Stacy Slater - Senior Vice President of IR James Taylor - Chief Executive Officer and President Angela Aman - Executive Vice President and Chief Financial Officer Mark Horgan - Executive Vice President and Chief Investment Officer Brian Finnegan - Executive Vice President of Leasing.

Christine McElroy - Citigroup Ki Bin Kim - SunTrust Robinson Humphrey Todd Thomas - KeyBanc Capital Markets Jeff Donnelly - Wells Fargo Karin Ford - MUFG Securities Wes Golladay - RBC Capital Markets Michael Miller - JP Morgan Floris van Dijkum - Boenning and Scattergood Jeremy Metz - BMO Capital Vincent Chao - Deutsche Bank AG Daniel Santos - Sandler O'Neill..

Good morning, and welcome to the Brixmor Property Group Inc. Third Quarter Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Ms. Stacy Slater. Please go ahead..

Thank you, operator, and thank you, all for joining Brixmor's third quarter conference call.

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 third quarter update call. I am very pleased to report that we continue to make substantial progress on all facets of our plan to unlock long-term value and maximize growth and cash flow per share.

That progress, which is reflected in our sector-leading leasing productivity, our improved merchandizing, our ramping redevelopment activity, our accelerated capital recycling and our strengthening balance sheet has led us to tighten our current year NOI and FFO ranges as we continue to accelerate our investment and growth.

Let’s dig into that progress. It begins with leasing, where we executed 2.1 million square feet of new and renewal leases, which is a record for this team. With our new lease rent at $16.89 per square foot, which is also a record and a new cash spread of 21%.

When you include options, we executed 3.4 million square feet and for the trailing 12 months, we created an additional $41 million of incremental ABR or 4.3% of total ABR. .

These executed deals underscore the desirability of our centers and the strong performance of our restaurants in our parcel team. We also executed two additional specialty grocers to advance our reinvestment projects in Mamaroneck, New York and Marlton, New Jersey.

These deals, plus over 45 more of the 160 new leases signed during the quarter highlight our previously stated commitment to expanding our tenancy with uses such as restaurants, fitness, home, value and specialty grocery.

These uses increase traffic to our centers and drive follow-through growth in small stop occupancy while positioning our centers to engage and delight the communities they serve.

It’s important to note here that we remain focused on merchandizing and getting the right tenants who will drive long-term growth versus simply selling space to chase occupancy. From an occupancy standpoint, the year-over-year sequential decline this quarter was driven primarily by two factors.

First, our ramping future redevelopment pipeline drove a year-over-year drag of over 40 basis points. We expect that drag to continue to increase until we get to a stabilized level of spend and delivery in late 2018.

Second, outside of the redevelopment pool, we experienced a 60 basis impact from bankruptcies that we highlighted last quarter, primarily Payless and rue21. I am pleased to report that we continue to make strong progress on leasing the recaptured space.

In fact, 60% of the 2017 bankruptcy DOA is results are under LOI and for spaces where we’ve executed a new lease those rent spreads are north of 35%. However, we don’t expect that rents commence until later in 2018 and as always the team is laser-focused on trying to minimize downtime.

And while not as significant as the ramping redevelopment of recent bankruptcies, interestingly, we also saw a slightly negative impact in occupancy from our capital recycling activity. As we purposely drove occupancy at assets sold at 95% on average to maximize value.

From a capital allocation perspective, or put us an additional $15 million in proceeds from spaces leased in just the last 12 months. Despite the headlines of while on the retail space, our forward leasing pipeline has continued to grow and currently stands at over 500 leases comprising 3 million square feet and nearly 50 million of total ABR.

Our outstanding leasing productivity continues to drive growth in our overall ABR per foot, which is up 3% year-over-year to 13.28 also a record for the company. Now think about that growth for a minute.

It reflects the average in place rent for the entire portfolio of which we turn about 10% annually and we are driving that growth importantly intrinsically with the very best tenants in the open air space. That same leasing production also continues to unlock significant and accretive reinvestment opportunities.

This quarter, we added ten new projects comprising $34 million of investment at an average incremental return of 9%. That growing and active reinvestment pipeline stands apart from a risk perspective as I’ve said before, because it’s substantially pre-leased.

We also added 11 new redevelopment projects to our shadow pipeline based on leasing activity that will soon move to that access pipeline in markets like Cudahy, California, Redford Michigan, Garden City, New York and Concord New Hampshire. Finally, we delivered $6 million as accretive reinvestment this quarter at an average incremental return of 13%.

With over $2890 million of value-accretive projects now underway and a ramping shadow pipeline that we are actively pre-leasing, we are marching towards our goal with an annual spend of $150 million to $200 million by the end of 2018.

I am very pleased with the leadership efforts here of Bill Brown who set the ground running and is helping us achieve our goal of being the market leader in not only absolute value created, but also in the execution and velocity of delivery.

Speaking of unlocking value, I am also happy to report that we harvested another $191 million or 140 at our share in nine asset sales this quarter at an average cap rate of 7%. We continue to demonstrate liquidity for our non-core assets and to execute on our plan to exit singe asset markets which included for this quarter.

Three upstate New York markets and Campbellsville Kentucky. We currently have several additional assets under contract to sell and continue to ramp our dispositions efforts as I’ve discussed on prior calls. Let me pause on our execution here for a moment.

We are achieving cap rates on non-core assets that are at least a 150 basis points tighter than we are – than where we are trading today.

In their – would put them in the bottom quartile of our portfolio, truly an outstanding job by Mark and team, but also a testament to the liquidity and valuations that exist if you are willing to do the hard work as individual asset sales.

Our execution demonstrates our careful stewardship of capital and on the acquisition front, we will remain highly selective focusing on existing markets and only those assets with clear upside and hold IRRs that are compelling.

From a balance sheet perspective, we continue to extend our weighted average tenor which now stands at 5.4 years, and reduce our leverage including reducing debt by over a $100 million this quarter. This is all part of our intentional long-term plan to maximize the strength and flexibility of our balance sheet.

Looking forward, we have reduced the top-end of our FFO per share guidance which reflects the fact that will net disclosure of assets this year and the increasing drag of our ramping redevelopment.

Before turning the call over to Angela for a more detailed discussion of our results and outlook, allow me to touch briefly on the impact of hurricanes Harvey and Irma. As you may know, we had well over a 150 assets that were in the past of these two storms.

Our teams on the ground led by Holly, Jason, Matt and Julie, did an outstanding job getting our centers reopen quickly, prepositioning supplies, even helping tenants cleaner spaces and hanging sheet rock to get back up and running quickly. Their outstanding efforts mitigated an impact that could have been much, much worse.

All of our centers turned back, back up and running with very little downtime and the NOI impacted damages not covered by insurance is expected to be a little over 600,000 or 10 BPS mostly in the fourth quarter. I am so proud of how our team responded, many of whom were themselves displaced by the storms, truly outstanding.

I am also proud of the contributions of our broader team including our Board that’s helped to make to those members of the community most severely impacted by these storms.

Those contributions included over 250,000 meals donated to the Houston Food Bank, over 20,000 worth of school supplies donated to the districts most impacted in Houston, and over 70,000 in contributions to assist families with children displaced in South Florida.

And our efforts continue as we plan to send more employee volunteers to assist with habitats – through building efforts in both South Florida and Houston. Simply put, these efforts are consistent with our core purpose of being centered on the local communities we serve.

In closing, let me say that we are very much looking forward to seeing you at NAREIT in Dallas and many of you for our Property Tour there. I am excited for you to see our real estate first-hand and the breadth of opportunity we have to drive growth.

We are also looking forward to seeing many of you at our Investor Day in early December where you’ll have the opportunity to meet our broader team, speak with some of our larger tenants and also receive guidance for how we expect our performance to deliver over the coming years. With that, I’ll turn it over to Angela. .

Thanks, Jim and good morning. I am pleased to report another strong quarter of financial and operational results that demonstrate both the health of the portfolio and successful execution on our long-term strategy.

FFO for the third quarter was $0.52 per share representing growth of 4% excluding non-tax GAAP rental adjustments and lease termination fees driven primarily by same-property NOI growth and a gain on debt extinguishment related to the early repayment of $98 million of high cost secured debt.

On a year-to-date basis, FFO was $1.58 per share representing growth of 3.7% excluding non-cash GAAP rental adjustments and lease termination fees. Same-property NOI growth was 1.5% for the period with base rent contributing 130 basis points.

This performance was consistent with the indication we gave on last quarter’s call that our 3Q growth rate would likely be at or below the low-end of our full year guidance range due in large part to the impact of bankruptcy activity, which detracted a 130 basis points of same-property NOI growth during the third quarter.

On a year-to-date basis, same-property NOI growth was 2% with base rent contributing 210 basis points. Based on the year-to-date performance and current expectations for the fourth quarter, we have revised our same-property NOI growth guidance to a range of 2% to 2.5% from the previous range of 2% to 3%.

The revision in the range is primarily attributable to additional occupancy drag in the fourth quarter due in part to the expansion of our forward redevelopment pipeline and other proactive vacancies created in order to facilitate remerchandising across the portfolio, as well as delays in rent commencement days on certain fully executed leases.

In addition, our revised range reflects our current expectations for the financial impact from hurricane activity. With respect to the balance sheet, as previously announced, during the third quarter, we closed on a $300 million, seven year unsecured term loan and used the proceeds to repay $300 million of 2018 unsecured term loan maturities.

In addition, we prepaid $98 million of secured debt at a 6.3% interest rate. From a liquidity standpoint, we have only $210 million of maturities between now and the end of 2018 and $1.25 billion of undrawn capacity under our revolving credit facility.

The acceleration of our capital recycling efforts in the third quarter had an impact on our overall leverage level with net debt to EBITDA now at 6.8 times, the company’s lowest level since going public.

The additional capacity we are creating on the balance sheet will be an important factor in our ability to drive shareholder value over the next several years.

Last night, we announced that our Board of Directors has approved a 5.8% increase in our quarterly dividend from $0.26 per share to $0.275 per share representing an annualized dividend yield of approximately 6%.

The dividend increase we assess with an FFO payout ratio in the low 50% range, one of the lowest in our sector and during that we retain ample capital to fund our accretive reinvestment pipeline and continue to strengthen the balance sheet.

With respect to FFO guidance, last night, we’ve revised our range to $2.05 to $2.09 per share from a previous range of $2.05 to $2.12 per share. This change reflects our revised same-property NOI growth expectations as well as the significant volume of disposition activity completed during the third quarter.

As discussed in prior calls, non-cash GAAP rental adjustments will continue to moderate over time.

While our guidance for total non-cash GAAP rental adjustment in 2017 remains unchanged at a $44 million to $46 million, we do expect that these line items will be significantly lower next year and believe that for modeling purposes, the current quarter represents an appropriate runrate for 2018.

We will provide more specific guidance on our expectations for 2018 at our Investor Day in Early December. And with that, I’ll turn the call over to the operator for Q&A..

[Operator Instructions] Our first question comes from Craig Schmidt with Bank of America. Please go ahead. .

Hi, Jim, this is Justin on for Craig. Just had quick question here on dispositions.

We see that 2017 has been quite a year as you predicted and I was just curious how we should be thinking about next year? And what if any dilutive impact that may have on earnings looking forward?.

Let me comment more broadly on the overall asset sale market.

It remains really compelling and as I’ve said before, we will continue to ramp our disposition efforts to capitalize on that and while we are not prepared to give guidance for next year, we certainly see that environment from a capital recycling standpoint continuing based on what we have in our pipeline and the assets that we have under contract.

And again, I really think from – the important point here is that, we are able to harvest value in assets that are core to our long-term growth strategy at cap rates that are very compelling well inside of where we are trading today. And again, really point to the efforts of Mark and team and doing this one at a time. .

Appreciate that.

And then, on – I guess, on the other side of things, on acquisitions, I noticed there weren’t any in 3Q, was that just – is that a sign of something to come and how we are thinking about acquisitions looking forward or I guess, what do you need to see to start getting excited about acquisitions again?.

Thanks for the question. As I’ve said before, we are going to be not disposers in this environment.

We are going to remain very disciplined in terms of looking only at those assets to acquire that are in our existing markets or adjacent to some of our properties where we see a lot of growth and upside, because we’ve got a pipeline of reinvestment opportunity that’s continuing to grow and is producing high single-digit, low double-digit returns and we are in an environment where we are pre-leasing on lots.

So, as we think about our allocation of capital, we think the most prudent thing is to emphasize and grow our investment in that regard versus paying market values for where assets are trading today. .

Great, thank you. .

You bet..

Our next question is from Christine McElroy with Citi. Please go ahead..

Hi, good morning everyone. .

Good morning. .

Just on redevelopment, so I guess that the pipeline is ramping and it’s causing that greater drag in same-store NOI. It sounds like the change is driven by the fact that it’s ramping more quickly than you expected three months ago, but then just looking at the value enhancing CapEx and guidance, that’s unchanged.

So maybe you can help reconcile that, is it just greater downtime expected? And sort of what’s driving that greater immediately to ramp the pipeline for capital to work?.

Well, thanks for the question, Christy. What’s driving the drag is the space that we are taking down. And what’s driving it is that we have demand to backfill it. I am really excited for example about the space we’ve taken back in Marlton, New Jersey to trigger the redevelopment there that with this sprout.

So I mentioned two specialty grocer deals that we did this quarter. We did another one in Mamaroneck. We’ve taken back space, for example at Hunters Creek down in Florida to launch the redevelopment there with the Lucky Supermarket.

So, across the board, what we are seeing increasingly is an opportunity to replace some of these anchors with more relevant uses to the center and to do that, of course, we got to hit the space back. And what I am also particularly encouraged by is, Bill Brown’s leadership on that team.

We are really accelerating Christy, the rate at which we are moving assets from the shadow pipeline into the asset pipeline and you’ll notice this quarter, I think we added ten or so projects to the shadow pipeline. We’ve moved more projects into the active and we are continuing to deliver it.

And what I really want is, Hammer Home with folks out there is, that active pipeline that we show is been substantially pre-leased, right. And the other element of it is, it doesn’t reflect the follow-on benefit that we fully expect as we touch these centers and remerchandize and make them better.

For example, at Marlton, New Jersey, when we bring in that sprouts, we expect a big pop in some of the small shop rents around that, but that’s not factored into our returns.

But it is very consistent with this long-term plan and on a relative basis, as we think about where we should deploy the capital that we are generating from these asset sales, redevelopment is compelling, coupled with the fact that we’ve got the tenant demand to do it.

So, that’s – it’s really, Christy, that just more specifically answer the question as we are recapturing a lot more space and carrying if you will that vacancy associated with the redevelopment. .

Got it, okay.

And it sounds like at least at the top-end of the same-store guidance range there was some impact from delayed rent commencement dates, what do you think is driving some of those dates to get pushed back and what are some of the bigger issues there?.

That’s something that we track very closely which is the cost of rent commencement, which is simply measuring the cost of downtime between a signed lease in a period of time that it ultimately begins paying rent.

And that has grown and I think it’s really a factor of the type of tenants that we are doing deals with as we focus on merchandizing, bringing in fitness uses, and changing the underlying use of that box to make it a specialty grocer or another use different than what it was before.

And part of the other sort of underlying trend you see there is we are doing a larger proportion of anchor deals and we are doing that very intentionally, because, we want to also get the follow-on impact of better quality and higher rent paying small shop tenants once we’ve recaptured and reposition the anchors.

So, it’s really – it’s a function of both of those things that’s driving that increase in that rent commencement cost. .

Thanks so much..

You bet..

Our next question is from Ki Bin Kim with SunTrust. Please go ahead. .

Hey, Ki Bin. .

Hi, okay, good morning guys.

Tie to that previous question, how should we think about the pace of small shop occupancy gains throughout the next year especially given that you are ramping up with new follow-up and when should we expect that follow-on benefit?.

I think you should expect to see us make consistent progress on that throughout the next several quarters. With the redevelopment projects themselves, that progress is going to be an intentionally a bit more back-end weighted. And again, from a small shop perspective, we really are focused on making sure that we are driving the right tenants.

And a lot of the activity for example that we’ve been driving has been through our restaurant and outparcel team. A lot of those deals themselves are a little bit longer lead time given the build outs and other things that we are doing. But I think you should see pretty consistent steady progress in that metric throughout the next several quarters..

Okay.

And one part of the development story that’s been growing, is there a parcel development? Can you talk a little more about that and what the total scope looks like over time?.

I am sorry, Ki Bin, can you repeat the question?.

Parcel developments..

I didn’t hear that part. Sure, what was really interesting to me when I came into the company was the share scope of outparcels over 250 to 300 outparcels throughout the portfolio that had never been harvested.

And so, we brought on a new team as I’ve mentioned in the past led by Tommy Creekmore to make sure that we are focused on harvesting that opportunity and we are doing so in a phenomenal way across the portfolio.

We have over 40 deals in LOI and again, it’s with exciting tenants like a Shake Shack or a MOD Pizza or a Be Good Food and we are driving income, value and traffic off of previously underutilized portions of our centers and tying that into sometimes broader redevelopments, for example as we’ve done at Marlton where we’ve downsized the Burlington, we are adding a sprout and we are putting a Chickie's & Pete's on the outparcel.

So, I am very excited about that opportunity. The returns that we can drive on those outparcel deals are often in the double-digits and they are smaller investments. So, smaller investments, higher returns and relative to complete overhauls of the entire center generally shorter duration.

So, expect to see us continue to do that in addition to the anchor repositioning in the broader center redevelopment that we have underway. .

So you mentioned about 200 or so outparcels, but how is the demand for that type of space?.

What, as I mentioned, we have over 40 LOIs and leases underway now and that was really from a standing start Brian?.

Yes, Ki Bin, I will just add since the management team came on board we have had 11 projects in the pipeline. As you mentioned the returns are very strong at 13%. We’ve also to ramp this up because of the tenant demand, that we are seeing, we’ve added some redevelopment resources as well to accelerate this as best we can.

But we do continue to see good demand from QSR restaurants, interesting local restaurant concepts, Jim mentioned the Chickie's & Pete's that we did down in Marlton as well as a number of other uses that we are seeing for multi-tenant buildings upfront. We are seeing a lot of drive-through opportunities from tenants like Starbucks, and Panera.

So, as we continue to accelerate those plans, I feel really good about the demand that we have in that space. .

Yes, even that’s demand-driven. In fact, our entire redevelopment pipeline is demand-driven and I think that some of the healthy things that we are seeing going on in our pipeline is that we are actually pre-leasing the stuff that’s in our shadow pipeline and not moving in an active until it’s substantially done.

Frequently, it will be all done occasionally we’ll leave a couple small shops open as we move the project forward. .

Yes, I mean, that’s is the same point, I mean lot of your stuff is preleased which is not the case for every REIT. So, all right, thank you..

You bet..

Our next question is from Nick Yulico with UBS. Please go ahead..

Hi, good morning this is [Indiscernible] on for Nick.

It looks like the redevelopment and repositioning come down, just a bit but what seems to be the main drivers for the decline? And should we expect further erosion as you move deeper into the pipeline?.

No, I think it’s just a function of the mix of the projects that we are adding. I think, long-term, you can expect us to continue to deliver weighted average turns in the 9%, 10% to 11% range. Part of it Nick, it’s driven by the mix. Some of the larger redevelopments tend to have high single-digit yields.

Some of the outparcel deals can be much, much higher than that and as can the anchor repositioning deals. .

Okay, thank you and you may have commented on this in response to Christy’s question, but just to clarify, do those redevelopment yields include the impact from expected occupancy uplift?.

No, they don’t. Thank you for highlighting that, they don’t. So when we give you a redevelopment return, we are giving you that return on the space that we are addressing. So we are being conservative and the point there is that, if sometimes we’ll hold small shop occupancies lower in that center, for example at a Marlton.

So that we can start taking rents, for example, there from in the $30 to $40 range to the $50 and higher range, because new small shop tenants see that we’ve got a sprout and a great new restaurant outparcel. So, we are transforming the overall center. When we report those returns, we are reporting those returns on the spaces that we are touching.

And that’s a really important point. We are not betting on the comp. The only time we’ll have speculative activity in there is if we are addressing another space but we don’t have a tenant for it yet. .

Okay, thanks.

And so, as that 600 to 800 BPS small shops uplifts still the case in most recent months?.

Yes, that trend has continued and what we are really trying to do is, in the backdrop of strong tenant demand for our centers and importantly, reasonable occupancy cost which really matters in this environment, we are able to drive growth and follow through in the balance of the size..

All right. Thanks, Jim..

You bet..

Our next question is from Todd Thomas with KeyBanc Capital Markets. Please go ahead..

Hey Todd. .

Hi, thanks. Good morning. Just sticking with the redevelopment, that 40 basis point drag or impact on occupancy that you attributed to holding some space offline and sort of getting ready for some of that redevelopment.

I realize it’s somewhat temporary, but any sense how much larger that drag may become over the next year and when do you anticipate that it might begin to narrow and become a tailwind?.

Well, we are going to give really specific guidance on that at our Investor Day. But, look, as you well know, as you ramp that level of activity, the drag increases until you get to a stabilized level of spend and deliver, which we expect to happen in the fourth quarter of next year.

So, we are intentionally investing in that growth, the near-term cost of which is the vacancy drag. .

Okay, and then, on the dispositions in the quarter and I guess, just thinking about asset sales more broadly, can you characterize the buyer pool for some of these assets? And then, what are you seeing in terms of that gap in pricing between single asset execution versus sort of larger transactions or portfolio deals?.

Yes, let me turn it over to Mark.

Mark?.

Sure, couple questions there. We transacted with this, in the last quarter we had both nationwide focus pension fund advisors, we had local operators, we had a temporary one exchange buyer, local real estate funds and a private REIT. What’s interesting about the market today is, when you look at deal size it really matters from a volume perspective.

We see plenty of demand and interest in some of the smaller deal sizes given the relatively small equity check.

And so we continue to see a very active market which allows us to push pricing in some of these markets including some really secondary markets including assets like Greenriver which was in the – in an MSA, which I believe was about the 830th largest MSA in an asset like Rising Sun Maryland, which had 6,000 people in ten miles.

We saw great demand in both those assets because of the deal size and relatively small equity check that the buyer had to use.

With respect to your question on portfolios versus one-off deals, we really just have an portfolios because deals come in saying, or I really need the deal to get one done, we just continue to see great pricing on one-off – on a one-off basis, we’ve been continuing to try and pursue those versus the portfolio sales..

And look, as you could imagine, it’s harder work, right. But I think it’s the right thing to do as was our efforts with our regional leasing teams to drive some occupancy gains that those assets. In fact, we drove the occupancy up to 95% and as I mentioned in my prepared remarks that drove an additional $15 million in value.

So, we really are focused on making sure we are being good stewards of that capital. .

Okay, and then, I mean, I know you aren’t putting any markers out this around disposition goals, but in terms of continuing with single asset transactions like this, I mean is this about the right pace that maybe we should sort of think about the team being able to execute in any given quarter or during some sort of timeframe like this or could there be heavier periods of transaction activity?.

Well, we haven’t given guidance and the reason that we don’t is because we think it’s important to always remain very opportunistic in that process. But, our pipeline of dispositions continues to grow and we expect to continue to be a net disposer of properties over the next several quarters.

At sometimes you’ll see a higher level in a quarter, sometimes you’ll see a lower level. But we are going to be net sellers and it’s in an environment where we should be because we’ve got that big spread between where we are trading and the pricing that we can realize on those assets.

And frankly, it’s also consistent with our long-term portfolio allocation goals to get out of these single asset markets and you get out of assets that we think have low hold IRRs and reallocate that capital into redevelopment, our balance sheet, and from an asset acquisition standpoint, really only those assets that meet our requirements.

And so, I think what you’ll be seeing us doing on that side are probably smaller volumes and deals that we’ll be able to demonstrate to you have the embedded growth and upside that we need to see to make an acquisition. .

Thank you. .

You bet..

Our next question is from Jeff Donnelly with Wells Fargo. Please go ahead..

Good morning guys. Maybe just circling back, I apologize on the redevelopment question, just to come out a different way, the revised earnings guidance implies I think $0.47 to $0.51 and fourth quarter FFO which is certainly below the $0.52 to $0.53 you guys been averaging earlier this year.

Just given your remarks on the call, Jim about, leasing progress being more back-ended next year in the redevelopment drag can grow through late 2018.

I guess, should we be presuming that it’s fair to say that your Q4 FFO guidance might not be the depth of quarterly earnings as we also to think about next year?.

Well, we are not giving guidance on next period, but as we look into next quarter, we certainly have a few things going on, one of which is the asset dispositions, obviously the ramping redevelopment.

Angela, do you want to?.

Yes, those things that would have been in the Q3 number that wouldn’t be embedded in Q4 guidance would be the lease termination income we had in the third quarter which is just under a penny a share and then the gain on debt extinguishment, which was about a penny a share as well..

And just maybe the second question on just repurchasing shares, I apologize, I already missed this in your opening remarks, but how many waiting repurchases now given the widening gap between the value of your shares versus where you are monetizing? What you are seeing are your lowest tier assets, I guess, wouldn’t that imply that repurchases might actually surpass the returns on some of the repositioning that you are looking at, but maybe the left earning a disruption?.

I think that our product at the end of the day is a growing stream of cash flows per share. As I said in the opening – of my remark and therefore, as you think about that as an allocator of capital, certainly, share repurchases could be a very effective tool.

But first, we need to make sure that we are maintaining a very strong balance sheet which we continue to be focused on and that we put ourselves as we are today in a position where we do not have to raise a single penny of capital externally to fund what we have underway and what we expect to come.

But taking care of that and making sure first and foremost that we can deliver upon the longer-term redevelopment promise that we see, yes, that’s certainly a compelling tool to consider in the tool box. We don’t have anything announced yet, but stay tuned. .

Thanks guys..

You bet. .

The next question is from Karin Ford with MUFG Securities. Please go ahead..

Hi, good morning. Going back to the restaurant topic, there was an article at the Times Today that there are too many casual and fast food restaurants out there.

It’s obviously been pretty important to your remerchandising efforts, are you worried about saturation on that front? Or is it just a matter of picking the right restaurant?.

It really is about picking the right concepts and I think what the Times article highlighted is a trend that’s in fact being going on for several years which is the traditional casual dining concepts have struggled. But in this era of impatience and instant gratification, the quick serve concepts are growing.

They are very profitable, but you do have to pick the right concepts and as an overall portfolio, we are still very underrepresented in restaurants which I think can be a very important unsubsidized anchor for that shopping center.

Brian?.

Yes, the other thing I’d add just in terms of those casual dining operators, those spaces that we are in fact looking at and we do get back they are some of the best opportunities that we have in our portfolio to upgrade the merchandizing or the restaurant user for that space.

So, as Jim said, we are – we feel like we are underrepresented in terms of the restaurant uses and every quarter, our team keeps coming through with new and exciting concepts, Shake Shack and MOD this month at this quarter as Jim mentioned.

So we feel pretty good about the demand that’s out there and the breadth of the restaurant landscape as that we continue to get in front of all these opportunities..

Yes, and I love the question, because it’s an important one, we always look at that imbalance and with restaurants in particular, we all know that that’s a business that can be more volatile.

So, as we think about the capital that we put towards it, as we think about the operators, we are doing so being very mindful of the fact that there is a higher failure rate in that asset class, or excuse me, that tenant class. .

Thanks for that. That’s helpful.

And my second question, I thought I missed this, could you tell us how much rent commences in the fourth quarter? And can you just walk us through what other components there are that brings the same-store NOI growth up from 1.5% in 3Q up to 3% at the midpoint of guidance?.

Yes, I mean, I think, if you look at sort of our total pool of executed leases that have not yet commenced, I think around 40% of that starts rent commencing in the fourth quarter. I would say that most of that commences pretty late in the quarter. You are going to see the full benefit of that as we move into 2018.

In terms of sort of where we were in Q3 relative to where we expect to be in Q4, I think, the biggest range is probably on the top-line on ABR and that’s going to have a lot to do with rent commencement dates and other decisions again that we may make with respect to accelerating redevelopment pipeline, but that should have the biggest impact..

Great, thank you. .

The next question comes from Wes Golladay with RBC Capital Markets. Please go ahead..

Hey, good morning everyone.

Just looking at the redevelopment yield versus the – now where you could buy the stock back at, would you consider slowing down the pipeline going forward if you can buy the stock, if the stock stays at these levels, 8 plus nominal yield for, call it a few quarters, would you consider selling the pipeline?.

It’s a really good question. We are running a long-term business here, Wes and I’d love to think that we could operate like traders, but we really can’t and the redevelopment pipeline has a very intentional and deliberate lead time, where we are lining our tenants and doing that.

And so, and when we look at that absolute return, it’s compelling and then when we look at the follow-on benefit that we get from the growth in the small shops, from the balance of the centers, our returns to the company are actually even higher than what we are reporting on the incremental yield.

Again, we are only reporting our yields related to the space that we are touching. So having said that, as I talked about a few questions ago, I think share repurchases are an important capital allocation tool for any company like us that’s focused on maximizing growth and cash flow per share. So, stay tuned there.

But again, you are not going to see us as nimble as traders on that.

But I am certainly looking at the gap between where we are selling properties today and where we are trading and we are selling the bottom quartile of our portfolio in terms of demography, markets that we don’t have critical mass and that we don’t expect to be in long-term and we are going well in – where our overall portfolio is trading.

I mean, we had a big debate internally about Campbellsville Kentucky because, I don’t know if you know, but that’s actually the seed of Taylor County. But the team didn’t think that that was worth a whole. So, we’ve got some of these assets that the team is doing a phenomenal job of finding liquidity for and it’s hard work.

I am not going to give specific quarterly guidance on it, but I can tell you we are ramping that and as responsible and prudent stewards of capital, balance sheet, redevelopment are higher priorities, but hey, it’s kind of nice to have that tool in the arsenal too, as you think about maximizing growth and cash flow per share. .

Okay, and this is I guess, safe to assume that the buyback would be leverage neutral maybe accretive if you were to take one?.

That would be incredibly safe to assume. .

Okay, thanks a lot. .

Our next question is from Michael Miller with JP Morgan. Please go ahead..

Yes, hi, most questions have been answered, but, Angela, just little color on your comment about the redevelopment drag and why accelerating through 2018? I know, not asking for 2018 guidance specifically, but I am just curious in terms of like a magnitude of how much more of a headwind that could have on that 2018 comp? Any initial thoughts on that? Is it the basis points at the margin or could it be a significantly headwind?.

Yes, I mean, like we talked about, we are preparing to give full 2018 guidance within the context of the overall business plan at the Investor Day in early December.

I would say, as you think about what’s played out over the course of 2017, when we gave original guidance in Q4, we had said that we expect that the redevelopment drag to be about 10 basis points, whereas today, we said that redevelopment drag on the 2017 results is being about 40 basis points.

So that’s ground, but order of magnitude, that’s been about 30 basis points.

I’d also echo, Jim’s earlier comment as well with respect to getting to that runrate of spend in terms of deliveries and incremental spend on the redevelopment pipeline sort of reaching that stabilization point in late 2018 and seeing sort of the benefit from completed in-process redevelopments really kicking in over the course of 2019.

But I think it’s a little too early for us to quantify the impact for just 2018..

Okay. That was it. Thank you. .

You bet. See you, Mike..

Our next question is from Floris van Dijkum with Boenning. Please go ahead..

Hey guys. I just, maybe ask a question in a different way, Jim.

In terms of your dispositions for the fourth quarter, what do you have on the contract today that you expect will close in the fourth quarter?.

We have a little bit over $70 million under contract as we sit today. We’ve got a lot more in the pipeline behind that, but it’s really tough for me predict from a timing perspective when all of that will close, but it’s consistent when you look at under contract and pipeline with our goal to continue to ramp those efforts and be a net seller. .

Great.

And then, do you have a debt amount, maybe this is more for Angela, debt amount or a debt-to-EBITDA target that you are hoping to get to before you start to feel more comfortable, but you are pursuing share buybacks?.

Yes, I mean, I think we are really pleased with the progress we’ve made already. I think at the time we joined, debt-to-EBITDA was a little over seven times.

Today, we set it six eights, we have made some real progress, even just over the last few quarters as we continue to ramp the capital recycling activity and so pleased with the momentum from that standpoint.

As Jim said, we are going to continue to be a net seller and certainly some amount of those proceeds, no matter what will continue to go to the balance sheet, you will continue to see the number naturally work its way down through asset sales. But also importantly through EBITDA growth.

And as we talk about both harvesting the mark-to-market opportunity across the portfolio from just a leasing standpoint as well as the redevelopment pipeline beginning to contribute as we get into the later part of 2018, I think you are not surely going to see some moderation in that metric as a result of just growth in EBITDA. .

And Floris, we always think about it from a balance standpoint. It’s not a serial plan, but we are trying to strike the right balance as we move forward and be consistent with what we’ve committed to, which is to naturally migrate down that debt-to-EBITDA number into the low six range in a reasonable period of time. .

Okay, thanks guys. .

You bet. .

Our next question is from Jeremy Metz with BMO Capital. Please go ahead..

Hey guys. .

Hey, good morning..

Hey Jim. Just one quick one. As we think about the asset sales are you looking to balance the asset sales and really I’m looking further a little further out beyond just what you have in the contract in the fourth quarter.

But you look in the balance asset sales with redeployment opportunities and therefore if the sales markets softens from here, you may be willing to sell as much and therefore hold back in some of the development or with the allocation between – on that and redevelopments you shift further towards redevelopment?.

It’s a really good question.

One of the things that really struck me is, as I came into the company was the amount of cash flow that this company produces and in fact, we can fund most of the redevelopment activities that we have underway on a better than leverage neutral basis, just through that, free cash flow, then as we add asset dispositions on that, because it’s a chance to fund that growth activity while also delevering.

And as we look forward and we think about changes in different markets, whether it’s the leasing market or the capital recycling market et cetera we are always trying to strike the right balance and make the appropriate capital allocation decisions.

As we think about the asset disposition market right now, that’s hold IRR to pretty compelling to be a seller. And that’s really what we are going to evaluate those incremental capital decisions by going forward..

Appreciate that.

And the last one from me is just, in terms of the buyers that are out there and the transactions you are doing, are the buyers relying in putting in financing requirements in your offers or no?.

In general, we haven’t transacted with folks who’ve had financial contingencies in the contracts, but I would say in the last quarter, we closed with a buyer who use CMBS that a couple buyers you’ve banked at, as we look at transactions that we’re actively working on, we are working with folks using bank debt, some folks using insurance money.

So we are continuing to see good well-priced financing, debt financing for buyers and important, I do think that’s driven by deal size. So, when you look at some of the $20 million, $25 million, $30 million deal size, that’s a smaller free check and small by size that piece for bank to take down. We continue to operate that. .

And it’s not only the size, but it’s the nature of the assets themselves. I mean, you are looking at assets with pretty stable cash flows, with reasonable occupancy costs, and reasonable rents relative to our market is.

As Mark has alluded to, I think where you are seeing softness in the disposition market is for larger assets, but importantly, also assets that have in-place rents that are well above markets, right, and that just makes sense. As an investor, public or private, you want to focus your capital towards where you see good upside.

And so, a lot of the larger asset sales that had struggled have been due to size and frankly the nature of the underlying rent roll..

Appreciate the color. Thanks guys. .

You bet. .

Our next question is from Vincent Chao with Deutsche Bank. Please go ahead. .

Hey, Vince..

Hey, good morning everyone.

Without specifically asking about 2018 guidance, which I know will be provided shortly, just curious can you just remind us in terms of the 2017 same-store NOI guidance, what the expected drag is from sort of bankruptcy plus occupancy declines exclusive of the 40 basis points of redev? What’s your current average escalators are as well?.

Yes, within the current range, 2017 same-property range, obviously redev was about a 40 basis point impact. When you strip out the redev properties, I would say that, the bankruptcies by themselves were about another 70 basis points, so between the two just over a 100, 110..

Okay, and then, the average escalators today?.

The average escalators across the portfolio are about a 100 basis points. It’s obviously something we’ve been very focused on over the course of the last 12 or 18 months just in terms of making sure we are getting contractual escalations in our new lease activity and continuing to work that number higher. .

Yes and in fact, I'm glad you raised this point, I’ll let Brian address this more specifically, but we continue to see great momentum in terms of the embedded rent bumps we get in our new signed leases..

Yes, it’s something I think the team has done a very good job of and really speaks to the level of demand in this environment to be in our properties.

I mean, we are at 95% of our deal had rent bumps over the course of the term that we signed last quarter, that’s among the highest that we’ve ever had since we’ve been tracking it and something our team has been so focused on because that’s growth that you pay for once, you never have to pay for again.

So it continues to be something that we are focused on and we’ve been able to get it and really improve that number in this environment. .

And on a marginal basis, then, we are seeing that embedded rent growth in the two. So, we will continue to accrete the overall portfolio-embedded rent growth as we focus on that metrics much as we are accreting the overall in-place ABR and we are doing it intrinsically. We are not manufacturing that growth. .

Right, okay. And then, just maybe another question on the redevelopment side, since that is ramping up.

I guess, as we think about the sources of that increased pipeline, is it – is there a way to breakdown how much of this is coming from you guys proactively finding replacement tenants for near-term expirations and then choosing just not to renew certain tenants or potentially even buying out certain tenants if the numbers still work or versus stores just something closing thereby opening up potential replacement to come in?.

Look, the bulk of it is, proactive including situations where we see a tenant coming up on term and we intentionally don’t renew them or as you’ve alluded to, we recapture the space early and in most instances, we are not having to pay for that, but where we do that cost of course is reflected in our marginal returns.

And then, some of these bankruptcies, because of the bases of the box that we are getting back, open up great opportunities to take an old HH drag and makes it something a lot better. So, that’s probably the balance of what we are doing from a ramping that offer. .

Okay, thank you. .

You bet..

Our next question is from Daniel Santos with Sandler O'Neill. Please go ahead..

Hey, good morning. Thanks for taking my question. Most of my questions have been answered, but I have a one quick one on new lease spreads. It looks like they were pretty healthy this quarter, but still down from the prior quarter.

Wondering if there is a good range that we should be looking for given the quarterly volatility?.

Yes, thank you for asking that. Look, 21% on new leases is a phenomenal number and as I’ve said before, don’t just focus on the new lease spreads, focus on the absolute volume of leasing done and the total new rent created. I think that’s important.

And as I have also said in the past, it is a volatile quarterly metric, one or two deals can move it one way or the other. When you look back on a trailing 12 month basis, you see that our new lease spreads are in the 30 range, which is phenomenal and as we look at into our pipeline going forward, we see phenomenal level going forward.

But you really can’t – you can’t look at one quarter in particular, you need to look at that trailing 12 and also look at what you see several quarters forward which is represented by our pipeline. .

Perfect. Thank you..

You bet..

This concludes our question and answer session. I would 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 you at our Investor Day in December.

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