Greetings and welcome to the Brixmor Property Group Second Quarter 2019 Earnings Conference call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Stacy Slater. Thank you. You may begin.

Thank you, Operator. And thank you all for joining Brixmor Second 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 Morgan, 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 remain 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. And good morning, everyone. I'm pleased to report yet another quarter of strong performance on all fronts in line with what we've achieved the last several quarters and consistent with the plan we laid out at our Investor Day in 2017. As we've discussed on past calls, our performance highlights both the strength of this team and platform as well as the potential embedded in our portfolio of well located shopping centers. And importantly, the work we've completed the last several quarters sets us up very well for the acceleration of growth in the latter part of 2019, 2020 and beyond. But what may be only partly apparent in our reported numbers is the broad based physical transformation occurring at the real estate level that not only drives ROI but also delivers tremendous growth and intrinsic value. Simply put each quarter that we execute our real estate becomes more valuable. Since this team began together in May 2016, we've harvested through asset sales over 20% of our original portfolio. We've also completed, commenced or will soon commence value accretive projects on over 30% of our remaining portfolio. Said another way, we've now crossed an important threshold in terms of momentum in our progress clearly demonstrates that we are a fundamentally different company than we were three years ago. Consider for example, at Webb Royal outside of Dallas where we converted a tired center and a dense sub-market with a new ethnic grocer, new facades and signage and drove a doubling of the NOI at that center with continued room for growth as we roll some of the small shop space. Outside of Minneapolis, we're adding a specialty grocer to vacant end of a neighborhood center, expanding a restaurant that's a local institution, updating facades and driving a…

Thanks Jim, and good morning. I'm pleased to expand on another quarter of strong execution as we continue to transform our portfolio driving growth while also significantly improving the quality of our cash flow stream. FFO in the second quarter was $0.48 per share, reflecting same property and wide growth of 1.8%. Same property NOI growth was driven by strong base rent which contributed 170 basis points during the quarter despite a year over year decline and build occupancy primarily as a result of the bankruptcy activity which has been more than offset by strong rent spreads and continued successful execution of our value enhancing reinvestment pipeline. In addition, net recoveries, percentage rents and ancillary and other income together contributed an additional 80 basis points of growth which was partially offset as expected and discussed on previous calls by a negative contribution from bad debt due to significant recoveries realized in the second quarter of last year. Bad debt expense in 2019 has been in line with expectations. Totaling approximately 70 basis points of total revenues in the second quarter or 85 basis points year to date versus our long term run rate level of 75 to 100 basis points. We have maintained our 2019 FFO guidance of a $1.86 to a $1.94 per share and our 2019 same property NOI growth guidance of 2.75% to 3.25%. Our guidance has always been predicated on an acceleration in same property NOI growth in the second half of the year based on the timing of rent commencements related to bankruptcy backfilled and the stabilization of value enhancing reinvestment projects in the third and fourth quarters. As a reminder, the spread between build and leased occupancy stands at a record 400 basis points today which represents over $51 million of contractually obligated annualized…

[Operator Instructions] Our first question comes from the line of Karin Ford with MUFG Securities. Please proceed with your question.

Jim at Larry, you said that there were some early signs that cap rates might be headed higher for shopping centers, has that materialized or did lower rates end up having a positive impact on pricing?

You know, it's - I'll let Mark comment a little bit on the market more broadly, the mix of centers that we sold this quarter, we're actually below the run rate in terms of cap rates but certainly you know, Mark, you want to comment more on where the market is?

Yes, I'd say that the market actually remains pretty consistent with what we've seen and what we've talked about on previous calls. We continue to see significant capital chasing open their retail assets. I'm sure once all the big retail trade portfolio tried that recently occurred, we've seen some high pricing on grocery. We do continue to believe that definition of accord is a little tighter than it was in the past but we haven't really seen a single significant movement.

Yes and Karen, I just say that, I think every investment decision we make as a company is with the view that cap rates will move higher, interest rates will move higher. When we underwrite acquisitions or we underwrite investments in the centres, we always assume a reversion that's higher than where it is today. So, my gut is always the cap rates are going to be going up but we haven't seen it yet and what we've actually transacted.

And my second question, similar theme. You mentioned in your prepared remarks said you think your real estate has gotten significantly more valuable, can you without talking about specific cap rates, do you have an estimate for how much you think the average cap rate on your portfolio has declined following all the hard work you've done on asset sales and redevelopments to date?

I think it's been significant. I don't want to given absolutely number to it. But it's part of our investment philosophy that the changes that we're making not only are driving great incremental ROI but we have a view that what we're doing is making the assets much more valuable so that on a steady state basis, the cap rates will be lower than when we started on those assets. But across the portfolio, I can tell you it's meaningful. As I mentioned, what's important at this point is that we really are accelerating in the execution of our plan. As I mentioned in my prepared remarks, we've harvested about 20% of our portfolio and we're starting or have executed on another 30% of our original core portfolio. And when you execute projects like we executed, for example, in Minneapolis or in Pleasant in California or in Mamaroneck, New York, you can expect to see the cap rates on those shopping centers tighten by anywhere from 50 to 125 basis points. So as we get through the portfolio and we harvest these opportunities that I've been excited about since I've joined the company, we really are everyday creating more and more value and honestly as Angela alluded to in her remarks we're actually lowering our cost of capital from an implied cap rate standpoint, but we're not prepared at this point to give you an estimate of what that is. But we do invite you to look at the breadth of the projects that we're executing, the number of assets that we're impacting. We do provide in our supplement a list of all the 60 plus projects that we have underway and we have many more behind that. And again, these are smaller. They're more granular than massive mixed use development projects but they have huge value benefits not just in terms of that are a lie, but in terms of making the center better.

And I think you said that the example that annually gave in Tampa was a $5 million value creation on a $25 million roughly value asset. Is that pretty indicative of what you think the other projects, the value that you've created in the other projects as well?

I think it's a great example. And think about it, we put about $ 6 million to work. So when you are putting and this is another point that we've made a lot, when you're putting capital to work it incremental, not gross incremental returns of 10 % in a business where the assets are 6% to 7 % and cap rate, you are creating a huge spread in terms of value before you consider any compression in cap rates. So it is a significant lever and the other point I think is important I'm glad you asked the question is we can create the same value with that 400 million of investment that we have underway that ground up development are more complicated development would require four to five times the level of investment and also in part a lot more risk and also not have the same type of duration that our projects have. So, you are seeing it come into our numbers now, the 200 million that we've completed. It's part of what gives us a great visibility on ramp in the latter part of this year and into 2020. And we're real excited about it. It's granular, it's hard to talk about specific projects and generate the same level of excitement that larger projects generate. But the important thing is that we're actually making money which we're excited about.

Our next question comes from the line of Craig Schmidt with Bank of America Merrill Lynch. Please proceed with your question.

I just wondering if, as investment in e-commerce grocers continues to climb, are you viewing various bricks and mortar groceries differently today than you might have a couple of years ago?

I'm going to let Brian comment on this but let me let me lead off with we are very focused on those grocers who are thriving today, who are investing in their business, who are driving buy online pickup in store and where the grocer isn't, we're taking a more cautious view as to whether or not that's somebody that we want as an anchor in our center going forward.

Yes. I would just add, Craig, as we said on prior calls, we have been working with those grocers, as Jim mentioned that are investing in buy online pickup in store that are doing more from a delivery standpoint and it really goes into the total investment that they're making within the store. And we have our eye on that both with specialty and traditional grocers, it is something that we're very focused on.

And then just a follow up on the lease to build occupancy, thanks for the breakout of 31 million but how much do you think we hit in the third quarter versus the fourth quarter?

Angela?

Yes. So Craig, we haven't provided sort of a quarterly breakdown, but I think it's fair to say based on both the timing of bankruptcy backfilled and the timing of redevelopment stabilization we have in both the third and the fourth quarter that you're going to see some come in the third quarter and then a larger portion of that really hit in the fourth quarter which does a great job of setting us up for 2020 growth.

Our next question comes from line of Christy McElroy with Citi. Please proceed with your question.

I'm going to follow up on Craig's question, as we head into 2020 would you expect a narrowing of that spread closer to the 70-100 and 80 basis points that the company had been averaging prior to the 2016 Sports Authority bankruptcy? And maybe, kind of frame that the answer to that question and sort of the context of your views on potential tenant fallout into next year. And I think you had previously had a 75 to 100 basis point bad debt buffer in the range this year. How are you thinking about that today?

Let me let me start and say that when you look at our build occupancy number, it reflects a couple of things. It reflects certainly the bankruptcies that we've all experienced in the sector but I think for us in particular, it also reflects the proactive recapture of space for redevelopment and reinvestment. And we're at an important turning point in terms of the execution of our plan as we see that over $51 million of signed but not yet commenced rent begin commencing over the next several quarters as those spaces deliver and the tenants take occupancy. So with that said, I do expect our build occupancy to continue to accelerate and climb both overall and also within the small shop space as we continue to see momentum driven in part by the investments that we're making in our centers and as I alluded to before, the improved operations. With that said, Brian and team continue to be the most productive group in the industry in terms of leasing and so while I expect an acceleration in build occupancy of that spread stays at 400 and we're up a couple hundred basis points and build occupancy which we fully expect. I'm not going to be crying a river on that but I do honestly expected to tighten because as we execute that the gap should narrow and ultimately approach more of what you've seen historically, which is now 150 to 200 basis points.

Yes, just in terms of bad debt question...

Yes.

A 75 to 100 basis points has been sort of a longer-term run rate for this portfolio. We continue to feel very comfortable operating in that range. As I mentioned in my prepared remarks, we're at about 85 basis points year to date. So - certainly that's been the right level for 2019 and would expect that it's something comparable as we look forward to 2020.

Thanks for that and sorry for the multi-part question. Just secondly, maybe you can update us on your outlook for how we should be thinking about dispositions for the balance of the year, the volumes and pretty light thus far relative to 2018. And just maybe in the context of why it's been a little bit slower given what you're seeing in the private markets?

Sure. It's really timing. We do expect asset sales volumes to increase in the latter part of the year. Again, I think it's we've been pretty clear on Christy not to the levels that we saw in 2018 but more in line with what we expect the long term levels of this business plan to be as we shift to more of a balanced capital recycling stance. We've sold about 100 million year-to-date and I expect that number to accelerate in quarters 3 and 4. Obviously, we - never give a specific transactional number but do expect that to pick up.

Our next question comes from the line of Alexander Goldfarb with Sandler O'Neill. Please proceed with your question.

Just two questions. First, actually, Angela, maybe I'll start with you on the Fitch announcement. Obviously, good to see. Maybe you could just give some thoughts on your expectations for the other rating agencies? And if there's anything that you guys have to do versus this is just the folks recognizing what you guys have done? And then also just curious, just given your recent bond pricing, how do you think-- what do you think you would've priced had you been, sort of BBB flat versus where you're currently rated?

Sure, Alex, thanks As it relates to Fitch, as you mentioned, we're very pleased to see some momentum there from a ratings perspective that I do think, really acknowledges all of the work that's been done on this balance sheet over the last three years. In terms of the other rating agencies, obviously, I won't speak for them or the way they're looking at the credit. But I do think as I look across the research and you know what we've been hearing from the rating agencies. I think this is really just about continuing to execute on the plan that we've laid out and continuing to demonstrate progress both on the portfolio transformation that Jim spent his prepared remarks really highlighting as well as just consistency at this point I think on the balance sheet. So I don't think that there are any other specific goals with respect to credit metrics or anything else that we need to head. I think it's just continuing to execute. In terms of pricing on the last bond, it's really, obviously very difficult to say and rates overall have shifted relatively significantly since that time so I think it would be a little bit difficult to predict. We certainly do feel that over time as we continue to see momentum from the rating agencies and work towards a higher rating, not just positive outlooks, that we'll continue to see improvement in our cost of capital over time.

Yes Alex, I will just highlight something Angela said, our pricing in the market reflects a higher rating than where we are today and we expect that to continue to improve.

And then the second question is on the acquisition you guys did the one in Philly that's adjacent to your existing asset. Maybe you could just provide a little bit more color on that given the low occupancy? It sounds like you may be relocating your headquarters or your regional headquarters there which I guess have some cost saves. But also in light of stock buybacks, your stock's trading at an 8,4 implied but obviously you felt good enough to acquire this assets, so maybe just how you think about the two as external capital uses.

Well, this acquisition is truly value added. As I mentioned, the occupancy overall was about 60%. We're going to take about 20% of the occupancy and back to our vacancy and backfill it with our regional office. As I mentioned, we'll be saving about a million to of annual rent or G&A. And we already have backfilled demand from national tenants to re-tenant and reposition that center which as you mentioned is directly catty corner to our 100% leased Whitemarsh asset. And we also see significant upside in the underlying rents. Now, this asset was something that we've been targeting for the last three years and really with great work by Chris Reed and our Philadelphia office as well as Mark Horgan, we're able to engage in a discussion with the owner and I think and execute a transaction. And I think there's something else implicit in this transaction that's important for people to understand why we're considering acquisitions with our common stock and that is that we are in an environment where our national platform, the visibility that Brian and team give us in terms of tenant demand allows us to understand how we're going to backfill space in a market where it's interesting, cap rates are holding pretty firm but you're not getting a lot of value for vacancy. Just part of why when you look at what we've sold, it's actually more occupied than the balance of our portfolio. It's implicit recognition that the capital that's moving into the shopping center space is yield driven capital, capital that's going to be leveraging where interest rates are so--that opportunity to actually understand going in what our backfill demand is going to be, how we're going to drive value, takes a center in infill Philadelphia and gives us an opportunity to drive an ROR that's high single digits, low double digits on an un-levered basis. So, that's a pretty compelling thing. Obviously, our stock is also compelling. But I think as I've said many times before, as we shift to a more balanced capital recycling standpoint, we're also going to be somewhat balanced in terms of acquisitions that meet our criteria as well as our common stock.

Our next question comes from line of Jeremy Metz with BMO. Please proceed with your question.

Just going back to the same store on a wide trajectory, you mentioned obviously a few times a big ramp and the importance of the rank commencement timing and then narrowing at least a build a spread. But you also mentioned the redevelopment benefits, so I was wondering if you could bifurcate the two for us in terms of how much is being driven by that narrowing and spread versus how much has benefits coming from redevelopment at this point in the back half?

Well, remember that part of that spread is being driven by the redevelopment pipeline itself. I don't have an exact breakdown of how much of that spread is just pure simple leasing versus anchor repositioning or anchor redevelopment, but that redevelopment is contributing pretty meaningfully to that spread. And you're right, the rent commencement timing is incredibly important as we move through the next several quarters and bring that rent online, get the tenants open. We feel good about our pace. In fact, this quarter we did better than we thought in terms of rent commencements but I think an important thing to understand, Jeremy, about this yet to be commenced rent is it's signed, it's coming. And now it's just a question of timing. Is it, September 15th or October 1st. And we're obviously working hard every day to try to pull that timing up and outperform. But, again, we're not wondering where the growth is coming from. It's been very intentional on our part to satisfy space for re-development, get it leased, to deal proactively with weaker tenants. I'm really pleased with what we've done with our tenant watchlist which has shrunk as we've reduced exposure to tenants that we don't think are going to be viable and importantly on the other side of that increased our penetration with tenants who are growing and we think are more relevant in the communities we're trying to serve.

Yes, that's fair. And you mentioned the anchor re-positioning is going on, you have the 28 of them in the pipeline. How many of these involve changing the actual square footage where you're doing more meaningful redevelopment versus just more basic releasing or splitting the space? I mean, I guess if I look at River--River Crest or West Ridge, which you just added to the pipeline this quarter, those seem more like to some standard releasing activities there. Can you break that bucket down a little bit for us?

Yes. I mean, I think, when you look at the anchor positioning, definition sort of how we categorize things as the anchor re-positioning relative to redevelopment, really everything that's on the anchor re-positioning schedule will be for the most part limited to the box itself. So that might mean demise in the box and putting in multiple tenants. You mentioned the case of River Crest where we're replacing an ultra foods with at home, that's a straight releasing exercise profiled for you on the anchor repositioning schedule. Given that ultra foods with a bankruptcy, we try to highlight all that activity, so you can really get a more granular understanding of how the bankruptcy backfill process is working and the strength of tenancy that we're putting it on the other side.

And I think that distinction from a business standpoint is less important and it's important for you as an investor to understand how we're putting the capital to work in the types of incremental returns we're generating. And it's part of the transparency that we're trying to provide in our supplement to show you the full range of value added reinvestment, whether it's anchor re-positioning, where we're devising the box, we're backfilling with a single use outparcels to larger redevelopments where we retouching more of the center. I will tell you that when we backfill use, that's no longer relevant with the use that is or a set of uses that is, it often opens up additional or partial opportunities because we free the parking lot. It also allows us to drive better momentum in the small shop leasing. And in fact, in many of those anchor repositioning, we're holding back small shop space to be able to lease off the benefit of the new anchor. And in fact, I think the drag within that pulls a few hundred basis points on just on small shops. So it's--it's a very intentional effort on our part to show you the full range of value added reinvestment that we're making in our portfolio.

Our next question comes from line of Todd Thomas with KeyBanc. Please proceed with your question.

Just circling back to investment activity. So you are in net acquire this quarter but it sounds like it was timing related and asset sales may increase the next quarter or two. Can you just provide a little bit more color around the current pipeline for both acquisitions and dispositions and then maybe remind us of your longer term capital recycling plans? But I think you said the full year would ultimately look like and you know that we should think about going forward?

Well, again, we don't provide specific annual guidance in terms of levels but I would expect the back half of the year to be a multiple of what we did in the first part of the year. I'll let Mark comment a little bit on the types of opportunities that we're seeing on the acquisition side but we're on we're on pace I think this year to be close to what we think, is that long term average that we talked about at Investor Day of 400 million to 500 million. Mark?

I guess I would save up about the pipeline that the dismal pipeline that Jim just mentioned remains--remain where we think it should be on the on the acquisition side. What's important to remember about our acquisition strategy that we have a very targeted acquisition strategy. We have a list of assets that we'd like to acquire and I think to the assets we bought last quarter, Centennial and Plymouth really are great examples of those assets. We want to target assets where we can take advantage of the Brixmor platform to drive value and growth and both assets that we bought last quarter, we're seeing great momentum already, which is, I think, a real testament to Brian's team and what they're doing on the leasing side of things. So we are very disciplined with respect to two acquisitions. We don't just simply respond to what's on the market. So we really try to find those assets that can drive value for the company where we're constantly in communication with the owners that we'd like to transact with and remains competitive out there. But that--that target asset is what we think is our competitive advantage over time.

And Todd, we are trying to be balanced, as I've said, which obviously drives both sides, right. The actual number of dispositions will be driven in a small measure by what we see in terms of investment opportunities on the other side.

And then Angela, a two part question, I guess, on the same store. So you talked about that ramp in same store NOI growth that you're anticipating. You mentioned about 33 million of the 51 million of lease to build EBR commencing in 2019. How much of that would you say is incremental to what's in place today when you take lease roll in the consideration? And then you've talked about the tough bad debt comp this quarter that you were up against. Is there anything in the prior year period in either 3Q or 4Q related to bed debt or net recoveries or anything else that we should be thinking about in the model?

I mean just to take the last point first, I think in terms of things to be aware of as we look at Q3 and Q4, I mentioned net recoveries has been a positive contributor on a year-to-date basis. And we expect that to revert in the second half of the year just solely based on the timing of operating cost spend as it relates to certain items. So I highlighted that. The other thing I mentioned in my prepared remarks was just the timing of some of the 2018 bankruptcy activity and the fact that the comparison does get easier in the fourth quarter. Outside of that, it's really - that trajectory is really going to depend almost entirely on the pace of rent commencement in Q3 and then into Q4 obviously that Q3 commencement have a cumulative effect as we roll forward into the fourth quarter. As it relates to the $31 million of signed but not commenced that's coming online here through the remainder of 2019. I think if you look at the lease expiration schedule, you're going to see, even if you assumed that you did have significantly lower retention ratio than we historically have had, a tremendous amount of that is going to be incremental relative to lease expirations and to move out activity. So we do think that this really, I think it's sort of evident in the acceleration we're guiding to in the second half of the year that this really is going to be a net benefit above and beyond kind of the normal run rate of activity.

Our next question comes from the line of Greg McGinniss with Scotiabank. Please proceed with your question.

Brian, I've got bit of a multi part tenant closure question for you. So first is the expectation for Dress Barn locations to close December 31st and what kind of demand are you seeing for those spaces? And secondly, what's the implication for those closures when dealing with other brands? Sounds like that that beyond is gearing up to utilize the similar closure methods with some of the brand, so how are you addressing that risk today?

Let me take the first part with Dress Barn because I do think each circumstance is unique. With Dress Barn we are expecting to get those spaces back at the end of the year as we talked with many of you at ICSE recon. Both the demand for those spaces as well the upside, which we think is 15% to 20%, has been strong. We're already at lease on several of those spaces today. So we expect to start seeing a lot of that income coming back in 2020, and be in a position on several of those spaces to be already re-leased. I think this has been an unique situation with Dress Barn and I don't know that there's a read through to other retailers potentially at least from what we see. I would say overall, back to Jim's point, the proactive nature of what our team has done with really retailers across our portfolio whether those retailers have a good balance sheet but they are closing stores or whether there is a balance sheet issues. Our team has gotten ahead of it, and we continue to demonstrate that we've gotten ahead of it. So that when we do get these spaces back, we're in a position to lease them very quickly. So I'm confident both our regional team and our national platform to continue to do that.

And then just following up on Craig's grocers question. Looks like Albertsons had three last closures in 2Q based on top tenant list. I'm just curious what's going on there, what the plan is for those assets? And in general what you see is the overall risk from your traditional grocery store closures? I mean, you did mention that it's kind of maybe a higher risk tenants these days?

I think well two-part question related to the Albertsons those closures were Northeast locations Acme locations that we knew we’re not strong performers. We weren’t incredibly surprised by those the close. If you look at our Albertsons’ portfolio across the country we’ve got some very strong work particularly in Southern California with Vons and with Safeway opportunity with Vons and other Albertsons just south of downtown LA. In terms of the backfill for those we already have all leases we’re going to lease on center in Metro Boston for the entire box with specialty grocer and fitness center to split that. We've got a center out in Worcester where we were splitting that box as well and have had pretty good demand on that. I think if you look at traditional grocers across the spectrum it goes back to Jim's point about investment. And really looking at where that investment is in the shopping center and seeing if they're investing than we should be as well. And we see traditional grocers across the country whether that's Kroger whether that's Publix whether that HEV that are investing in the stores. And we feel pretty good about where our fleet sits with that investment overall.

I'd say we feel very good about the trends were seeing and their sales or trends and sales per foot. And importantly Greg, our occupancy cost which average well below 2%. So when we do in the natural course and this is - the Albertsons recapture is not a marginal change its part of what's been happening in this business over decades. What's important is we have a low basis and we have multiple options to backfill that space when we do get it back, but overall in terms of grocery we like the viability of grocery. We think it continues to be vibrant source of traffic and sales in our centers and to Brian point we have partnerships with the best in the business who are investing in their stores and seeing great outcomes from those investments. So I wouldn't agree with the - part of your question I would suggest that it’s a higher risk category. I just think as with everything you have to be very focused on how well is the tenant doing. It could be the best tenant in the business, but if it’s not doing well in your center that a risk. And I also think one of the other things it’s becoming an opportunity for us frankly with this national platform is the increased willingness of tenants to relocate. And how are we positioned to recapture some of that demand around assets that we have. So you are seeing that in our numbers, you are seeing that in our investment decisions, acquisitions like one we just did in Conshohocken. So this disruption that's occurring is something that we’re greatly benefiting from a driving both value and growth.

And just to clarify Brian unlike first question you don't see the risk for Christmas Tree Shops similar to Dress Barn?

Not what we can see right now we don't.

Our next question comes from the line of Caitlin Burrows with Goldman Sachs. Please proceed with your question.

Maybe just as a follow-up to a question from earlier when you think about sources of capital going into the second half and even 2020. How do you expect to balance property disposition with incremental debt and what would make one more attractive to you then the other?

Yes, we’ve been very focused on emphasizing I think consistently since we have the laid the long-term plan. Now this is going to be a self funded plan. And so, really our redevelopment spending the portion of our redevelopment spending now it’s already funded with free cash flow. We’ll predominantly be funded with disposition activity. Over the longer term as these redevelopment projects come online obviously EBITDA continues to move higher. And there is incremental capacity without increasing leverage to take on additional debt. We’re effectively funding these projects with all equity that will be a factor down the road. But as we executed at this stage in the plan like I said we do have significant free cash flow after the dividend after normal course CapEx. The portion of redev that won’t be funded with our free cash we’ll predominantly come from disposition.

And then maybe just in terms of the watch list today I think somebody briefly mentioned earlier that it does seem smaller, but I guess do you expect the pace of closures over the next few years to be actually lower going forward or is it just kind of too hard to tell at this point?

I do think to the first part of your comment there, that we have gone through some of the major bankruptcies particular for this - the impact of this portfolio. There are always tenants and uses that are on the watch list. And as I mentioned earlier our team done a nice job of getting ahead of those, but from just a pace perspective I think some of the larger ones we've been through that.

Our next question comes from the line of Derek Johnson with Deutsche Bank. Please proceed with question.

It looks like TIs were a bit high on new leases in the quarter. Just wondering if there was anything one-time in that?

Yes so overall I appreciate the question. I think the team has done great job holding the line on cost. They did pick up a bit this quarter, we had two theaters and two fitness deals in the 20 anchor leases that we signed during the quarter which were the most that we signed in a year which had somewhat of an impact on it. I would point you to the net effect of rent though and as we said on prior calls that even when we do deals with those more capital intensive users they are also typically paying more rent. And are not effective rent is in line with where we've been on a trailing 12.

Yes and if you look at that number because it does reflect that discipline, you go back to several quarters and see we've been remarkably consistent in terms not effective rent.

And I guess as a leasing follow-up, so are you seeing increased in line interest from traditionally mall tenants. Are retailers pivoting to be closer to customers and possibly exiting lower quality malls in around your markets. And if so could you perhaps share an example or two?

We're definitely seeing it because a retailer looks at occupancy costs and the ability to drive sales. And I think particularly in some of these lower quality malls or even some higher quality malls they are seeing the ability to come to our centers or seeing the traffic that is being generated by retailers that are doing very well in this environment. Whether that, those that we are growing shares with like Jim mentioned whether its Alta, TJX, Ross, Burlington and the foot traffic and sales that they're generating you look at operator like Bath and Body Works whose got a big off mall program that they are executing right now we had a number of discussions with them. We look at concepts like Visionworks which now see the ability to not only get of the mall but see pad opportunities and visibility and access to the customer that they didn’t have previously. So there are certainly tenants that are looking to get into the best situation for themselves from an occupancy cost perspective, but also seeing the tenants that are thriving in the open air space today.

Our next question comes from the line of Haendel St. Juste with Mizuho. Please proceed with your question.

Jim actually wanted to follow-up a bit on the last question here. One of the key themes we heard at ICSC was that not only where leasing volume robust, but that tenants were asking and getting more generous TI packages. Your second quarter TIs are up 39% on a per square foot basis versus last quarter, 13% year-over-year versus second quarter last year. The proportion of Anchor versus small shop looks fairly consistent this quarter versus those prior quarters. And so I appreciate your comments on the net effective rents and understand that TIs can be a volatile number, but I’m just curious if you think we're in a new norm for elevated TIs and should we expect more of this type of elevated TI figures at least going forward?

No, it really had to do with the mix. We had a record number of anchor deals as Brian alluded to. We also had more fitness and entertainment uses this quarter. So it had much more to do with mix in terms of the per square foot numbers that we recognized in the quarter. And again, we paid for with the rent and you can see that with the net effective rent that we show which I think is important. I know that not everybody shows that but I want to make sure you understand the economic decisions we’re making. And it will probably fall again next quarter and I expect the level to be relatively consistent with what it's been over the last several quarters as reflected in that net effective rent number. Part of what you have in this - and where we are in the business right now is you know the desire and need on our part to make sure that we’re generating competitive demand for the space that we have. We’re not buying the deals, I think the net effective rent show that we’re not and we’re maintaining that discipline. And other area that doesn’t really show up in the reported numbers, but is also incredibly important are the non-face terms of the deal, things like the embedded rent growth where we continued average over 2%.The average term of the length or the absence of options and we’re driving that fundamental improvement in the terms of our deals through competition. That’s the only way we would be able to deliver the results were delivering. So every quarter we’re showing you through demand, what's happening with our centers and that we’re also showing you because we disclose that not effective rent number that we’re not buying deals.

I appreciate those comments and actually incorporated one of my follow-ups that we did see that the average lease term for deal finance last quarter was up about a year versus this quarter. So….

And that reflects mix, it totally reflects mix. I don’t know if you remember but last quarter we were a much higher percentage of small shop deals, I think we’re well over 55%, small shop versus anchor. This quarter it's more of a normal 40% for small shops. So you see it in the ABR achieve, you see it in the net effective numbers.

Thank you for that. Second question just following up on the disposition questions earlier. Is there anything under contract to LOI today or are you perhaps waiting first if you would potentially acquire before committing to any disposition conversations?

We have assets that are under LOI and contract this kind of our normal course that we've been doing for the last three years.

But to the other party of your question, we are looking at what we have on the acquisition side in terms of the total volume we expect to dispose of this year. Again we’re going to try to be a bit more balance.

Mark, would you be willing to put some numbers around that or is that something not comfortable…

We don’t disclose it but to be confident that we’re going to ramp significantly in that few quarters given almost August. We are going to ramp a lot of that under contract.

Our next question comes from the line of Brian Hawthorne with RBC. Please proceed with your question.

Just one question for me. So for the redevelopments next year, does bricks more need to recapture more space and how should we expect that to compare to this year?

It’s really important question and I think what's most important about it is the pace of recapture. We had to ramp to deliver the 200 million and to have 400 million that we have underway in terms of that space recapture. We expect that to moderate and become more steady state in 2020 and beyond, so that we’re recapturing about at the same pace that we’re delivering new space and you can expect that number to fluctuate some but in terms of deliveries, we expect about 150 million to 200 million of annual deliveries of that reinvestment pipeline and now having it’s part of why this is such an important quarter because it’s kind of a pivot point as we start becoming more balance with respect to deliveries in space that we’re taking back for redevelopment.

Our next question comes from the line of Jeff Donnelly with Wells Fargo. Please proceed with your question.

I think [indiscernible] part of my question, so I think I am going to reattempt to squeeze any more out of you on that Jim, but I guess I do have a question for Mark. In his earlier remarks you mentioned that I think the definition of core had tighten up a little bit, I am presuming over the last first part of this year that implies that there's probably been some cap rate deterioration for some segment of assets out there that may be lost out if you will and there’s no longer thought of as desirable. I guess my question is what's been there change of more importantly what caused that shift, I recognized these things can be settled but what's caused some types of assets and no longer we thought of in the same vein as they once were?

I wouldn’t say that Jeff to one of your comments, I wouldn’t say it’s over the last quarter. I think it’s more of a long-term or last couple of years. You have seen that definition of core change from what you saw maybe three or four years ago, part of its-- it's emphasize, part of it what people can see with respect to grow out of some assets that they otherwise thought were ultra core three, four years ago. I think that’s a bigger part of it.

And Jim, I guess, is it possible that cap rates on dispositions in the back half of the year could be better than what we seen this quarter or given the trailing six to 12 months is a better indicator?

I think it's going to be roughly in line with what we've seen over the last couple of quarters.

Our next question comes from line of Vince Tibone with Green Street Advisors. Please proceed with your question.

You mentioned that same-store operating expenses are down about 4% due to expense timing. I was just hoping you can provide a little more color behind the exact drivers behind that. The reason I ask is most of your peers are saying operating expenses growing in the mid-single-digit range this year. So just like to understand what bricks mortars doing in their portfolio?

Yes, I mean, I would start by saying overall across the full year I do think you are going to see us recognize operating expense efficiencies we’ve been very focused not just by making sure that we’re spending every dollar operating cost and in the most efficient and effective way its possible but also in ways where we can will cover as much as possible from that spend. So that’s one of the big focus organizationally not just this year but over the last couple of years that said, as I mentioned in my remarks that do you think for the full-year you are going to see some modest growth in operating costs and that - the down 4% you saw in the first half of the year really what timing of certain repair and maintenance items, primarily that can be a little bit lumpy and just from a timing perspective ended up following more in Q3 and Q4 this year.

And then just one last one for me, can you provide what you expect total CapEx spend including your all redevelopment will be this year and then also what free cash flow after the dividend and total CapEx would check out in 2019?

Sure. Just kind of add up the different pieces for you. We’ve always said that we think maintenance CapEx spend should be somewhere in $0.45 to$0. 55 of square foot range. That’s going to get you somewhere kind of between $35 million and $49 million for the year. Normal course leasing CapEx has run historically kind of $70 million to $80 million range on an annual basis. So as the value enhancing on pipeline ramps, you are seeing some geography change between just leasing away the capital and the value enhancing capital. But that that said I think that’s still probably are pretty good number. And then the last piece is that value enhancing bucket. As I think Jim mentioned earlier, our goal has been to spend and deliver an annual run rate of $150 million to$200 million a year, I do think during the course of 2019 we could end up a little bit above the high end of that range, primarily due to the timing of the Sears Kmart bankruptcy and the fact that we were able to accelerate execution on more of those opportunities into the current year.

So if you spent, something look at the year-to-date 155 million in total CapEx like could that number end up above 300 million for the year. I am just trying to get a sense like is that a fair - is that fair NOI that number or do you expect to decline a dip in the second half at all?

I mean, I think you add up the different pieces, I think you’d get actually pretty close to that number. It touched about 300 I think for the full-year when you consider all the deferent components meaning maintenance, normal course leasing as well as value enhancing I think you could be touch above 300.

And then so just if that’s the case how much do you need to sell to maintain leverage of that CapEx level and the dividend spend?

Remember that after normal course leasing CapEx and after maintenance CapEx we’re still generating significant free cash flow, I would call it in 2019, somewhere between $50 million and $75 million. So in order to find what probably is 200 to a little bit more than 200 in terms of value enhancing spend, we would be looking to raise approximately 150 million from disposition activity during the course of the year.

Our next question comes from the line of Michael Mueller with JPMorgan. Please proceed with your question.

Just want to go back to the 51 million base rents are signed. How much of that is - I know you may not have a specific number but in the bucket of redevelopment anchor repositioning other as opposed to just normal blocking and tackling for the rest of the portfolio?

In total, I think that’s signed but not commenced bucket. It’s somewhere between 40% to 50% would fall between redevelopment and anchor repositioning. So still significant amount of that. Remember, a lot of anchor repositioning as I mentioned earlier reflects bankruptcy docile as well. So it is a significant portion. We try to highlight through the anchor repositioning and redevelopment schedule. A significant portion of the capital were put into work across the portfolio. So between those two buckets you are ending up like I said between 40% to 50% of the plans are not commenced.

And when you said the 31 million of rents coming on, are you implying that once that come on the FFO run rate should go up by a dime or so right after that by the end of the year or you are not implying that?

I am sorry I am not quite following your math.

Yes 31 million of rents, 300 million shares, $0.10 a share.

Right.

Should that all go to the bottom line or not?

Yes, I mean I think if you think about sort of the trajectory from an FFO perspective obviously the acceleration in same property NOI is beneficial from a longer-term run rate perspective on FFO. I think as we mentioned disposition activity is also going to accelerate in the back half of the year and so that something to take into accounted as well. We were opportunistic earlier this year actually in the second quarter in terms of accessing the capital markets in order to continue to extend duration on the balance sheet. Rates continue to move lower since that point in time. And I think the FFO range we played out for 2019 certainly also leaves us with the optionality of coming back to the capital markets later in the year to continue those efforts for extending duration.

Our next comes from the line of Linda Tsai with Barclays. Please proceed with your question.

In terms of the rent commencement starting sooner, you sort of alluded to this, what are some of the levers you can pull or what is within your control to get tenants into spaces faster?

Linda, this is Brian I'm really glad you asked the question. I think it goes to the strength of the platform that we have here whether it’s our conforming leases with many of the tenants that we continue to grow share with its cutting down the time on lease negotiation, whether it's aligning our operating partners on both sides our construction teams on both sides. We’re negotiating work exhibits or we’re getting tenants to start spending money ahead of time because they know that we’re going to deliver and that we have the force. So, that cuts down on the time as well and then the work that our local teams are doing with municipalities in terms of getting ahead of these projects to set the table. So, it's really a complete team effort that we have, but it's something that we've been laser focused on and we are starting to see the results of it.

And then could you tells us about any initiatives you have in place from the data analytic side either internally or with third-party providers to maybe help monitor traffic or understand leasing decisions better?

We rely on publicly available data I need to underscore that to better understand exactly how our centers trade. Self funds come on and off the property. And that’s been quite revelatory in terms of redefining the trade areas served by our shopping centers. We also look at the data within our own portfolio in terms of how certain co-tenancy work and what are the patterns that we see across over 430 assets in terms of. If you have a Kroger that's doing over $600 a foot how does that particular line up of co-tenancy work. And it leads to some interesting outcomes and conclusion that have been driving part of our leasing decisions. We’re also tracking gentrification indices amongst - around our assets to look at what's actually happening in the markets in terms of home prices and education levels and other things which are the same sort of metrics that our tenants are looking at. We actually have an on staff data analytics team that partners with our tenants to better understand how they're making their real estate location decision. So that we can also, drive productivity off of some of those conclusions in terms of understanding that data better. And I think we’re only scratching the surface another area that we’ve been looking at primarily and had some good early success on is again anonymous but captured social media conversations around the centers which indicate certain physiographic that would be productive for retailers that we want to bring to our shopping centers. So for example, in Newtown, Pennsylvania we saw an unusually high occurrence of the topic Girls Night Out, which led us to a different merchandizing decision with an organic small play bar friendly concept there at Newtown versus another type of concept and that’s proven out to be very successful. So, we are using a number of different tools to continue to get smarter about answering that fundamental question which is what’s needed at the shopping center. And I am really excited about the progress the team is making and again it's all publicly available type information. We are very sensitive to not - on utilizing personal data.

We have reached the end of question-and-answer session. Ms. Slater I would now like to turn the floor back over to you for closing comments.

Thanks everyone for joining us today. Enjoy the rest of your summer.

Ladies and gentlemen, this does conclude today’s teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.