Brixmor Property Group Inc. (BRX) Q4 2014 Earnings Report, Transcript and Summary

Good day, everyone. Welcome to the Brixmor Property Group Fourth Quarter 2014 Earnings Conference Call. [Operator Instructions] Please also note that today's event is being recorded. At this time, I would now like to turn the conference call over to Ms. Stacy Slater. Ma'am, please go ahead.

Thank you, operator and thank you all for joining Brixmor's fourth quarter conference call. With me on the call today are Michael Carroll, Chief Executive Officer and Michael Pappagallo, President and Chief Financial Officer as well as other key executives who will be available for Q&A. Before we begin, I would like to remind everyone that our remarks and responses to your questions today may contain forward-looking statements that are based on current expectations of management and involve inherent risks and uncertainties that could cause actual results to differ materially from those indicated, including those identified in the Risk Factors section of our Annual Report on Form 10-K as such factors may be updated from time-to-time in our filings with the SEC, which are available on our website. We assume no obligation to update any forward-looking statements. In today's remarks, we will refer to certain non-GAAP financial measures. Reconciliations of these non-GAAP financial measures to the most comparable measures calculated and presented in accordance with GAAP are available in the earnings release and supplemental disclosure on the Investor Relations portion of our Web site. At this time, it's my pleasure to introduce Mike Carroll.

Thank you, Stacy and good morning. Joining us on today's call is Brian Finnegan, who was named Executive Vice President, Leasing in November. Brian is been with our company for over 10 years in a variety of leasing roles across our national platform. Many of you have met him at the various industry events and we are very excited to have him in this senior role, he will be available for questions during Q&A. Looking back, 2014 was a very successful year for Brixmor from both a strategic and financial standpoint and while we're pleased to have met our expectations for our key operating metrics. We have also made important strides in advancing and communicating our Raising the Bar program and positioning ourselves as the landlord of choice to our retailers. All of this was accomplished in the backdrop of improving financial and operational flexibility. With the ongoing re-laddering of our deck stat [ph] and an increasing unencumbered asset pool. We now have a stronger balance supported by investment grade ratings from all three agencies and with the improved liquidity in our equity as our pre-IPO holders continue to reduce their ownership. Strong leasing results throughout the year have successfully boosted our tenant mix, average base rent and occupancy rates. Driving our continued organic growth with same property NOI of 3.9% in both the fourth quarter and year. This marks the 10th consecutive quarter of same property NOI growth in excess of 3.5%. No other sector peer can make this statement. We expect to continue to drive strong NOI growth in the 2015, as we capitalize on the long-term opportunity embedded within our portfolio. The below market expiring leases and the above average expiry schedule, 40% of our leases expire in the next three years, at an average base rent of $11.41 as compared to new leases being signed in 2014 at thirteen thousand and forty five cents. As Mike will discuss further our expectations for 2015 same property NOI growth is 3% to 3.7%. And while 2015 same property NOI growth will be impacted by downtime related to some of our larger raising the bar projects such as the remerchandising of four Kmart boxes. We still expect long-term growth approaching 4% on average. Our raising the bar strategy which was introduced last quarter is premised on improving our anchor offering by recapturing underutilized base and putting in the hands of more productive retailers. Our objective is straightforward; best in class anchors produce increased sales and traffic driving stronger small shop leasing thereby increasing cash flow and pushing cap rate lower. We are very pleased with the results we have achieved thus far regarding raising the bar. During the fourth quarter, we added an additional three projects to our pipeline including replacing of former tile shop with Bed, Bath & Beyond and a Kroger expansion. All in, we currently have 28 active projects. Strong demand from retailing seeking space and desirable shopping centers combined with our raising the bar efforts have enabled us to push rental rates with blended spreads of 13.9% in the quarter. This is the second consecutive quarter with blended spreads approaching 14% and the sixth consecutive quarter of blended spreads above 11%. Earlier in the year, we focused our teams to drive rental rates through our win on rate program; the results have been impressive with blended spreads aggregating a very strong 12.6% for the year. Occupancy increased to 92.8% at year-end, in line with our expectations and up 40 basis points from 2013. Leasing activities was much greater than implied due to the sheer volume of anchor re-tenanting activities as we focused on rent spreads and long-term NAV growth, by getting the right retailer in occupancy. In fact, our leasing productivity during the year was sizable with 787 new leases executed for almost 4 million square feet. The highlight, how tight supply is among anchor space on our portfolio. We currently have only 29 spaces above 20,000 square feet available. We are focused on creating opportunities were we have underutilized retailer space. In just the fourth quarter, we signed 24 anchor deals totalling 583,000 square feet and 6.4 million of ABR. Key leases include Burlington, Dick's Sporting goods, DXL, Party City, Sports Authority, Michael's and Petco. Of these 24 anchor deals 15 of these spaces were spaces that were previously leased and we improved the quality of these assets. Our common sense approach is that we need to maximize our already leased space whenever possible before we can fully realize the value of our available inventory. We gained 100 basis points in small shop occupancy year-over-year as we benefited from anchor openings, tenant upgrades and expect to continue to realize additional gains. We continue to add new names to our well diversified roster of industry leading tenants. Many of which represent the launch of new concepts or prototypes or entry into new markets. For example, during the fourth quarter our mall leasing team executed new leases with Lorna Jane which offers high-end active wear; this is new concept from Australia and LEMONPOP a new apparel concept by Charlotte Russe. We will be the home to their first location. While still very early, we are very pleased with the progress of our mall leasing initiative. Other new retailers to our portfolio in 2014 include Banana Republic, Apricot Lane, Daiso, a world-wide operator of treasure hunt stores and Paws & Claws, a Canadian operator expanding in Michigan, who we did four leases within the quarter. And new restaurant such as Whataburger, Bagger Dave's and rapidly expanding pizza concept [indiscernible] and Jet's Pizza. We continue to seek out uses that bring daily traffic and restaurants are a key category in that effort. During 2014, we executed 136 new leases with restaurants accounting for 17% of all new leases signed during the year and the second highest among tenant categories. The strength of these retailer partnerships is also exemplified by the number of tenants that we executed five or more leases with during 2014. This list includes XFINITY by Comcast, Cricket Wireless, Vicki's Barbecue, Dollar Tree, GNC [ph], [indiscernible] Pivot Sports, Pet Value, Sally Beauty, Fruit Bar [ph] and Sleepy's. These retailer signify the convenience in value orientation of our portfolio. Instrumental to our leasing efforts are the specialized initiatives of our national accounts team. On last year's fourth quarter call; we highlighted several areas of focus. As an update, first on executing early renewals, which enables us to lock-in strong credit, national and regional retailers with long-term leases. During 2014, we executed five early renewals with the TJX companies resolving in a 32% total increase in rent. Importantly, we are receiving additional rent now. Well in advance of the expiration of their existing term. These are in addition to the five early renewals we executed in 2013. Second anticipating at risk tenants and proactively identifying workplace on retailers. By example in 2014, we released 23 of 32 former Dot Stores in under a year over 70% of the leases in a bankruptcy situation. As you know, RadioShack filed last week and we have been actively working on these leases for quite a while. Lastly, expediting the legal process to accelerate lease commencement timing. Our success here is direct result of our established retailer relationships, which extend beyond just our leasing team to our legal and accounting teams. By example, in 2014 we executed the Sleepy's lease in South Carolina in 10 days. A Burlington lease in Chicago in 28 days, two ULTA deals in Denver and Tampa in 35 days and also the LEMONPOP I mentioned earlier was done in 28 days and while this is a new concept, we were able to leverage our established relationship with its parent Charlotte Russe. In addition to our continued focus on these initiatives in 2015, we are also working on a new direct to franchisee program. By targeting the franchisees directly along with corporate real estate teams, we create another avenue per store growth, but at the same time ensuring that we are securing strong corporate credit on the leases. In October, we executed our first disposition since IPO. With the sale of 44,000 square foot asset in Houston for $4.3 million. This sale is indicative of our go-forward strategy of cycling out of assets, where we feel growth is been maximized. As we move into 2015, there is the potential for small number of additional sales of a similar nature. In January, we completed another asset sale in Durham, North Carolina for $10.3 million. This asset was also relatively small anchored by Food Lion and 95% lease with little rent growth going forward. I do want to emphasize that even with the potential for measure disposition activity and potential acquisitions; we are an internal growth story. You should not expect to see any significant changes to the portfolio. The acquisition environment continues to be challenging with cap rate compression and strong competition for assets. We are committed a disciplined approach to acquisitions and we will not chase products with limited growth prospects and low cap rates. We are still very much in the early innings of harvesting the organic growth inherent in our portfolio through our raising the bar transformation process. When combined with no meaningful new supply on the horizon, we are well positioned with a long runway for generating outsized growth. I'll now turn the call over to Mike to review our earnings results, balance sheet initiatives and expectations for 2015.

Thanks Mike. Our first full year as a public company was characterized by strong financial and portfolio performance and a variety of balance sheet actions and improved financial flexibility and debt metrics. We enjoyed an earnings growth of 7.1% over 2013 pro forma results to $1.80 per share. Recall that this past year's results included charges for strategic or necessary capital market actions. Specifically the early repayment of high cost debt instruments as well as expenses incurred in connection Blackstone secondary stock offering and related self [ph] registration. Without these items FFO growth is over 9% higher in 2013 primarily from NOI growth and lower interest cost. I recognized that many of you in the research community estimated the fourth quarter FFO per share level $0.44 versus the reported $0.43, while this was within our previously provided guidance range, the difference from the consensus can be trade to the higher secondary equity offering cost and expenses. From an operating perspective, the portfolio result speak for themselves. I would only make a couple of observation, first and looking back at our original estimates versus actual results it became more apparent that the mark-to-market on spaces as witnessed by the leasing spread numbers has been a more important component of NOI growth and we expect that to continue. Of course occupancy increases contribute as well, but the emphasis this past year was more to win on rate and put the best selection of retailers and not so space, just to fill it. Second, our supplement detail. We have consistently experienced solid rent growth across all space sizes, be it large anchors or small spaces. In the most recent quarter, we enjoyed spreads in excess of 11% in each of our five space categories. I mentioned this to underscore, that our rent uplift is not solely the product of a few ancient leases that have outside spread. We certainly have many of those with the recent came on repositioning of prime example, but we are also consistently printing double-digit spreads in the other space categories as well, underscoring the deep mark-to-market opportunity throughout the portfolio. From a balance sheet perspective, the last couple of months have been particularly fruitful. First by obtaining investment grade status from two credit agencies, prepaying a mezzanine debt instrument that carried an 11% interest rate and culminating with our debut bond offering in January. We were particularly encouraged by the level of support from investors with an order book reaching $2.5 billion, which enabled us to upsize the final transaction to $700 million at an all in coupon of 3.85%. With this initial transaction completed, we now set our sights towards the remaining 2015 maturities of $550 million that carry an average interest cost of 5.46%. As well as looking ahead to 2015 debt maturities of $1.25 billion with roughly 5.6% handled. Of these maturities over 90% represent secured mortgage borrowings that we will continue to replace with unsecured instruments from the bond and bank markets. Our earnings release also contained estimates through 2015 for most of the major financial and operating metrics. The components of FFO per share growth in 2015 are provided in the press release. It should be no surprise, that NOI growth and interest savings drive the increase encounter a lower contribution from non-cash accounting income. I suspect that the straight line rents in FAS 141 income maybe at higher levels in research model, so it will be wise to check. What the 2015 guidance range does not consider are impact from any acquisition or further disposition activity, nor any cost and expenses that M&A from additional Blackstone secondary offerings. It is reasonable to expect activity in each of those areas in 2015. Our approach will be to provide updated earnings estimates as the year progresses, transactions occur and the financial effects become more clear. Same property NOI range for 2015 is a bit wider than last year's range with the primary influence on both the absolute number and the range as downtime on our anchor repositioning activities. The one observation we made in the press release was the elevated level of downtime, we expect in 2015 number roughly a 40 basis point increment from prior years. Accordingly, we anticipate quarterly same property NOI growth to be on the low end of the guidance range in the first half of the year and the higher end of range for the second half. Consistent with earlier comments on occupancy, we're estimating growth of 20 basis points to 70 basis points by year end 2015 primarily at non-anchor spaces. Expect us to continue an aggressive anchor repositioning and remerchandising program which will temper increase in anchor occupancy during the year, as we continue the rotations, the best in class retailers. However, we expect to see the benefits in these activities at higher lease rates and higher spread level, improved positioning for 2016 and beyond. This strategy can also be seen in our capital spend, as we again estimate over half of our leasing spend year marked for repositioning and redevelopment related activity. I'd also point out, that one additional piece of data relating to the value of our parcels, which is been revised to $55 million, as we took a complete inventory of all available parcels at our existing centers not just the two [indiscernible] previously reported. In sum, 2014 was a year that we met and in many cases exceeded our objectives in balance sheet management, delivered strong financial performance and created further momentum in leasing and repositioning efforts that will spur additional growth in NAV earnings and cash loan. We now turn the call over for questions. Operator?

[Operator Instructions] Our first question comes from Christy McElroy from Citi. Please go ahead with your question.

I'm wondering, if you could talk a little bit more about your capital raising plans in 2015 would you expect to do another bond deal to refinance the $550 million of debt coming due, Mike that you talked about including the new planned bonds coming due in September and given your comments, there is a potential for acquisition, would you consider doing an ATM?

Yes, Christy first with respect a bond offering as I mentioned earlier we have $550 million of maturities in 2015, it's reasonable to assume that we would enter the bond market again to satisfy those maturities. Focusing on a tenner that would fit nicely into our debt maturity schedule. We are also actively considering an ATM and that will be another arrow into quiver as we go through 2015 in terms of capital access.

And would the ATM be primarily the match fund any acquisitions or would you use the pay down debt as well?

It will really depend on the opportunity, certainly anything that we do from an equity perspective ATM otherwise, will need to be accretive from an earnings and value perspective, so to that point we do have some relatively high cost debt maturing. There are also some acquisition opportunities in the market place, but we're only going to issue equity if it makes sense to do. Having the ATM obviously gives you dry powder to access the market, when it's conducive to do so, but I wouldn't read too much into it in terms of what we're going to be potentially using that for in the short-term.

Okay and then just following up on your comments on occupancy, given your remerchandising activities. I just wanted to get a better sense for what you expect sort of the trajectory of occupancy to look like through the year. So how much of dip should we expect for the year, if any? And how do you expect the gap between the lease rate and commence rate, to trend?

Yes, in thinking about the lease versus build occupancy, I think the pattern will be consistent with the past two years in which the gap widens as you go through the middle of the year and then tightens as you approach the fourth quarter. I would also expect that the absolute levels of occupancy will dip in the first quarter consistent with prior years and perhaps be a little bit more than the last couple because of the larger spaces coming offline, the Kmart spaces and otherwise, but again start picking that up second half of the year. So in some consistent pattern that you have seen in terms of movement relative to the past two years, but perhaps a little bit more pronounced in the early part of the year because more anchor spaces are coming offline as a result of these repositioning opportunities.

Great. Thank you.

Our next question comes from Craig Schmidt from Bank of America. Please go ahead with your question.

Regarding the Kmart re-tenanting after you're done with the initial four, are there other opportunities done on some of the other Kmart leases and what allows the Kmart location to be a good candidate for that re-tenanting?

Craig, there are other opportunities we're working on them. I think we are trying to be thoughtful in our approach there and minimize the amount of downtime that we have to take and so we're trying to progress with other retailers where we can affectively, this is like a good chunk of this was like a sign up with the new tenant and then terminate almost simultaneously with Kmart and we're trying to secure up birds in hand wherever we can. So I think that's the opportunity on that and we would expect that we would be able to bring some of those to fruition assuming we have a willing counterparty at Kmart as we move through the year and then what makes a good location. We generally feel like all of these are good locations, we have very good infill of real estate that's why we've kept these locations, over the years and you know the transformation that can occur it's pretty amazing. I mean I was just back from being in Naples last week, where we have a very well located property that haven't been able to meet its potential because we haven't had a real strong traffic driver in there and today, I mean the quality of tenant that we're talking to, not only for the remainder of the Kmart space, but for now the rest of the follow-on leasing at the center. We're talking about Saks OFF 5th and we're talking about Tesla having a showroom at the property. I mean it's a complete overhaul opportunity and it just speaks to how good the real estate is through the Kmart portfolio and we think it’s opportunity for us.

Great and then in terms of the small shops, what percent of the retailers are national and what percent would be local and is there any type of retailer that you're particularly looking to fill, as you fill that occupancy?

Craig, this is Brian for us last quarter roughly 60% of our small shop leasing was national and regional tenants and 40% was local, I think we're seeing a good mix going forward. We'd like to target the national and regional operators specifically because they've got larger brands, typically a better credit profile, but we are starting to see some strong mom and pop's look for other locations. We signed a lease, last quarter in Philadelphia, with a very strong Italian restaurant operator with two other locations, they're going to come in and do a great business at our center. So as Mike mentioned earlier, we are looking for the best operators be it mom and pop's, national and regionals, but the team is primarily focused on our national and regional tenants.

Craig, I'd just add I think we have a good opportunity as we continue to focus on better anchors coming in, it allows us to do something where we can create a little bit different merchandizing environment and so putting a better anchor in, whether it be a parallel or otherwise, merchandizing differently with maybe an ULTA or bringing in apparel use, like I think you know this quarter with somebody like LEMONPOP coming in and then focusing on daily traffic generators, restaurant traffic maybe the medical component of that as well and trying to create things, where we bring that traffic. I'm just back from a discussion at our ISCS trustee meeting a month or so ago and all of our big retailers, the department store operators and others are all seeking daily trips, they're all looking for that daily trip and they want that daily trip generator next to them to take some of the seasonality out of their business and drive additional traffic and I think that's what we do really well in our open air space with our grocery foundation and we're trying to enhance that with some other targeted users.

Thank you.

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

Just last quarter, you talked about identifying 160 raising the bar projects, just curious if that number is changed and how many of them were tied to Office Depot or Staples boxes that you have in the portfolio?

The numbers are same and we're still working off that same number and continuing to make progress on that number and we'll continue to update you as we go forward and then as it relates to RTB or Raising the Bar projects that our types as Staples, OfficeMax, Office Depot we have 25 of those in that list of 160, that we're focused on.

Okay and just maybe get your thoughts in general on the whole potential merger between Office Depot and Staples, just curious how many of your leases, how many of your Staples and Office Depot leases are coming due in the next say three years or so and what's the current mark-to-market look like on those assets?

Sure, this is Brian. We're excited about the opportunity. We've got in the next two years roughly half of our Staples and Office Depot locations are at expiration. Particularly, to our portfolio the age of those are roughly 16 years old and the ABR per square foot is about $10.50, we think market is $13. So for us, as we look to replace those with speciality grocery T.J. Maxx, Bed Bath, Ross these retailers are all out looking for space, as Mike mentioned earlier we've only got 29 boxes in our portfolio over 20,000 square feet, so this is where demand is greatest and that 20,000 to 30,000 square foot range. So overall, we're excited about the opportunity and think we'll do pretty well.

Okay, thanks a lot.

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

As you think about acquisitions, I know we haven't seen anything yet, but sounds like there could be some in the pipeline. Would you say that the company is more inclined to make one-off transactions or would you be more interested in larger portfolio deals and deploying capital into larger acquisition at once?

Hi, this is Dean Bernstein. We're mostly looking I think at one-off acquisitions, we do look at the portfolios that are out there and track them, but it's most likely to be one-off acquisitions.

Okay and then just following up on the ODP, Staples deal. Just in general I guess, store closings and announcements have been somewhat limited in manageable over the last few years and you ran through your exposure and what the opportunity might look like, but it seems like closings are accelerating a little bit here and I'm just curious, when does this sort of impact fundamentals for the shopping center space. I guess, when do these closures start to be a source of concern or soften the market a little bit?

I think, the closures that would be a problem for the market are generally, a large rejection coming through Chapter 11 I think about these locations just Staple, OfficeMax on a macro level and say they're going to be rateable because all of them have lease terms, whether they closed the stores or not, they're going to come back, the landlords in an orderly fashion because of lease expiration dates. I think there is variable to subleasing that will go on with these locations because OfficeMax, Office Depot haven't been in Staples for that matter have not been in material store opening mode for several years, that puts the majority of the vintage and those leases 5 years or older and really not enough remaining term that makes it viable for national retailer to want to come into something, where they have maybe 10 years or 15 years left of total term with options versus doing a new deal themselves. So I think it's okay in this environment, I think the thing we always watch out for is a true bankruptcies, but on the margin this will create a little bit more supply out there.

And do these announcements change the discussions and negotiations that you're having with other retailers that are looking for space, does it sort of change those conversations on any level?

Todd, this is Brian. I don't think that it does, it just gives us to Mike's point some more opportunities to put in front of that. I think there is not many out there today in our portfolio so I think this allows us to look at each particular center, case-by-case and especially for those that are coming due over the next two years really proactively advance talks with retailers that are expanding. So I don't think it materially changes anything.

Okay, thank you.

Our next question comes from Ki Bin Kim from SunTrust Robinson Humphrey. Please go ahead with your question.

How much of your repositioning is in your new lease price? So how much of the uplift and rents are reflected in the newly spread that you report?

While, we put them all in. So anytime we have a comparable lease against a comparable space that's in there, is to what the exact breakup is this quarter. We'd have to get back to you on it.

I guess, not exact.

But again, we're talking, I mean - the thing I would say to you Ki, in law of large numbers with our company is not one thing moving, one lease moving the needle and I think, if you, in Mike's comments the print is every category size and I think we breakout categories better than most in more granularity than most across to every size level unit size level we have, we're printing double-digit spreads.

Because I know the way you guy disposed it on a comparable basis meaning under 12 months, so generally are your repositioning efforts to-date, to the time that a tenant leaves and at the time it takes for a new tenant to move in, is that typically under 12 months or over 12 months?

Well it's from when a tenant was in occupancy till when we signed the lease, right. So not when they actually take occupancy, but when we sign the lease. So these are leases that we signed this quarter, that we've reported and those tenant there was somebody in that space within the 12 months prior.

Oh! Okay, got it and I know one quarter doesn't necessarily make a trend, but just curiously you small shop occupancy looked pretty static versus last quarter. Once again, I know there is only one quarter, but just curiously I would think just being the fourth quarter maybe there is a little bit of seasonal bump, that you've got anyway. So it just seems on the margin, maybe a little bit weaker than say typical trend. So maybe you could talk a little bit about that.

There is, I think when you look and say there is a seasonality component to what we do, I think if you look at the mix of what we signed this quarter, the majority of it was anchor space, it was positioning for further distance out, there is just you get into a period in the fourth quarter, where you just see less small shop leasing in general and then accelerate it in the other quarters. It's just like that gap with lease to build occupancy, everything starts to narrow to focus for fourth quarter opening, it's not so much fourth quarter lease signing.

Got it. Alright, thank you.

Our next question comes from Alex Goldfarb from.

The first one is for Mike P. Mike, as you think about getting your debt structure into the unsecured land. Obviously 10-year issuances is clearly a go-to option, just sort of curious your thoughts on doing something a little shorter term like 7-year and then, are you in a position to go for 30-year or with your current investment grade rating that's not really an option.

Alex, as we look forward and if you overlay our debt maturity schedule, it would imply that we would be migrating to other maturity levels than 10-year as we move forward. So you could look at, the 5-year and the 7-year category as prospects for the next offering. The primary focus that we have is to balance out the maturity schedule so that in any one year particularly after we get past 2016 that we don't have more than say $600 million to $700 million maturing in any given year. So to accomplish that, we're going to have to be more flexible around the curve to properly position debt and debt maturity. At this point, we are not thinking about 30-year bond, maybe down the road, but at this point we don't see the need to do that.

Okay and then on the disposition side, one if you could just give some colour on the cap rates of the recent trades and if those cap rates would be indicative of the stuff, that you may sell going forward and are you guys thinking about simply pruning or would this only be selling where you could 10/31 the proceeds where, is there a potential for a special?

A special dividend, is that what you asked?

Yes, Mike.

Oh! Alright, so I'd like Dean start here off.

Yes, its' Dean Bernstein just on the cap rates obviously, the Sharpstown property we sold in the fourth quarter traded at a 6.3 cap, the Park West Crossing property we sold in January traded at 7.2 aggressive cap rates taking advantage of hot acquisition market and we would expect the cap rates to be kind of in that range on a go forward basis. I think it's really just a continuation of selective pruning, we have a portfolio management group that looks our assets constantly and if we see a property, that we think we've maxed out growth or show some risk considerations long-term, we considerate it for disposition.

And generally, it's an asset by asset precision on what we're doing as it relates to 10/31 basis depending on whether there is gain or not there, I think that's, if there is a gain that's our primary thought is to use that as a vehicle to roll into something different.

Okay, thanks Mike.

Our next question comes from Rich Moore from RBC Capital Markets. Please go ahead with your question.

I'm curious, you have about 28 out of 160 locations that you've identified for an anchor repositioning underway about $90 million of that going on, so given the demand that you have from big box retailers, do you think that a number sort of accelerates, so do we look for $90 million annually as sort of a run rate.

We're working away as fast as we can, alright. There is a lot of factors that come into timing, there whether it be capital plans of the tenants municipal entitlements all those things. I think, we're at today at $90 million, we've said we thought there was $450 million of investment in that 160 locations between now and 2018. So that $90 million to $100 million for that activity is about where we think, it is but recognized that we're always looking and trying to do it faster if we can.

Right and to that and to Mike's point, Rich. This year, 2014 we did see an acceleration, if you look back a year ago, we had 16 active anchor repositioning and had completed 23 now it's kind of reverse, we completed 15 during the year and we have 27 projects active. So clearly a pick up this past year and based on the supply demand dynamics, I think this $90 million per annum 25-ish type project will be the steady diet over the next few years to accomplish that 160 property opportunity that we discussed at the last call.

Okay, so it's really more getting the tenants out of there and getting entitlements and that sort of thing that keeps you know at the level that you're at.

Right, gaining the liquidity of that space.

It's not a capital constraint.

Yes, sure. Yes. Okay good and then as you guys think about at kind of bigger projects. I mean your redevelopment pipeline is, as you showed in the supplemental is small outside of course being the anchor repositioning, but does the bigger redevelopment start to occur and is there a possibility of even a ground up development occurring based on tenant interest out there.

Well, I think you look at really what we do, Rich and I think we do more and this is one of the reasons why having a chance to come fresh, when we during the - with the recent IPO, we were really able to say, our blocking and tackling business is this anchor repositioning business. It's trying to get into that space and do what we can to maximize. The leases that we have there and the space that we have there because ultimately that's the lowest trend space we have in the portfolio and we think in the environment, we are in, it presents the most upside. So major redevelopments, I think that'll continue to be relatively a small number of them. I don't see a lot of them coming and part of it is and one of the reason why there is a lot of development today, is there is not a large format retailers looking for new locations and so I think that those situations continue to exists and it's more of this filling for that junior box type user. And then on development, if you look back at the history of some of the predecessor companies, here we have done some and it's always when a tenant comes to us and says, will you do this for us? And I think if that situation exists, we will look at those situations and you know if the numbers make sense to us and it's purely tenant-driven with the majority of the risk taken out of the equation because of that, I think those are things that we would - you could see us a one or two of those, but it wouldn't be a land bank type scenario for development projects.

Okay, great. Thank you guys.

Our next question comes from Jason White from Green Street Advisors. Please go ahead with your question.

First question just a quick one on NOI growth, if you're going to have the 40 basis points of drag this year, does that imply 4 plus number for next year, as those boxes come online from the downtime?

Jason, I won't make any predictions on 2016 NOI growth, but I would say that 2015 is somewhat of a transition, oh! Yes I wouldn't say transition over the negative context, but clearly we have reached an anchor occupancy of 97% and as a consequence, the value creation is going to come from rotation. This year, we're experiencing or this upcoming year we will experience a larger than Star echo [ph] drag, but as we get into 2016, the benefits of these recent deal will come to there and even if there is more repositioning, my sense is they will cancel each other out and we will be migrating towards the recent history of our same property NOI growth.

Okay, what is the net positive going forward to this, you're obviously rolling spaces that are lower rents and once you reposition them, it will be higher rents, shouldn't each year rather than be a net neutral, shouldn't it be a net positive as they roll back online with higher rents?

I think from an academic exercise, I think the answer is yes. The question is, what are the opportunities that we have to further recapture space and as we move through 2015, but I will say a little bit maybe a little bit less diplomatically then Mike said, we think 2016 is going to be a good year, I mean if you look at our pipeline today, what we have coming on, we have a lot of good stuff coming online next year. So all else being stagnant, 2016 will be a good year but that being said, if we have the opportunity as was asked earlier to take additional Kmart to do something different, I can't project what's going to happen with that as we move through the year. We're in the first part of February today.

You can see that Mike is taking a CEO role and I'm playing the CFO role.

Alright, thanks for that and then with lot of your peers during the lease up period in the last few years, saying that kind of 95% was the point in time, where they started transitioning from filling space to pushing rents. Why is that, roughly 93% occupied for you guys is the right time to be pushing rent, rather than filling space as aggressively as possible?

Yes, I think, what we've said from the beginning is it really is an asset-by-asset exercise and so as we achieve what we're achieving on the asset and it's part of the reason we put the deck out last quarter, when we get the asset position the way we want it, we want it with the anchors in place, that gives us the opportunity to position to push rent on that asset and so we're focused on getting that right, on that asset. If I use, the Naples locations I was talking about earlier on the call, if we were to fill up space there today, we're hurting ourselves because we don't have the asset in the right spot to really be able to drive the rents, the way we know they can be when we haven't opened Dick's sporting goods and we fill out the component of the adjacent 35,000 feet that's we're still working on and we transition a couple other marginal retailers who were acceptable tenants during in a Kmart anchored scenario and we're not really acceptable tenants today, that we take care of that and we finish out the out parcels. There's just more to do, but it all hinges on getting that anchor positioning right and that's been the whole communication around our reason of our program is get that anchor position right and then reap the benefits, don't try to reap them before because you're not going to get the right rate on.

That's it, thanks. My last question, can you reiterate your deleveraging goals kind of your timeline and how you plan to achieve those goals?

As we look to the end of 2016, we would like to have an unencumbered NOI pool approaching [indiscernible] and have a net debt-to-EBITDA on a cash basis around 6.5 times and that plan, Jason is really just paced on utilization of existing free cash flow to the extent that there is an opportunity whether it's additional equity or acquiring assets and in effect delivering that way with unencumbered assets issuing equity etc. Those numbers can get better, but we operate under the base case scenario where we will not go to the external markets for further deleveraging.

Great. Thank you.

Our next question comes from Tammy [indiscernible] from Wells Fargo. Please go ahead with your question.

I'm just curious for Mike P. I guess you mentioned 2016 as a big maturity year, what does your business plan for 2015 contemplate in terms of pulling forward some of those for prepayment in 2015?

We have an opportunity to accelerate an additional $400 million from 2016 into 2015. So based on market conditions, validity to access to bond markets again, we could have an opportunity to further improve the debt maturity schedule and do additional financing and some of those scenarios Tammy [ph] drive the guidance range variation that we show in our press release going beyond the base case of one bond offering to be able to 2015 to the extent, there is additional activity and then of course, who knows where the treasury curve will be in three months, six months to nine months that drives the variability in our estimate.

Okay, so currently on the unsecured side, what are you expecting to issue in 2015 or is it just really depend on what you guys pull forward?

Yes, the base case again as stated earlier the $550 million coming due contractually in 2015, will be refinanced in the unsecured market and then again there is the opportunity to do some more, which will obviously therefore effect short versus long term debt rates that we have the opportunity in the market as there, we may do additional financing.

Okay and is that a year end, you think that will be at year-end or that be more mid-year to give us some time?

I'd, it's by us towards the second half of the year.

Okay thank you and then just one more follow-up on small shop. Obviously you had a nice lift of 100 basis points in 2014, I guess what does your guidance assume for 2015 in terms of small shop occupancy growth and then where do you see that going over the next couple of years?

Similar uplift in 2015, Brian you can add story lines.

Yes, I would think that as Mike has said, using some of these anchors online we're going to continue to see the growth in the small shop leasing. So the downtime that Mike and Michael talked about is primarily with our anchors this year and we'll see the growth throughout the year in the small shop space.

Tammy [ph] I'd just add to this comment where we're getting these anchors in and open, we're getting substantial lift and we had over the last 24 months, where we've had anchors opening at approximate 400 basis point, occupancy tick up in the shop leasing at those property, so that is our formula and that's the formula where we get the best rate, the best spread etc. and so that continues to be our focus. So I think, in that range of that 150 basis point lift in shops that generally what we would expect to see.

Okay, great and then if you could just comment on the regional performance in the fourth quarter, how your primary versus secondary and tertiary markets performed.

The performance was generally very, it was very consistent. I think we're basically 3.9% for the year and when we look at our performance of t hose it's pretty evenly distributed. The non-top 100 markets which we think, where we have to the best properties and the market generally were 3.9% for the year on those as well. So that's pretty fair disbursement and I think it's still what we've said, we're seeing broad based improvement all through our portfolio.

Okay, great. Thank you.

[Operator Instructions] and our next question comes from Michael Mueller from JPMorgan. Please go ahead with your question.

Thanks, just a quick one to follow-up on Tammy's [ph] question. There is 150 basis point gap between leased and occupied rates. I mean, how do you see that trending through 2015?

Mike, we think consistent with the past two years, it will widen out through the year and then began to narrow in the third and fourth quarter again pretty consistent with what we've seen in the past.

Do you think 150 basis points is about where you're heading next year, does that gap shrink?

That's a fair estimate, I think it's a fair estimate.

Okay, that was it. Thank you.

And ladies and gentlemen at this time, it's showing no additional questions. I'd like to pass the conference back to management for any closing remarks.

Appreciate everybody's time this morning and we'll look forward to seeing you at across industry events coming up over the next several weeks. Thank you.

Ladies and gentlemen, that does conclude today's conference call. Thank you for attending. You may now disconnect your telephone lines.