Greetings and welcome to the Brixmor Property Group First Quarter 2019 Earnings Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formation presentation. [Operator instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Stacy Slater.

Please go ahead..

Thank you, operator, and thank you all for joining Brixmor’s first 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..

Thank you, Stacy. Good morning, everyone, and thank you for joining our Q1 call.

I'd like to begin by acknowledging the Brixmor team for yet another quarter of outstanding execution through leasing our well-located centers to better tenants at sector-leading volumes and spreads, operating our centers towards our property own standard, improving their appearance and driving small shop tenancy, capitalizing on opportunities to reinvest in our centers to drive growth and ROI and intrinsic value, utilizing data to ensure that we are merchandising our centers to be the center of the community they serve and astutely recycling capital to ensure liquidity, financial strength and sustainable growth and ROI.

In short, our execution proves that we have the platform, opportunity and embedded upside of what we own and control to drive outstanding returns during this period of change and disruption in the retail business, a period in which many struggle to stay even.

As discussed with some of you, I believe that the real disruption occurring within retail is not just tenant failures, which are normal and recurring part of our business but the far greater willingness of strong tenants to relocate to get the optimal size and four-wall EBITDA profitability.

We at Brixmor have been a beneficiary of this disruption and have demonstrated our relative strength in this environment through those record leasing volumes and importantly increasing share with tenants who are thriving in today's environment, all while holding the line on leasing capital and turn.

In addition to having a great team, the key to making money in this environment remains what I said three years ago, rent bases matters. Allow me to dig into our results.

It begins with leasing where we again signed a sector-leading 1.7 million square feet of new and renewal deals at an average cash spread of 12.3%, which includes new lease spreads of 32.7%.

As we previewed last quarter, our overall occupancy declined as we recaptured 100 basis points of space, formerly leased to Kmart, but our small shop occupancy climbed 130 basis points year-over-year, which reveals the progress we are making in improving our centers as we deliver operational enhancements and accretive reinvestments.

Our growing rents to better tenants drove top-line growth of 160 basis points despite a 200 basis point decline in build occupancy and our spread between leased and build continues to widen to 360 basis points, reflecting our leasing activity and the now nearly $50 million of signed but not yet commenced rent.

Those rents provide superior visibility on our growth for the balance of this year and 2020. Speaking of growth, we achieved a record rent of $18.79 per foot on new deals signed in the quarter and we've grown our average in-place AVR over 5% just in the last year. But importantly we have room to run.

In fact, our average anchor expirations over the next four years is $9.50 and we are signing new acre deals now, 30% higher between $12 and $13 per square foot. Again bases matters.

We are driving higher rents while capturing leading market share with thriving retailers like LA Fitness, Five Below, Sprouts, HomeGoods, ALDI, Ulta and other great concepts in health personal care services and high quality restaurants that connect with and serve our communities.

Through this disruption, we continue to demonstrate tenant demand to be in our centers. That demand not only drives our rent, but also our terms with 94% of our leases containing average rent bonds of just over 2%, capital in line in average term of over nine years.

Finally, we are also driving better merchandising outcomes through using data such as mobile device locations to develop a more refined understanding of how our shopping centers actually trade using purchasing data to understand voids within this refined trade areas; using social media data that suggest customer preferences, analyzing co-tenancy impacts on sales productivity within our portfolio of over 400 centers, and partnering with our key tenants to better understand their sales models.

All of this helps us move towards our goal of owning centers with tenants that thrive by connecting with the vibrant communities our centers serve. As previously discussed given the tremendous work completed over the last 18 months and harvesting over $1.4 billion of non-core assets, we've pivoted this year to being a more balanced capital recycler.

This quarter we harvested another $46 million in non-core assets and we expect to announce soon acquisitions consistent with our long-term strategy of clustering in core markets. Importantly these are infill assets and submarkets we know well where we can leverage our platform, capitalize on below-market rents and vacancy and drive ROI.

On the reinvestment front, our redevelopment and construction teams delivered another $35 million of value accretive projects at an incremental return of 7% or a gross return on invested capital of 14%. With those deliveries, we are on pace to delivering stabilized over $150 million this year at an incremental return of 9%.

In addition, we continue to grow our active pipeline underway, which now stands at $410 million at an average incremental return of 10%.

Projects added this quarter include the $10 million redevelopment and remerchandising of Marco Island Town Center and a $32 million redevelopment and remerchandising of Pointe Orlando at incremental returns several hundred basis points over the cap rates for those centers we trade. Those spreads will multiply our investment in terms of value created.

Our operations team continue to raise the standards and appearance of our portfolio, making significant progress towards our property own standard. Importantly, the operations team is enhancing the sustainability practices at our centers, including the accelerated implementation of solar projects, lighting upgrades, and low water landscaping.

We are proud to have been recognized by GRESB with a Green Star for our responsibly achieved practices and are looking forward to publishing our inaugural corporate responsibility report this summer. I'm also very excited that Julie Bowerman recently joined our Board.

Her experience as the Chief Digital and Customer Experience Officer at Kellogg's provides a differentiated perspective to our already deep and talented board and furthers our commitment to diversity and inclusion. In sum, I'm beyond grateful for this team's outstanding execution across all facets of our plan to deliver consistent sustainable growth.

With that, I'll turn the call over to Angela for a more detailed discussion of our results, our adoption of the new leasing accounting standards and our current year affirmed guidance.

Angela?.

Thanks, Jim, and good morning. I'm pleased to report on another strong quarter of execution as we continue to position the company for long-term sustainable growth.

Before diving into the results for the quarter, I would remind everyone that during Q1, we adopted ASC 842 the new leasing standard, which impacted the presentation of our financial statement and resulted in the expensing of indirect leasing costs such as payroll and legal, which were previously capitalized and totaled approximately $3 million in the first quarter of last year.

We provided a qualitative description of the presentation impacts within the glossary in our supplemental package.

And we believe that our additional disclosures on pages 9 through 11 of the supplemental will assist analysts and investors in understanding both the impact of the new standard and importantly, the ongoing operating performance of our asset base. FFO in the first quarter was $0.48 per share reflecting same-property NOI growth of 2%.

Same-property NOI growth was driven by strong base rent and ancillary and other income which contributed 160 basis points and 70 basis points to growth respectively.

The strength in base rents reflects strong leasing productivity and redevelopment execution over the last 12 to 18 months, despite the headwinds experienced over the last two quarters due to the rejection or expiration of 8 of the 11 Sears Kmart leases we had at the time of the bankruptcy filing, which on a year-over-year basis detracted 110 basis points of build occupancy and 50 basis points of NOI growth during the quarter.

We are pleased to have clarity on the vast majority of our Sears Kmart exposure as our remaining locations total only 10 basis points of ABR. And we remain pleased by the strength of demand we are seeing for this space as we work through our repositioning and redevelopment plans.

We have maintained our 2019 same-property NOI growth guidance of 2.75% to 3.25% and our 2019 FFO guidance of $1.86 to $1.94 per share.

As I noted last quarter with respect to trajectory during the course of the year, build occupancy is expected to trough in the second quarter following the impact of Payless store closures before reaccelerating in the second half of the year as the number of redevelopment projects stabilize.

At the time of the Payless filing, we had 39 locations representing 20 basis points of total occupancy or 50 basis points of small-shop occupancy and 30 basis points of ABR.

Below the base rent line, please note that we will be up against a very difficult bad debt comparison in the second quarter of 2019, as we recognize significant cash payments of previously reserved amounts in the second quarter of 2018, which resulted in a provision for doubtful accounts of only 20 basis points in that quarter, relative to our normal run rate level of 75 to 100 basis points.

In addition, the outsized first quarter contribution from ancillary and other income is expected to moderate as we move through the year. From a balance sheet perspective, we remained pleased with the significant capacity and flexibility we have to continue to execute on our self-funded business plans.

With no debt maturities until 2021, we have no need to raise capital this year. Although as always, you should expect us to access the capital markets when it's opportunistic to do so.

Our FFO guidance does contemplate capital markets activity during 2019, but the magnitude, timing and potential loss on debt extinguishment associated with such a transaction could certainly be a factor in terms of where we ultimately fall within the range.

Debt to adjusted EBITDA now stands at 6.4 times which represents a small increase due to the -- due in part to the adoption of ASC 842.

Debt-to-EBITDA may also increase slightly in the second quarter as a result of both the expected trough in build occupancy I mentioned earlier and the timing of the anticipated acquisitions that Jim highlighted, before normalizing in the third and fourth quarters based on continued disposition and debt repayment activity as well as growth in EBITDA based on the timing of expected rent commencement.

The spread between build and leased occupancy stands at 360 basis points today, which represents nearly $48 million of contractually obligated revenue. A full $35 million of this revenue is slated to come online during the remainder of 2019, highlighting the importance of timing as we navigate the remainder of the year.

We look forward to seeing many of you at ICSC in a few weeks, where we'll be excited to share with you our refreshed branding, which reflects our goal of being at the centers of the communities we serve. And with that, I will turn the call over to the operator for Q&A..

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

Yeah. I was wondering if the small-shop leasing that generally is driven by anchor leasing would partially accelerate given the more anchors you're touching..

Yes, I think it is and you're already seeing it thanks for the question Craig in our numbers. And it's really a function of two things. We're replacing these weaker anchors with relevant concepts and we're leasing around that activity even ahead of some of those anchors taking occupancy.

And the second is just improved operational focus making our centers look better, making them more part of the community they serve. And not only are we increasing the occupancy levels of the small-shop tenancy importantly we're increasing the quality of those tenants.

One of the things that we actually did, but didn't talk a lot about in 2017 and early 2018 was we got rid of some small-shop tenants that we thought were of lower quality. So it's really all of those things that are very intentional.

And yes, we do expect that small-shop momentum to continue to increase particularly late in the year as we start delivering those anchors..

Okay. And just -- another quick question.

The tax incentive financing may we expect more of that throughout the year?.

It will be a recurring number on an annual basis. I think you'll see amounts in the first quarter again next year. We don't expect any other significant contribution from that during the balance of 2019.

But as we continue to invest in centers across the portfolio through our redevelopment work, we do expect that to be a growing part of the business over time..

Thank you..

You bet..

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

Hey, good morning. Jim just wanted to touch on the capital recycling here. In terms of the asset sale, you did only the $40 million in the first quarter. You mentioned the better balance between acquisitions and dispositions in your opening remarks.

I think going back to some prior commentary the longer-term goalpost recall it $400 million to $600 million of annual asset pruning.

So just given the slower start here, should we at all be thinking about that level of sales? Or should we think about half that amount? Any sort of thoughts on how to think about the pace from here? And then you also seem to allude to some acquisitions in the pipeline.

So any further color there in terms of how close those are to the goal line? And what sort of rough volumes we could be looking at?.

Yes. And I appreciate the question. And again, as you know, we hesitate to provide specific guidance, albeit our long-term business plan does anticipate capital recycling in that kind of range. So you should expect to see dispositions pick up through the course of the year.

It's lumpy and it's driven by transactional timing, which is always inherently uncertain and part of the reason why we don't like to give guidance on it, because we'd like to remain opportunistic. Expect us to use some of those proceeds and I emphasize some, for acquisitions that clearly meet our long-term investment strategy.

And these will be assets that, when we're able to announce them, you'll see are very consistent with investing and clustering in submarkets that we know well and assets that we think present good value-add return-type opportunities.

And we're particularly excited about some of what we're seeing out there, where we're truly leveraging our platform, our relationship with our tenants and our knowledge of these markets to continue to gain more critical mass. So, do expect it to be more balanced. Obviously, last year we sold $1 billion with frankly no acquisitions, a few outparcels.

That's what I'm referring to when I say that we're going to be more balanced. The capital that we're harvesting, in part, will go towards acquisitions that are consistent with our thesis and strategy..

Okay. And second for me, you mentioned partnering with key tenants. I was just wondering if you could give a little more color on what you're doing on this front.

What you're learning? And what it can mean for the merchandising of your centers going forward?.

Yes. Thank you for that. One of the benefits of having a national platform as we do is that, we have a lot of trust and long-term relationships built with some of these key tenants. And it's really important to us that tenants coming into our centers are successful. We have a group within our marketing team that focuses on data.

In fact, we have an individual who actually used to run site selection for one of our core tenants. And that level of dialogue is very important so that we understand their models, the psychographics that they're looking for and that we're making that right match, if you will, for the tenant in the center.

And that does involve some discussions about what do they see as their key demographic indicators, better understanding exactly how these centers trade, also understanding what the voids are within those refined trade areas, or ways that were better matching, importantly a tenant who's going to be relevant and thrives in that particular community.

So we're kind of going beyond just simply trying to lease the space and really thinking and trying to be smarter about bringing the right types of tenants into our centers..

Thanks..

You bet..

The next question comes from Christy McElroy with Citigroup. Please go ahead..

Thank you. Good morning, everyone. Angela, just in terms of the same-store NOI trajectory, just because you sort of highlighted, called out, the tougher bad debt comp in Q2 and also that commenced occupancy is troughing in Q2.

I know you don't usually give quarterly same-store NOI guidance, but maybe would you be willing to give some sense of a range of same-store? Or how much of a dip, if any, we should be expecting next quarter, which would sort of be helpful as we're looking at that initial headline number next quarter in the context of the ramp that's expected in the second half, sort of, a way to quantify the expected impact, so that we can say, kind of, one way or another, this is the first half pace, but we still feel comfortable with that assumed second half ramp-up?.

Yes. No, it's a fair question Christy. And as you said, we're not and haven't ever given quarterly guidance. But if I just, sort of, highlight a couple of the pieces that we did call out in the prepared remarks.

If our normal run range for same -- for bad debt expense, excuse me, is 75 to 100 basis points and we were only at, call it, 25 basis points in the prior quarter, you're looking at anywhere up from 50 to potentially 75 basis points of drag associated with just the bad debt line.

In terms of base rent, you certainly will see the contribution, as it relates to base rent, be less than it was in the first quarter as well, before, again, reaccelerating later in the year, based on the timing of those rent commencements.

Putting those two pieces together, I do think it's fair to say that, Q2 could certainly be below where we were in the first quarter, but that's kind of as far as I think we're able to go at this point..

Okay.

And then just, sort of, looking at the back half of the year, what would you say are the biggest sort of variables that could mean the low end versus the high end of the same-store NOI range? Is it mostly, sort of, the potential for further fallout, but also kind of expectations around the lease commencement timing? How much sort of leeway is there on the commencement timing in terms of how set the dates are with tenants?.

Yes. I mean, I think, you really did highlight the two biggest moving pieces as we move through the balance of 2019, one being additional unanticipated tenant fallout and the second, importantly, as we highlighted in the prepared remarks, being the timing of rent commencement dates in the second half of the year.

What I can say on rent commencement dates is, so far as we've navigated 2019, there had definitely been pluses and minuses, but I would say we're trending ahead of where we had anticipated at the beginning of the year. So by a relatively immaterial amount, we have lots of pluses and minuses.

If you look at that disclosure we gave in the supplemental, you'll see that that $48 million of signed but not commenced rent is 350 different leases across the portfolio.

So while, we certainly are working hard across the platform to accelerate rent commencement dates for a number of tenants, there are also things whether it's permitting or entitlements, whether, construction delays in some cases, that move dates out.

So, certainly, pluses and minuses across the board, but on balance we've trended in line with our original expectations, if not a little bit better..

Yes. And, Christy, I'll just make the additional point that these are signed contractual rents. So the biggest variable is time and making sure we're hitting our dates.

I think, I alluded to it on the last call, but given the volume of signed but not commenced rent, every day on average that we move our execution, either in or out, means almost $200,000 of ABR. So execution and timing will be of critical importance in the balance of the year. But big picture that rent is coming and it's signed.

There's very little, if any, speculative activity in the balance of the year as you would expect. So excited about getting after that gap between build and lease, which, as I mentioned in our remarks, I think, provides us with an unusually high degree of visibility on that growth that's coming.

Importantly, both for 2019, but that $50 million is going to be benefiting 2020 as well. So, again, everything that we've been doing to set up the growth, everything that we said we'd be doing at the Investor Day we're delivering on and actually exceeding and capitalizing on.

I think, what is, honestly, Christy, somewhat of a different opportunity within this universe to capture below-market rents and make our centers better and do it accretively where I think we're in an environment where not everybody is able to do that..

Thank you, both..

You bet..

Our next question comes from Alexander Goldfarb with Sandler O'Neill. Please go ahead..

Hey, good morning over there. Just two questions. First, Angela, I appreciate you talking about the bad debt especially with the changes in the accounting, the FASB hasn't made it easier for us for sure.

Can you just talk a little bit more about -- it sounds almost from your comments that you guys feel like you're sort of at the tail end that you're really not expecting more retailer fallout. Is that sort of a safe assumption? I mean you mentioned the bad comp for 2Q but that only seems like a comp-related thing.

It doesn't seem like a tenant-related thing.

So is that a fair assessment to say that we're sort of through the worst absent something that comes out of the blue? Is that fair?.

Yes, I mean, I would sort of bifurcate the question a little bit. As you think about bad debt that represents reserves we take relative to outstanding AR. The heart of your question in terms of additional tenant fallout impacts a little bit the bad debt line but more importantly the ABR line.

And I do think as we've moved through this year obviously we've been able to absorb some additional retailer distress and disruption. We've taken back another two to a Kmart locations and obviously we talked in the prepared remarks about the impact of Payless that will primarily be a Q2, Q3 event moving forward.

I would also recall some comments I made on last quarter's call about really the way we budget at the company which is on a space-by-space basis. And so our initial expectation with respect to every space in the portfolio does to some extent contemplate those watch list tenants where we do have expirations or might have additional risk.

So I wouldn't say that we're at this point expecting no additional fallout. We certainly have expectations for additional tenant disruption or distress. But we do within the bad debt line expect that we'll be somewhere in and around our historical run rate of 75 to 100 basis points in the current year..

Okay. And then going to the $48 million which would equate to sort of $0.16 annualized, obviously, great that you guys continue to make headway on the signed but not opened the redevelopment pipeline you guys are definitely creating a lot of opportunity there. But certainly looking at consensus, consensus isn't adding $0.16 to your 2020 over 2019.

So maybe just talk about the offsets and sort of how much of that -- I know it was Christy's question, how much of it will open in the back half.

But it seems like it's easy to get sort of carried away with your numbers based on what you've outlined versus what's more realistic based on just normal course business and then other properties that you may take out of service to redevelop that NOI that comes out.

So maybe you can just talk a little bit about how we should think about that $0.16 that's going to be coming online both this year into next..

Well, when you think about it from a bottom line perspective, you hit on one of the points, which is, we're going to continue taking properties down to redevelop and earn those high single digit low double-digit returns.

I'm particularly pleased that we now have our pipeline at over $400 million of opportunities substantially pre-leased to drive that kind of accretive reinvestment. So as we pull more of that space down that's certainly part of it. We'll also continue to capital recycle.

We are going to harvest assets that we see represent limited growth opportunity going forward and continue to reinvest in our redevelopment pipeline our balance sheet as well as some acquisition opportunities. So those are probably the two biggest drivers as you think about what ultimately will drop to the bottom line.

And as well we do expect future tenant disruption. One of the things I'm particularly pleased about and it goes to the second part of Angela's question is the team has done an incredible job of reducing our exposure to watch list tenants.

And as Angela highlighted part of our job, if you will, in managing this portfolio isn't just responding to bankruptcies as they occur but it's proactively reducing our exposure to concepts that we think have less relevance. I think our performance on the Sears boxes or frankly the H. H.

Gregg or the Sports Authority or the toys reflects that sort of proactive approach and the time period in which we actually can backfill those boxes but importantly reducing our exposure before that event occurs. That's our job, right? But certainly doing some of that also imparts a drag because we're taking occupancy.

We haven't figured out how to redevelop occupied space reposition it et cetera to get people to prototype. So those would be probably Alex kind of the three major variables that moderate if you will that growth as we go forward but also make it sustainable.

And that's really important from my standpoint, which is that we find opportunities across the portfolio that allows to produce consistent and sustainable growth not outperformance in any one period..

Okay, thank you, Jim..

You bet..

The next question comes from Todd Thomas with KeyBanc Capital Markets. Please go ahead..

Hi. Thanks. Good morning. Following up a little bit on the redevelopment pipelines. Jim you talked about being a little bit over $400 million that was sort of the previous target. It seems like the re-tenanting and redevelopment opportunities remain attractive.

Do you expect to continue to grow the pipelines, or do you think that we'll see it sort of stabilize at this $400 million level? And then how does that change the annual spend that you're anticipating which I think was previously in the $75 million to $100 million range?.

Well, the annual spend will increase obviously as we expect to deliver between $150 million to $200 million a year, expect spend levels that are pretty consistent with that.

As it relates to the size of the pipeline, we are at our goal of a little under -- or a little over $400 million underway, which is basically what you need to deliver that $150 million to $200 million of deliveries every year. You need about $400 million to maybe $500 million.

And to that last point you might see our pipeline kind of fluctuate in that range as we bring new projects on and we deliver projects. I'm really pleased with the velocity that this team is achieving. And I think it stands apart from the reinvestment pipelines of others that have much longer durations.

Remember we set out on this program a little under three years ago, so it already be delivering at this kind of level I think really speaks to both the team but also the nature of the opportunities that we're executing on. These are pre-leased smaller projects that greatly improve the center that they impact.

And as I talked about a couple of calls ago, not only are they driving good growth and net ROI, but they're also increasing the intrinsic value of what we own, which I don't think we're getting credit for. So expect that range of investment and spend. And I would also tell you that our shadow pipeline continues to grow.

And I think that's important to keeping this not just for a couple of years but the next several years..

And then Angela I guess the drag from redevelopment ramping is also increasing or putting a little bit of pressure on same-store and sort of the bottom-line here.

When do you expect that to even out and sort of the drag to begin to maybe ease from redevelopment activity?.

Yes. Well, Todd, you're right that it has been a factor in same-property NOI, particularly over the last couple of years. We talked about 2017 ramping the redevelopment effort we're certainly in that drag. It was close to neutral in 2018 before becoming a slight positive contributor in 2019.

The end process and recently completed pipeline are contributing somewhere between 75 and 100 basis points which is pretty consistent with guidance we had given back at our Investor Day in 2017 for 2019. The offset to that is really as you allude to the future pipeline.

And particularly given Sears Kmart and taking back as many boxes as we did -- as quickly as we did that's heightening the drag associated with that future pipeline activity. Despite that we still expect to be slightly positive from redevelopment activity.

Considered more broadly the recently completed and processed and future redevelopment pipelines in 2019..

Okay. Thank you..

You bet..

Our next question comes from Samir Khanal with Evercore. Please go ahead..

Yes, good morning. On the buyback you did $20 million in 4Q around $10 million in the first quarter.

I guess how should we think about the buyback versus other capital-allocation opportunities here for you?.

Well, it's really driven as we've talked about before by the level of asset sales we expect to close. We're not going to lever up to do the share repurchase. But as those transactions actually close we'll use some of the proceeds to the share repurchase which we think on the margin is one of the more accretive uses of our capital.

But again we have to be balanced and it's part of why we signaled very clearly that capital recycling is also going to funding some of the redevelopment activity as we ramp that as well as some potential acquisitions.

And on a marginal basis, you could look at those acquisitions which we believe are value-added and compare it to our stock and say well maybe the stock repurchase makes more sense. But again remember we're running a long-term business and we're really trying to strike the right balance.

So, we will repurchase more shares as we actually close transactions. We're not going to go long on the share repurchase program. And I think as we identified and consistently executed, we're using proceeds that we're generating. That check clears, we then have it.

And so expect as the disposition page ramps-up that you could you see additional share repurchases..

Thanks for that Jim. I guess my second question is one of your peers during earnings talked about a tenant which had sort of a significant negotiating leverage that led to a moderation and renewals on the box side.

Just maybe taking a step back, can you talk about sort of what you're seeing on the renewal side -- especially on the boxes? And then maybe just generally talk about how box leasing is going currently?.

Yes, let me take the first part and I'll hand it over to Brian. But bottom-line we're making money on renewals we're making money on new leases and the reason we are is that we have great centers with low in-place rents. And you're really hitting on something that we've been talking about for a while which is rent basis matters.

And so we have this unique opportunity I think in this environment to actually bring in better tenants at better rents and put capital to work accretively. And that really Samir stands apart from some -- what others are experiencing who might have higher ABR.

As I've said, tenants are very focused today as you think about the disruption on being four-wall EBITDA profitable and being the prototype. And we are capturing that trend not necessarily from other public companies because the fact of the matter is these larger platforms only own 10% or 11% of the space.

We're not competing with each other, but we are competing with smaller private landlords. And our platforms are giving us a distinct advantage in this environment. I think we, at Brixmor, have the additional advantage of having reasonable in-place rents healthy occupancy costs which allow us to drive tenant demand..

Yes and Samir just in terms of anchored demand I mean we're coming off a year where we did more anchor leasing than we've ever done on a smaller portfolio. And as we look at the pipeline going forward, we've got 39 anchor leases at 1.2 million square feet.

Those 39 anchored leases represent a high since IPO and again on a smaller portfolio when we continue to see demand and strong open-to-buys by retailers in the value apparel segment, health and beauty, fitness, specialty grocery.

So, as we look out and whether it is Kmart, Toys"R"Us or a number of other boxes that we may get back and as you mentioned the upside that we have, we continue to see strong demand for that anchor space..

Yes. And Samir look any negotiation with the tenant as it relates to rent can be tough. So, if you're starting from a place where you can generate competitive demand for that box based on where your rents are, you're starting from a position of strength.

And I think that position of strength is reflected very clearly, not just this quarter the last several quarters in terms of productivity. So, that'd be kind of how I'll frame it for you..

Okay Jim. Thanks for the color..

You bet..

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

Hi there. Good morning. I saw that yesterday that PetSmart announced that they were planning an IPO for their Chewy division, its 1% of your ABR.

Can you just talk about what you think the impact of that could have on the credit of that tenant?.

Well, I think at this point it's not clear how the proceeds will be used from the offering. But more importantly as we look at our PetSmart exposure, we again have very healthy occupancy cost ratios. Said another way our fleet is four-wall profitable.

And as that company monetizes its investment in Chewy, which I think should be a net positive, as they think about the real estate business going forward and we have a great relationship with them, we're sitting in a pretty good spot..

Okay. Thanks for that. My second question is if you could provide us any update on the leasing status of the Kmart Sears that you got back. How many deals do you have in hand today? Are you breaking up all the boxes? Where are rent spreads coming out? And when do you think we'll see some commencement on--.

Now, that's a compound question. That's a hard one. I'll give to Brian..

I'll take it in a few parts. So, the team continues to make great progress this quarter. We leased former Kmart space to Marshalls Planet Fitness, Five Below, a national discount grocer outside of Philadelphia at 2.5 times the prior Kmart rent, which is a bit ahead of where we thought we'd be last quarter.

Overall, we're close to 90% of the remaining Kmart GLA resolved, meaning, we're at least LOI or close towards the finalizing with a range of uses, including best-in-class fitness against specialty grocery, value apparel.

In terms of seeing some of those boxes come online, we will see a number of those projects come online at the back half of 2019, but the majority coming online in 2020. In terms of -- we are looking at splitting up the majority of those boxes. We have a couple that we will be taking down. Then we have one or two where we have single users to backfill.

But again, I think it speaks to not just the productivity is how far ahead the team was on this.

I mean, we have demonstrated -- the team has demonstrated over the past three years, the ability to get ahead of these Kmart spaces and proactively minimize our exposure so that when we did get the number of spaces back than we did, we were in a good position to execute on them out of the gate.

So very pleased with the progress and the demand from which we're seeing with those boxes so far..

Great color. Thank you..

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

Good morning. Angela, I apologize if I missed an earlier response, but you mentioned ancillary income in Q1 2019 could moderate in the future quarters.

Can you give us some direction as to what that would look like in Q2, through four versa Q1?.

Yes. We certainly expect ancillary and other income to be a positive contributor for full year 2019. But certainly in the first quarter, we did have a somewhat outsized contribution related to some tax incentive financing we received related to some of our redevelopment projects.

That we don't expect to recur throughout the year, though you will see that income materialize again in the first quarter of 2020 and beyond. So again, we do expect that 70 basis point contribution we saw this quarter to stay positive for the full year, but be materially less than the 70 basis points you saw in Q1.

If you look at the same-property disclosure in the supp, I would note, the ancillary and other rental revenue line contributed $1.5 million, which comprised that 70 basis points. Half of that was just financing and half of it was just really strong performance on ancillary and other income.

As we have more vacancy in the portfolio, the team is working really hard to find users for that space even on a shorter-term basis. And so that's certainly been a contributor to growth in Q1 and will be for the balance of the year as well..

Okay. And maybe a two-parter, I'm going to try and throw at Jim is first is, I guess, quality can be difficult to perceive, especially in a large portfolio.

So first, I'm just curious, how do you measure the change in quality across your portfolio? And then second, I guess, would you be surprised if you faced -- if Brixmor faced higher anchor box closures say in 2020 and 2021 than you did in 2018 and 2019? There I'm just wondering if you think we're in the later innings of this sort of anchor-recycling game?.

Well, I think that as a real estate investor, when you think about quality, it's not necessarily the appearance of the center, but it's the ability to drive growth in ROI and underlying income.

And I think what stands apart for us, from a quality perspective is the fairly uniform opportunity across the portfolio of 400 assets to do just that and do it accretively. And importantly, as we're making those investments improve the intrinsic value of the centers. So we're not measuring the contraction in cap rates that we fully expect.

We're not giving that in our returns. We're also not providing in our returns the uplift in small shop occupancy that we expect as we make these boxes more relevant.

To the second part of your question, yes, we do expect to see a moderation in the boxes that we're recapturing over the next couple of years, because we have been more proactively managing our exposure to weaker concepts.

And it's actually quite gratifying in this environment to see the improvements happening at the real estate level center-by-center, and seeing the operations improve, seeing the small shop tenancy improve, seeing the quality of tenants improve.

As we -- through what is an otherwise disruptive environment, we're demonstrating the ability to actually make money. And I think in that way present an investment opportunity for folks that's different generally in this environment..

Nice folks..

You bet..

Next question comes from Greg McGinniss with Scotiabank. Please go ahead..

Hey, good morning. Jim just going back to the question on development pipeline. You still appear to have no shortage in lower hanging fruit retail redevelopment opportunities.

Just curious how you're thinking about non-retail development? Are you getting assets entitled right now for non-retail uses? Are the cost adjusted returns worth the investment at this point? I'm trying to understand how much mixed-use development could -- ultimately could be contributing to the pipeline?.

I think what's most attractive about our pipeline is that we don't have to go towards higher risk more complicated structures like mixed-use.

Do expect us in a couple of years to start talking more about a mix of uses, which we're actually working very hard today on entitling, think about residential and university towns, think about a limited service lodging, a bunch of uses that would complement our shopping centers, but which -- we're doing the hard work now to entitle, so that we can capitalize on this going forward.

The truth is most of the value with respect to those additional uses gets created upon entitlement. And so expect us to be smart about how we're using our capital to pursue that, so that we're appropriately striking that balance between remembering first and foremost, we're a retail company.

Our core competency is in retail, and that we can leverage the expertise, and frankly, capital of others to realize some of those value-creation opportunities across the portfolio. And it is pretty widespread, but you don't hear us talk a lot about it, because to your question, we have a tremendous amount of opportunity within our core business.

So yes, we are working hard on entitling it, but don't expect us to be teeing up any opportunities along that way in the next year or so..

Okay. Thanks. And the second question, grocery is obviously an evolving business. And most of the physical store grocery is coming from ethnic and specialty grocer concepts. I'm curious how those retailers are impacting operations.

Are they just creating good big-box backfills? Or are they cannibalizing customers away from traditional grocers in your centers? Or is the impact just de minimis and we should all be looking at the internet for the real grocery evolution?.

Well, I think that the business continues to evolve, but one thing remains the same and that is that the experience of the customer has to be paramount. The customer has to perceive that they're getting value both for their money and their time.

And I think you see a lot of the traditional stores investing in their formats, in their existing locations to improve that overall customer experience and to be a lot more competitive.

In response to what has always been a very competitive environment, I mean just think about all the different channels through which food is offered, but the traditional grocers in our portfolio are remaining very productive.

We're seeing good sales comps, but importantly, we're seeing them generally invest in their stores and invest in their businesses, so that they can continue to stay relevant. The – we typically don't have more than one grocer in a shopping center.

So when we're backfilling a box with the specialty grocer, we're doing so and we're adding a new type of use to that center that didn't previously exist. And if you look at the success of the specialty grocers and the ethnic grocers, it's no secret that they're just offering tremendous value for their customer's time and money.

And I think that will continue to be an avenue of growth frankly for us as we're upgrading our centers to bring in some of those uses that really connect with, and frankly respect that local community..

All right. Thanks, Jim..

You bet..

Our next question comes from Shivani Sood with Deutsche Bank. Please go ahead..

Good morning. Jim, you mentioned in the opening remarks that about 94% of the portfolio has annual escalators.

So just given the sort of shallow supply out there from recent closures, just curious, if there's been any change in tenant negotiations with regards to that? Or does it ever become sort of a give-and-take with escalators versus tenant improvements at the start of a new lease?.

Shavani, thank you for the question because – the point I was trying to make is actually on a marginal basis, we're getting escalators in 94% of our new leases. which is important. The other important fact is that we're averaging a little better than 2% on a portfolio with in-place embedded rent growth a little over 1%.

And what that's showing is that we're generating competition for our space to not only drive rent, but also other terms such as embedded growth over the term, the length of term, we're holding the line on capital. Again, we're showing you all this information in our supplemental.

And I'm really trying to highlight for folks the fact that the quality of our leases continues to improve and continues to be very strong. And the only way that happens right is you need competition period. If we didn't have competition, we wouldn't be generating that type of performance.

So it's something that we are very focused on as a team and will generate that embedded growth by having more than one tenant competing for the space that we're trying to lease. So thank you for that question. And it's important to understand that on a marginal basis, we're doing far better than what we have today as an average within the portfolio..

Thanks.

And then just sort of a broadly – with the increased adoption of buy online pay in store as in calls in the Amazon returns is there anything additional that Brixmor is being asked to do as a landlord to facilitate that adoption?.

Brian?.

No, I mean, we've talked about on prior calls how we've been encouraging our retailers to install buy online and – or click and collect. We've done it a lot with our grocers. There are some specialty retailers – there are some other retailers that have asked for some pick-up spaces, but it's a very small investment on our part.

It's something that again we have been encouraging because we do feel that creates more trips otherwise wouldn't happen at the shopping center. So we have been working with our retailers and encouraging them to invest in more of these opportunities..

And frankly, it's a very clear signal to us Shivani where they're not, right? So we take the position that for marginal investment on our part we want to make sure that those retailers that are implementing that type of innovation are also doing it at our properties..

Thanks so much..

You bet..

Next question comes from Caitlin Burrows with Goldman Sachs. Please go ahead..

Hi. Good morning. I was just wondering maybe on the leverage side you guys are at 6.4 times now and I think you have a long-term target of 6 times.

So is that going to be primarily a function of organic EBITDA growth over time? And do you have a goal of kind of when to reach six times by?.

Yeah, I mean, as we've said on prior quarters, we've spent a tremendous amount of time over the last two years really focused on the holistic strength of the balance sheet.

Leverage was certainly a component of that, and if you think about the use of proceeds for the $1 billion we sold last year, it was almost entirely devoted to straight leverage reduction.

At this point, as we're now – have dipped below that 6.5 times mark, I do believe that the remainder of debt-to-EBITDA reduction from this point going forward really is in the EBITDA growth side.

And I'd go back to the earlier comment on that 360 basis point spread between our lease rate and our build rate today representing $48 million in contractually obligated revenue. As that income comes online, you're going to see that debt-to-EBITDA number materially work its way down.

So it's certainly a consideration and something obviously that we monitor closely, given the holistic strength of the balance sheet today, the fact that we've paid off all of our secured debt and created a tremendous amount of financial and operational flexibility, we've really focused on extending duration across the balance sheet.

We feel very good about our positioning today..

Got it. And then maybe just on the acquisition side, I think it's come up a few times.

But I guess, in terms of no activity in the first quarter on the property acquisitions is that reflective of a tough acquisition environment or just relatively low dispositions? And did you bid on any properties during the first quarter?.

We did. And as I alluded to, I'll let Mark talk a little bit about the overall environment we do expect to announce soon acquisitions that are consistent with our investment strategy, where we think we have value added opportunities, importantly, within our core markets..

Yeah. I think Jim you hit on it earlier, with respect to we're seeing assets where we can hopefully get them under contract and Bob that will take advantage of our platform. With respect to timing, it always takes a little longer than you want when you're buying an asset there's always a give-and-take with your party across the table.

But importantly, we're finding assets that will fit our value-add strategy. And I think it's important that we're looking at assets that we're able to get control at well below peak NOI, and really apply our platform to drive near-term growth and long-term value creation..

Yeah, and just to highlight something, when we talk about leveraging our platform, what do we mean about that? What do we mean? It's really two things. It's not only understanding that local market, right? Because we already have a presence there, we're leasing in that environment. We know the centers with which we compete.

But also and this is a bit more subtle, but I think maybe in some ways more powerful, we're leveraging our tenant relationships to understand where they want to be and to identify opportunities again that are value-added where we have the opportunity to take those competitive strengths and drive outsized performance and IRR..

Okay. Thank you..

You bet..

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

Hey, guys. Good morning to everyone. I want to go back to that comment where you said relocation is the real disruption with retailers focused on profit. And you also talked about having a low rent basis. But you are definitely boosting the quality of your centers.

So my question right now is are tenants more focused on rent level or their productivity at the centers? And we always debate this and you have both going for you so I want to get your opinion..

Well, I think we do. But I also think tenants are more sophisticated than ever before understanding exactly where they need to locate a store which we've been a net beneficiary of. They understand better who their customer is, the traffic patterns of their customer and how to invest in a bricks-and-mortar presence to serve that customer.

So, while the overall productivity and co-tenancy are absolutely still very important factors in a tenant's decision, please don't hear me say otherwise. The additional knowledge that these tenants are bringing to their bricks-and-mortar decisions are helping us turn some of these centers, where in the past it may have been a difficult sell for us.

So that additional focus has been a net tailwind for us..

And where are the relocations coming from? Is it too much to read into as you say mall going to the shopping centers or still more the private landlord going to the public REIT?.

Wes, this is Brian. It's a bit of a mix. I would say that we have seen retailers that have looked at their mall locations and said occupancy costs are high and we can move in and have similar productivity with much lower occupancy cost, so we have seen a bit of beneficiary of that.

But also, as Jim mentioned earlier, we're competing with private landlords in these markets and we have the benefit of a large platform the benefit of relationships with a lot of these key tenants and that we can get out two, three, four years out and take a look at where they might not be in prototype and start a lot of those discussions and looking out at our anchor role as well.

So, I think it's a bit of a mixed bag, we are seeing it with retailers focused on, being in the right footprint maximizing four-wall EBITDA and making sure that they're going forward in the right prototype..

Yeah. That’s it for me. Thank you. .

Thank you. .

Next question is from Vince Tibone with Green Street Advisors. Please go ahead..

Good morning. Same-store operating expenses were down about 3% this quarter. I was hoping you can just touch on kind of what the driver was behind that, and how much that impacted same-store NOI? Because yeah, it was interesting to see that the recovery ratio was roughly flat when build occupancy was down 200 basis points..

Yeah. Thanks, Vince. The decline in operating cost was primarily timing related, specifically as it related to certain repairs and maintenance expenses that might be a little lumpier. That would have been reflected overall in the expense reimbursement component too, so I wouldn't say that the decline had a meaningful impact on the recovery ratio.

A couple of things in terms of why you did see a disconnect I think importantly between the contribution from net recoveries and the decline in build occupancy during the period. I'd say two things. One, some of where we had the occupancy loss were not significant expense reimbursement tenants.

So you definitely saw a disconnect there between occupancy and the impact on recoveries on a quarter-over-quarter or year-over-year basis.

But the other thing I would point out, which is important and actually something that Jim and Brian discussed in Q&A on last quarter's call, was as we continue to invest in centers across the portfolio, there are times where we're incurring cost that are capitalized, but that we do receive some reimbursement from tenants from.

And so as we continue to make the centers better you naturally see some uplift from the recovery ratio perspective associated with all of the investments we're making in the centers..

Yeah. And I guess the third part is we are very focused on our operating efficiency and making sure that we're investing those dollars that we have wisely..

Thank you. That’s really helpful color. My next question is just on redevelopment yield. Just wanted to clarify in a situation where the redevelopment driven by an anchor bankruptcy, does the expected NOI yield incorporate the prior rent from the bankrupt tenant or does it assume a basis of zero? Just trying to get clarity there..

It does. It's not delineated by the nature of the docks recapture whether it's proactive or through a bankruptcy. It relates to any rent that was in place for the year prior to the launch of the redevelopment..

Right. So as an example with the three Kmart projects that are already either in process from an anchor repositioning or redevelopment perspective, those are all hurtling the prior Kmart rent..

Okay. Thank you. That’s all I have..

You bet..

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

Hey, good morning, there..

Good morning..

So, first question, I guess for you Angela and also a bit of a clarification. I wanted to clarify how specifically Brixmor treats lease termination fees versus the rent that's lost when a tenant leaves. I've had a few questions on this after one of your peers reported last week.

So, I guess, the question is if a tenant leaves and pays a termination fee, is that termination fee not counted in same-store NOI, but you continue to book it in rent as if the tenant were there until the end of the lease? And I guess, to be more specific pick a tenant say Mattress Firm.

If they pay a lease term fee in the first quarter of a year, but their lease was scheduled to expire in the fourth quarter of that year, would you continue to book the rent through fourth quarter as a non-cash add back?.

No..

To clarify further. Anything that shows up as lease settlement income in our income statement, all lease settlement income is excluded from the same-property NOI calculation and does not reappear in that quarter or any subsequent quarters in our same-property NOI calc.

There is full parity between our same-property NOI calculation and the income statement for the periods presented. So, hopefully that's clear. Everything in same-property showed up on the income statement in that period. Specifically interestingly as it relates to Mattress Firm, I tried to highlight this on last quarter's call.

Mattress Firm is expected to pay reduction damages associated with spaces that they rejected pursuant to the bankruptcy. And those damages are expected to be one year of rent.

I specifically clarified on last quarter's call that despite the fact that it's representing one year of rent that really is at the time that they're relinquishing possession of the space and in our view that is lease settlement income and that will not in that period or any future period show up in our same-property NOI calculation..

Yeah. That's helpful. Thank you. Jim, a question for you. Going back to the dispositions, last year you far surpassed your initial and your updated disposition expectation in large part due to what favorable demand and pricing in the marketplace there was last year.

So, I'm curious on your current assessment of demand in the marketplace, if you'd be willing to be more aggressive again this year, should the market be receptive? And how do you currently contemplate or balance that versus your desire to grow FFO per share?.

Well, I think the important thing is that we got the heavy lifting done over the last 18 months. When you look at last year and the year prior, we sold nearly $1.5 billion of real estate. Non-core markets that we didn't expect to grow in and assets that we thought had limited growth opportunity.

We'll continue to harvest assets that we think have limited growth opportunities, I've been very clear. But importantly the "focus and pressure" to do it I think has lessened greatly in part because we capitalized on an environment last year that we think had ample liquidity.

We continue to see that liquidity coming into this year maybe not as strong as it was last year, but we are still seeing demand for the assets that we want to sell. But again, expect us to be a bit more balanced. And Mark I don't know if you want to add..

Yes, I think you've hit it. We continue to see healthy demand from buyers calling us offline saying what are you selling, what can we get a hold of? So I think that's going to continue to show a pretty robust transactions market.

Obviously, a lower financing rate that we've seen over the last quarter or so has been helpful as people have tried to put money to work. And I'd say we're always opportunistic when it comes to selling assets. So....

Yes, one of the -- there are kind of two what I think are embedded strengths in that part of our strategy. One is the granularity of our portfolio and which is important because we're not trying to move supertankers out of the harbor. So when we think it's time to sell an asset we can do so and react.

The other is that we are benefited with relatively attractive tax basis given the timing of the Blackstone take-private. So that enables us to do so without having to pull a hamstring if you will from a tax-planning standpoint.

So that -- those two things I think give us a great degree of flexibility, but also embedded in your question is I think an important point which is our product at the end of the day is a growing stream of cash flows and we recognize and now think we have ample flexibility to do just that while also being a more balanced capital recycle..

That's very helpful. And if I could squeeze in a follow-up Jim. Just on the improvements. You made significant improvements to your portfolio and balance sheet here in the last couple of years, but yet you still trade at a pervasive and meaningful discount to your relevant peer set.

So curious why do you think that is? What is the market not appreciating perhaps? And maybe what additional levers would you consider pulling to help close that gap?.

I think we're executing a business plan that creates tremendous value which will get recognized. Capital is ultimately something that finds a level. And so I know that what we're executing from a business-plan standpoint is absolutely the right way to maximize the opportunity that we have.

I mean in terms of where the market is and where we are on a relative basis, I think what we're beginning to show and what our execution is beginning to reveal is what I've been saying for the last couple of years, which is rent basis matters and the ability to make money in a disruptive environment is key.

And so the fact that we're executing in delivering and will continue, I think will begin to collapse some of that relative discount, particularly as folks who are operating higher ABR portfolios run into the headwind of tenant demand that they'd be four-wall EBITDA profitable, right? Rent trees don't grow to the sky.

At some point, it's got to make sense for the tenant. And I think we're demonstrating that. And hopefully, as we continue quarter-after-quarter doing that we collapse some of that distance between where we are and our peers.

But again, I always know the true north is that what we're doing is creating great intrinsic value in the real estate and that capital finds a level..

Great appreciate that..

You bet..

Next question comes from Michael Mueller with JP Morgan. Please go ahead..

Yeah, hi. Just one question.

How long should it take -- I know you mentioned the 350 or 360 basis point occupancy lease gap a few times, but how long should it take to cross the 90% occupied threshold?.

I think that what we have teed up through the back part of the year puts us in a good position to see that build or commenced rent occupancy get back towards that level. And where we stand on a lease perspective as Angela often says is a little bit harder for us to model, because we don't budget lease signings.

But I'll say as Brian alluded to we're generating more volume from a leasing standpoint than certainly we had expected. And we're doing so with higher volumes on a smaller portfolio.

So what's hard to answer is what that gap between leased and build will be, but we certainly expect through the end of the year and into the early quarters next year that build occupancy to get back to that level and then grow from there..

I mean do you think a period of two to three years is reasonable to cross 90%?.

I mean at this point, I think looking at that $48 million looking at how aggressively we've worked on reducing some of that watch list tenancy both on the anchor side as well as Jim mentioned earlier on the small shop side, it feels to me like we should be in a position towards the end of 2020 into 2021 to come close to those numbers from a build occupancy perspective.

We're talking about many, many quarters in the future at this point, but it does feel like based on all the pieces that we've put in place here that that time line feels reasonable..

Okay. That was it. Thank you..

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

Hi. My questions were mostly answered. But on page 33 of your supplemental where you show properties by the largest MSAs. And for Chicago, it looks like the build -- the difference between build and leased well it's in the high-70s, but the spread between the two isn't as wide as the rest of your portfolio.

Is this consistent across the 15 properties you own? Or is this just isolated to a handful?.

Linda hey this is Brian. I'll take that. It is a handful of properties and it actually is quite intentional. We have some tremendous redevelopment opportunities in the Midwest region. A team that's been put in place here over the last year John Hendrickson came in as our President in the Midwest last summer.

We've had a number of new individuals join that team. So as we look at the pipeline particularly in the Midwest, we're excited about that growing and a lot of that build -- the gap that you're seeing is specific to some of those opportunities that we have in the market..

Thanks. That's it for me..

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

Thanks. Just one quick question.

How do you think about the parking ratios and utilization across your portfolio? Is there a standard where you can measure yourself against? And the second question tied to that is how would you describe the tenants' willingness to give you some flexibility with lease clauses where like a Ross or TJ Maxx and there's maybe plenty of parking but they won't allow you to touch it..

Ki Bin this is Brian.

We have seen tenants become much more accommodating as it relates to densification of assets, whether it is related to building an outparcel building or even related to things like fitness and other uses that may be more parking-intensive I think all the things that you're seeing with the changes with the consumer have recognized that they may not need as much parking that they've had.

So as we look out and I think you've mentioned in some notes the outparcel program that we have a big part of it is our discussions with tenants and freeing up some of those additional parking areas across the portfolio. So as we look at that, we see it as a huge opportunity for us..

Thank you. End of Q&A.

Thank you. There are no further questions. I would like to turn the floor over to Stacy for closing comments..

Thanks everyone. We'll see some of you soon..

This concludes today's teleconference. Thank you for your participation..