Jim hit, what we did in the fourth quarter; and frankly on Felicita just want to say, we are very excited about that acquisition, we think it’s a great example of our go forward clustering strategy to own assets.

And note that, we think our vibrant and long-term growers -- on the questions we get on the transactions market, I am sure you've heard as what's going out with respect to treasure rates. There does seem to be some impact on cap rates due to rise in treasure rates, but it's nowhere near that the straight movement in the rates.

The biggest impact as I think you're alluding to is really that the non-grocery anchored power center where landlords have little control. We continue to see debt across our markets in both coastal and non-coastal markets.

As Jim mentioned, we'll be continuing on the sale side to grind through asset sales one-by-one because we think smaller check sizes certainly widens the buyer pool. We've seen some portfolio trades out there where we think they traded at a discount simply because of the lock of debt enough of a larger buyer in certain markets.

Ultimately, from our perspective on the buy side, if we see widening in cap rates we think that’s a great opportunity for us, as we cycle capital into our target markets at yield that maybe slightly wider than we could of otherwise over the last couple of years..

Next question comes from Christy McElroy with Citi. Please go ahead..

Angela, can you provide some more details around your assumption for additional debt issuance this year, the size of the bond deal, timing et cetera? And where do you expect to end the year on a net debt to EBITDA basis?.

Sure, I think what's important as we think about capital markets activity over the course of '17; it's to just note that all of the steps we took during 2016 really positioned us to be very opportunistic over the course of the year, the two bond deals and the recast of the credit facility.

That said, I think as you think about a range of potential execution during '17, I think it's fair to assume that we at least raise enough in the capital market, if the environment is conducive to address the natural mortgage maturities in that additional prepayment amount that I had mentioned, so give or take $400 million.

At the other end, we may start addressing future debt maturities as well, but that will be opportunistic and driven by market condition..

Can you talk about shops at Riverhead and the increasing cost there? It looks like you added a Sierra Trading cost to mix, but also a multitenant retail building?.

We did Christy. Thank you for highlighting that. We've expanded that project given our successful leasing now into Phase II, which does include the Sierra Trading and an outbuilding as well. As a result of that, our yield tick from 11 to 10, but we are very excited about the progress we're seeing on the leasing there.

And importantly, the pace at which we're getting that project underway. When we came in, I felt like that was the one project in particular that needed a bit more focus and attention with respect to execution and making sure that we were delivering in time for the tenant leases that we are assigning.

I think Mike Wood and team have done a good job of doping that, which is given us confidence into moving into the second phase. Again a 10% return I think we are creating tremendous value in that quarter of Long Island, and I am real pleased with the merchandising momentum we are seeing there..

Next question comes from Ki Bin Kim with SunTrust. Please go ahead..

So, could you help us to understand, I am not sure if you've done this, but how your rents compared to market rents around your assets for comparable quality?.

I think that what we're seeing is bearing out, I mean the best data point I think you can look to is where we're signing recent bankrupt space that we're getting back; where you're seeing achieving spreads on those boxes better than 50% at our assets, actually transactions.

And if you look over the course of the year more broadly on the portfolio, we're signing a tremendous volume with new leases, nearly 7 million of new and renewals, which I think are the best indicator event of the mark-to-market, if you will.

And you're seeing us achieving high-mid teens in the most recent quarter and strong mid teens for the full year. So, I think that our rents characteristically across the portfolio are below market in the markets we're doing business in.

One of the interesting byproducts too clustering our assets in our markets is, we get even smarter about where we can drive rents.

I mentioned Felicita Plaza in Escondido, California where now we've assets on both sides of the street, we're actually driving better ABR growth than "what was in market." And we're even seeing benefit out of some of the assets that we have in our acquisition pipeline in terms of capturing tenant deal flow in those markets.

So, I think our assets are characteristically pretty below market, and I think it's a function of lack of capital. As I mentioned also our initiatives under property operations, our properties still look good. We need to make them look better and I'm real pleased with the progress hog is making there.

Although, we've got more work to do, and then certainly again the job being done by the leasing team, I think really speaks to that embedded mark..

And as it relates to a serious commentary, I'm sure you've already done, but if you had a segment out that 18 boxes that you owned into things that you want back immediately where it seems like it's easy money versus something's that are little more heavier where you want some more time.

How would that kind of the segmentation profile look like?.

I think that the way I think about it is it kind of breaks into roughly third there. It's about a third that I think are going to trigger a lot of value creation through broader redevelopment. There's about a third that we're going to trigger value creation, but really essentially through just re-tenanting the box.

And about a third where we're going to work to replace the rent with the better use, try to derive descent returns on the capital we have. But they're very few and I'm truly worried about, and in parts, it's because the rent basis is so low. In some instances, we're getting $2 rents on these boxes.

So, there's a variety of options that we can get after to drive better outcomes where those particular boxes no longer fit within the strategy. And then we're also looking at boxes that are at or near our centers to see where there could be opportunities.

And then beyond that, if you would expect us to where looking at became our portfolio in its entirety and figuring out where we've opportunities to play offense and where we should be playing some defense as well.

And within that latter category, we've identified probably 10 to 12 centers that we think need additional focus in terms of rolling boxes where our rents are loaded to market in the event anything happens would become our supply we're competing with..

Okay and one quick one for Angela.

Did you guys incorporate some measure of potential store closures from like pay less and mattress firm potentially in your guidance?.

Not explicitly, but certainly the range contemplates some amount of retailer disruption as we move through the year both sort of on the top line as well as slightly elevated bad debt expense..

Next question comes from Todd Thomas with KeyBanc. Please go ahead..

Jim just first question following up on the Sears or the Kmart commentary related to the adjacent nearby properties.

Is this something that you would look to do on a larger scale basis perhaps in a joint venture format? Or would it something much more surgical the Brixmor takes on a wholly-owned basis?.

It’s really much more at the property level. Honestly Todd, just like in our capital recycling, I think that’s the most prudent way to allocate capital.

For us, I don’t believe in complicating our balance sheet with the joint venture at something we get enough value creation through that venture whether it'd be fees and promotes and that stuffs to offset the complexity would introduce to our business plan.

So really is and its hard work looking asset-by-asset in terms of where the opportunities are as well as where we have potential for us. And again, I want to emphasize here that we’re really partnering with Kmart here. We have a long-term relationship with them.

It’s a very successful one; and as they go through transitions as many of our retailers have and many of our retailer as well, we just want to make sure that that partnership is the strong one, so that we’re well positioned to continue to drive our business plan..

Okay. And then, Jim, it seems like where you've seen more headlines and news about online grocery and pick-up in delivery models in recent months.

And if you past-forward a few years, Just curious where you see the puck moving and what you’re doing as you think about changes that maybe taking place to the traditional grocery model?.

Well, you actually highlight something I think is very important and that is that many of our grocers like Kroger for example are implementing this click and pick up programs that are really valuing the time that their consumer, and they’re seeing great sales productivity as a result of having store employees engage with the customers, deliver the groceries to their car, offer items that maybe were purchased on last business and improved that overall experience.

So, I’m really pleased to see the grocers responding to and evolving to what we as consumers demand from an experience standpoint as well as from valuing their time, valuing the consumers' time.

And I think in addition to the click programs you’re seeing a lot of the grocers thinking that have a re-merchandise the front foot of their stores as well as how they think about the entrances to their store.

And we are partnering with them, as we think about ways to accretive good capital and thoughts and other things to make the overall shopper experience better. I mean and again it’s against the backdrop of online retailers I think increasing recognizing that physical connection with the consumer is a very important one in terms of delivering service.

And so, I think it’s a model that will continue to evolve as we look at stat near term trends or sales productivity of our grocers remains strong and certainly as we talk with many of them about their expansion plans, as we demonstrated it just in the last quarter. We are seeing them invest in new locations and make their existing locations better.

And that later category is an area where we are particularly focused on partnering with them because we do have some older boxes, older grocers in our portfolio that I think could stand in uplift..

[Operator Instructions] The next question comes from Jeremy Metz with UBS. Please go ahead..

Sorry, if I miss this, but did you say what's baked in the guidance for releasing spreads? Jim, you talked about significant amount of mark-to-market opportunities still in portfolio, spreads have been strong in that 10% to 15% range.

So just wondering if we should expect to see that trend continuing here in 2017?.

We haven’t provided specific guidance, but we certainly expect to see it continue. Brian, I don’t know if you want to comment..

Yes, look, as we look at the runway particularly in anchor space, Jeremy, we've got roughly 170 boxes coming up in the next three years of rents in the$8 range, we're signing those deals at $12. So, we feel pretty good about the mark-to-market throughout the portfolio in the future..

And then, Jim, just one for you. In your opening remarks, you talked a lot about the improving internal controls, the integration as teams, the elimination to third-party aggregate. I was just wondering how should we think about the impact on margins going forward as a result of all this.

On one hand you obviously have more control than better overall execution, on the other internalizing a lot of these processes comes at a cost? Just wonder how we should think about the margin in that?.

Let's talk about the third-party service aggregators because that's really perhaps the biggest thing that we are doing. And what we've seen today is that we are able to negotiate with the service providers be at the snow removal companies or the landscape providers or the portering services, sweeping et cetera directly.

And actually getting a higher level of service by doing that, it’s a lot more work than certainly delegating that responsibility to one of these service aggregators. But what we have seen so far, Jeremy, and what I am pleased with is that we have been able to hold our margins.

And importantly, our reimbursable expenses for our tenants aren’t going up significantly. I think they like what they are seeing. But let me share with you philosophically by how to give 10, 20 basis points to margin which I don’t expect. But in so doing we are making the center better and position them in a way to grow long term.

I certainly when think about that very hard as I think that would be what you would expect me to do as an owner. With all that said, we haven’t seen any margin deterioration.

As it relates to other things that we are doing internally in terms of our reporting, our system, et cetera, we've have been doing that with the focus on remaining that neutral from a G&A perspective. Our G&A just past year was obviously elevated because of some one-time items.

But if you look at where our guidance is, it's roughly in line with where we were in 2015 and we've been very conscious about that to make sure again that we're been frugal with the SG&A dollars and that we're really being good fiduciaries for our investment in human capital as well as the real estate itself.

So, we're evolving, we're getting better, I continue to tell the team that we're never going to "get there" but we're continually getting better.

So, you see us also measuring that I refer to some of that in terms of our leasing activity, we're measuring it in terms of our property appearance, we're obviously measuring in terms of our redevelopment yields and pipeline; all with the view of continuing to get better and exploit the opportunity that we think we have..

And the next question comes from Wes Golladay with RBC Capital. Please go ahead..

When we look at the same-store NOI growth of 2% to 3%, how much of that comes from annual rent bumps? And where do you see that going forward let's say 2018, in 2019 with the new leases you're signing?.

Our contractual rent bumps contributes just over 100 basis points, call it a 110 basis points to same-store property growth in a year. But, as Jim talked extensively about in him remarks, it's been growing that embedded rent growth across the portfolio has been a huge focus for the leasing team.

And so, our hope is that we can continue to ratchet that number over the next couple of years through execution and get that up into the 120, 130 basis points range..

And then we talked about the clustering strategy, how should we look at that? Do you have a certain amount of GOA you want in a region? Or is it number of properties and you just group maybe Southern California together or is it San Diego, we saw you added the third property there? How should we view the clustering?.

With our clustering as we did which is really identifying what the retail note is and what the supply demand fundamentals are within that note. And we're doing all that we can to increase our presence and our share within those notes. It's less about a nominal number of square footage than it is about having a meaningful share of that market.

So, we mentioned -- we highlighted the transaction that we've done in Escondido, California, look over the coming months to see us doing similar type things in other markets where maybe we have one asset or two assets and we're adding three and then four.

Again, we're just really strong believers in the ABR benefit of doing so, it's less about the operating synergies of having more -- it's really about what happens to that top line rental rate where you own three to four assets and I mentioned the experience we've had in Felicita since bringing that onboard, that is not an isolated phenomenon.

By owning more in a note, retailers have to come and talk to you, and you just get a much better perspective on where rents can be driven then if you own just one..

The next question comes from Michael Mueller with JPMorgan. Please go ahead..

I apologize, if I missed these, but for the non-cash rent burn-off.

Can you talk a little bit about the outlook for the next couple of years? What the visibility looks like on that some of the moving parts around? What the decrease or the headwind could be relative to this year? And then also did you talk about where year end at 2017 occupancy as expected to be?.

Sure, Mike. First, on the non-cash question, outside of straight line, which is obviously going to depend upon the pull of leases signed and leases rolling off in any period. From a FAS 141 perspective which is where you've seen the most roll down over the last several years for us.

You should expect moving from ’17 to ’18 and then beyond that the annual burn-off in FAS 141 income is around $4 million to $5 million a year. So hopefully that provides a little more clarity there, there is some disclosure about that in the 10-K as well.

In terms of the year-end occupancy target or objective for 2017, we didn’t provide a firm number, as I sort of look at the trajectory over the course of the year. As I talk about it with respect to NOI, I think the same trend is holding with respect to occupancy.

You’ll see a step back a little bit in the first quarter, as a result of seasonal move out activity and then continue to ramp through the end of the year, as we have in the rent commencement in the redevelopment portfolio and with respect to some of the bankrupt space..

The next question comes from Vincent Chao with Deutsche Bank. Please go ahead..

Just a quick question, so going back to some of the comments about the leasing changes that you've made that don’t necessarily show up in the spreads that we always look at, which was helpful.

I’m just curious, if there is any way to parse out, how much of that reflects improving demand versus changes in? And how you’re incentivizing leasing force or how you’re prioritizing? How the leases are structured? I’m talking about the comments about number of options and the contractual rent bumps and something like that?.

I’m going to talk a little bit about Brian here. But one is the great things we do as a company as every week, we get together and we look at the productivity for that week, the entire leasing team convince and we look at 40, 50, 60 deals that are coming through in that particular week.

And that opportunity is really a chance for us to focusing on some of these key themes, and it’s really just about paying attention to it. I mean I hate to say it that it’s focused. And yes, we are aligning compensation to be consistent with the realization of NOI goals and some of these other goals rather than just occupancy.

But Brian and Mike have done a really good job of moving from an emphasis focused on driving occupancy and making sure that we’re doing the right deal for the space, it's the right merchant that we’re doing everything that we can to drive that ABR.

And then in addition that we’re seeing improvements and options and improvements and the embedded rent bump. So, I’d love to tell you, there is a magic to it, but it’s really comes down to leadership and focus. And I think Brian has done a really good job of getting the team and the field to step up and produce.

So that’s really, I mean, I would expecting give you some grand theoretical answer, but it really is about focus..

And then just another question, a total different topic, just looking at the value enhancing CapEx guidance is 150 million to 200 million. If I just look at sort of all the different buckets that you outline in the sub in terms of all partial developments, redevelopments, developments and anchoring positions.

And I just think about sort of cost today, versus the total costs. Now I’m coming like 107 million. So I’m just curious, if there is anything else that we’re missing, it’s not captured in the sub or if there is expect, but if project that are embedded and that are not currently in the under construction..

Yes. So, we are delivering every quarter new projects so we delivered two more in the fourth quarter expected see us continued ramp up that activity through the course of the year as we get through entitlements as we get leases signed et cetera.

What you are saying running through our numbers right now and we've alluded to it couple of times, as we ramp that activity we are recapturing space, and we are taking down boxes like we did at Villa Monaco and Mira Mesa.

So, our range of spend which I think it’s a little bit lower than what you have, I think it's 120 million to 150 million that we expect to spend in the year, reflects not just what we have actively going on right now, but what we expect to continue to add to the pipeline to the year.

Again though with the long-term goals just to be really clear that we want to ramp that redevelopment activity to 150 million to 200 million annually, and we are working really hard on that.

We are not only seeing our projects for the active pipeline or moving projects through the shadow of pipeline, we are doing our best to give you some visibility on that, which is why if you look at what we have done with our shadow pipeline, you will see that continues to grow as we see a projects for later in the year and beyond..

The next question comes from Daniel Santos with Sandler O'Neill. Please go ahead..

Just two questions from me.

The first one is on the individual asset transactions and just wondering, should we be thinking that the smaller one-off transactions are better because you can get tighter pricing or do you find that they're difficult because of financing availability?.

Well, I think it’s a function of both things, right. When you are out in the market with $200 million and $300 million portfolio you just have a much more limited universal buyers versus when you have an asset that $20 million or $25 million, we see a much broader audience if you own its supply and demand.

And certainly, we are still seeing the financing markets for buyers with liquidity at the asset level, just as the portfolio level but the real driver there in our opinion is the equity, and how much of a field do you have as you go out to sale an asset that 20 million to 25 million versus selling a portfolio.

I do want to highlight here that we are working really hard to get the best return on the capital that we have been trusted with. We are always going to be opportunistic. So, if there is a portfolio trade that makes sense to us we will execute upon it and then report to you on why we did it and what the parameters were..

The next one is for Angela.

Are you expecting Moody's to remove their negative outlook, and if so, should that impact debt pricing?.

It’s a good question. They've remained at negative outlook, as I understand it I think we accomplished most of what they were looking for. I think the one getting item was the remediation of the material weakness, which was announced last night. So, we are certainly hopeful that there will be movement there, but across the rating spectrum, right.

I think as we reflect on everything that’s been done and how we are position from a balance sheet perspective going forward, we certainly hope that we don’t say it at low BBB and definitely we will continue to move up the rating spectrum..

The next question comes from Floris van Dijkum with Boenning. Please go ahead..

Jim, quick question, first on the more near term, the year lease to build delta was around 2.1%.

Would you expect that to be on a normalized basis? And if it's going to a normalized basis, when could we expect that to get to that point?.

I think it's definitely gapped by probably 40 basis points, 50 basis points as a result of the bankruptcies that as we saw. So, that it's a bit wider than it should be historically, but you're always going to have a gap between leased and build I hope.

As you continue to get ahead of space and lease it up, so on a go forward basis I would expect it to tighten and tighten through the course of the year, but certainly we're never going to close that gap fully..

And then the second question. And maybe put your strategic hat on a little bit more, but with all these things that you're planning to do with the portfolio including redeveloping all your historic anchor boxes and marking your rents to market.

What do you think the portfolio looks like in five years time? What do you think happens to your ABR and also to the average number of assets, if you would be able to put a sort of more strategic vision on the outlook?.

We will likely on fewer assets in five years, and I'll be real disappointed if we can't point to the clustering that's occurred during that capital recycling period.

And we will importantly drive growth in our ABR, not manufacture it through capital recycling, but drive growth through that ABR in terms of rollover, making our centers better and driving that underlying cash flow growth predominantly.

So, I expect in five years you're going to see much higher ABR and you're going to see a much more clustered portfolio probably fewer assets from -- down from the five, 15 or so that we own today, as we recycle out of single asset markets and assets that we think don’t present opportunities for long term growth..

The next question comes from Linda Tsai with Barclays. Please go ahead..

When you look at the longer term outlook for grocers, do you expect to see more consolidation? It seems like there's still healthy demand with specialty grocers expanding their footprint, but maybe there could be disintermediation from the internet that may eventually weigh on weaker competitors similar to what we've seen with soft line retailers at the malls?.

Well, I don't think you're going to quite see within the grocery segment what's happened with the soft line retailers.

I do think that there's going to be opportunities for consolidation particularly with potentially some of the specialty grocers that you've out there that are operating really well and would represent attractive growth vehicles for traditional grocers or perhaps even businesses that aren't traditional grocers today.

So, I expect that you may see some continued consolidation in that space but again these are businesses that have been and we’ll continue to be competitive these operators have done very well in a environment of high margins and I expect and continue to be healthy as we move forward..

Next question comes from Karin Ford with MUFG Securities. Please go ahead..

I just wanted to go back to the capital recycling program in 2017. I know you’re not talking about volumes today.

But can you just tell us that you think the expected cap rates spread will be acquisitions and disposition?.

I think that you can expect that cap rate range to be 100 to 150 basis points, again it depends. We are seeing some upward pressure in cap rates on both the buy and the sell. But we’re quite confident in our ability to continue to recycle in this environment and do you so in a way the balances the dilutive of impacts during the year.

We specifically not provided volume guidance although we certainly have internal goals and assets that we have targeted on both the buy and sell. And that’s really quite potential because we want to always maintain our discipline, we do not want to be pressured if you will to hit to certain level of capital recycling in a year.

Rather we want to deliver through our results and then show you that we’re able to do that still maintain that balance not diluting our long-term growth..

Thanks for that. And my second question is for Angela.

Where do you think you could raise 10-year on secured debt today?.

I think if you look at the secondary levels for 10-year debt, it would be somewhere in the 170 basis points range, so somewhere around there..

But if we were going to the market, we expect to do better in the secondary. And again that part of why we always want to be opportunistic, but that’s kind of where it is levels are as Angela speaks..

The next question comes from Haendel St. Juste with Mizuho. Please go ahead..

I know it’s been a long call, but I’ve got a couple of quick one for you guys here. So, Jim or maybe Mark, I mean we’ve talk a little bit about the lower end of the transaction market quality wise moving cap rates.

But perhaps can you talk a bit about the higher end or the higher quality perhaps the type of assets you would like to buy? I’m curious as to the mindset of the sellers these days.

Are they standing firm still on price in the phase of rising rates or they more willing to engage in conversations and any sense of the spread there to would be appreciated?.

Yes. What's interesting, Haendel, let me start and I’ll turn it over to Mark. Again, we have seen some movement cap rates on both the buy and sell. We’re not competing with everybody and they're bothered to be in five or six costal markets.

So we don’t -- we can’t really comment real time in terms of what happening there, but we are seeing the ability to on the buy gets slightly better cap rates going in than we would have gotten six months ago. Just like on the sell, we’re seeing slightly higher cap rates. And that’s really kind of across the spectrum.

Mark, I don’t know if you want to add..

Yes. I'll add a couple of comments, when we have seen even post the post-election with the rise in treasure, as we have still seen some tight trades and assets that we otherwise would have liked, we're trying to be disciplined with what we’re allocating our capital.

And then secondly, I think if you saw the market last year you had some very aggressive expectations on the pricing from brokers. And I think you saw a fair amount of asset that hit the market and didn’t trade. So, as you look at owners today, I think they're being more realistic as to be in the market, if they want to transact.

And we are going to take advantage of that one when we can..

And Angela one for you.

I am not sure I don’t think you mentioned in your remarks early, but just a plan for the $1 billion term loan maturing in '18, just curious again what we can expect or what you are thinking there? And then obviously, the floating rate element of it just curious on what your -- perhaps appetite for fixed rate or maybe increasing the proportion of fixed rate debt in your capital spend?.

Yes, we are about mid 80% fixed rate for that which reflects no billion for a swap, we did against term loan debt back in October. So, I think from a fixed rate exposure perspective, we are kind of right where we should be. What we did lead floating to your first question, Haendel, was about $700 million of the $1 billion term loan.

And that was really just to enable us to be opportunistic with respect to terming that out over the course of 2017 or into early 2018 as well.

So, we are looking at a variety of options and execution obviously in the unsecured bond markets, it's definitely on the table replacing some portion of that with term debt is definitely on the table maybe through disposition proceeds or something else.

So, we are evaluating a range of options certainly all of which are reflect in our guidance for 2017..

Thank you everyone for your questions. This concludes our question and answer session. I would now like to turn the conference back over to Stacy Slater for any closing remarks..

Thanks everyone for joining us today. We look forward to seeing many of you at the upcoming industry conferences..

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect..