Brixmor Property Group Inc (BRX) 2013 Q4 法說會逐字稿

Good afternoon and welcome to the Brixmor Property Group's fourth quarter 2013 earnings conference call.

(Operator Instructions)

Please note this event is being recorded. I would now like to turn the conference over to Stacey Slater. Please go ahead.

Thank you, Amy, and thank you all for joining Brixmor's fourth quarter and year-end 2013 teleconference. 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 S-11, as such factors may be updated from time to time in our filings with the is 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 website. At this time, it is my pleasure to introduce Mike Carroll.

Thank you, Stacey, and good afternoon. During our IPO process late last year, we communicated a clean and simple business model, offering investors a single asset class of wholly-owned, grocery-anchored community and neighborhood shopping centers, positioned to generate sustainable growth; primarily, through a rationalized portfolio and the leveraging of its below-market leases.

That leverage was apparent this quarter, as we signed new leases at over $15 per square foot, versus a portfolio average of $11.93 a square foot, an increase of over 25%. The mark-to-market opportunity in our portfolio is significant. This is a long-term opportunity, and as I said last quarter, it should not be understated.

We are confident in our grocery strategy and the resilient traffic it provides. Our grocery sales, at over $500 per square foot, continue to trend upwards at an average of 2% to 3% per annum, and exceed the sales of the average US grocer in the US by 35%.

And amid today's chatter of slowing retail sales, we look to our own portfolio and the consistent sales that our grocers produce. It is the bedrock of our forward growth, and provides stability amidst continued consumer uncertainty.

During our initial quarter as a public Company, we again achieved positive momentum across all key operating metrics. Our growth continues to be driven by topline revenues. In fact, our topline has now increased for 29 consecutive months.

Healthy demand for space, combined with the breadth of our portfolio and retailer relationships, fueled substantial leasing velocity. And by piggybacking the sheer volume of anchor commencements in our centers over the last two years, we were able to make important strides in our small shop leasing.

During the year, we executed over 2,200 leases, aggregating almost 13 million square feet, exceeding the productivity of our shopping center peers. Importantly, we are leasing efficiently, realizing multiple deals with retailers by taking advantage of our established relationships and uniform leases.

During 2013, with anchors, we executed 15 leases with Dollar Tree, 8 with Petco, 5 with Ross Dress for Less, and 5 with Jo-Ann. For mid-sized tenants, we completed five or more leases with Five Below, Divot's Sports, Lumber Liquidators and Sleepy's. And on the small shop side, we executed more than 15 leases with both Great Clips and Subway, and 8 deals with both Jimmy John's and Pizza Hut.

Multiple lease transactions such as these, with a wide variety of national tenants, point to the unparalleled size and scale of our leasing platform. As a result, we increased occupancy year-over-year by 110 basis points, including 150 basis point gain in small shops.

We recognize that we have further leasing to accomplish, with respect to space under 10,000 square feet, and we are confident, given the quality, anchor commencement in our centers, that we will drive continued small shop occupancy growth. But most importantly, we will accomplish this leasing at compelling rental rates.

We have been patient and focused on increasing anchor occupancy. Our anchor occupancy is now at 97%, and our targeted approach to small shop leasing is taking effect, as evidenced by the strong leasing at market rates.

Again, new leases for the quarter were signed at $15.04 a square foot, and when I compare that to our expiry schedule, between now and 2016, at $11.13 a square foot, the mark-to-market opportunity looking forward is significant.

Proactively managing our merchandise mix is critical to maximizing our cash flows and enhancing the quality of our centers. During 2013, our leasing results reflected the convenience and value orientation of our portfolio.

37% of all new leases executed were a service tenant, primarily medical and personal care, and 20% were to restaurants, followed by solid general merchandise leasing, with 92% of new leases executed during the year classified as internet resistant.

An instrumental part of our leasing efforts also involves the specialized initiatives of our national accounts program. During 2013 and into 2014, the program focused on four pillars.

First, executing early renewals, which enables us to lock in strong credit national and regional retailers, with long-term leases. Benefits include achieving higher rents with earlier rent starts, and renegotiating unfavorable lease terms. By example, during 2013, we executed five early renewals with TJX Companies, resulting in a 12% total increase in rent, while improving co-tenancy and prohibited use clauses at all five of the leases.

Second, capitalizing on downsizing opportunities to right size retailers, while maximizing ABR. This allows us unique opportunities to mark-to-market below market leases.

By example, during 2013, we completed three downsizes with Staples, adding a Wal-Mart Neighborhood Market, Sleepy's, and Dress Barn, and increasing ABR by 15%. Other examples include an Office Depot downsize with AutoZone, at a 67% increase in ABR, and an Old Navy downsize with Five Below and 84% increase in ABR.

Retailers will pay more rent for the ability to maximize sales in the right size space. These transactions have a profound effect on the properties, generating more sales and driving additional traffic out of the same space, benefiting the remainder of the shopping center. Currently, we have identified 144 additional opportunities that we will consider during 2014.

Third, anticipating at-risk tenants to proactively identify replacement retailers, and implementing our Asset Management plans. Such store closures often lead to significant growth opportunities. By example, in 2013, we released 10 former Fashion Bug stores at a 62% increase over prior rents.

Lastly, expediting the legal process to accelerate lease commencement timing. In addition to utilizing uniform leases with many national and regional retailers, we have also matched single-point attorneys to these accounts.

As a result we have expedited lease negotiations and executions with our most active retailers to an average of 45 days from 90. This includes such retailers of Hibbett Sports, Jo-Ann, Wal-Mart, Party City, PetSmart, Ross Dress for Less, Shoe Carnival and Sleepy's. In fact, we are on track to execute a Wal-Mart lease in less than 28 days this month.

As we look forward into 2014, I am confident we have the operational expertise and the infrastructure to further unlock value in our portfolio. We are motivated and excited by our prospects in the year ahead. I will now turn the call over to Mike to run through financial results and capital plan.

Thank you, Mike. Our fourth quarter financial metrics reflected the positive operating performance, that Mike just spoke about. And our strategy of operating a portfolio, anchored by high volume market leading grocers across the top 50 MSAs is powering strong growth.

Same property net operating income generated a 3.9% increase for the quarter, and 4% for the full year. Notably, only 20 basis points of the quarterly increase can be traced to redevelopment projects, underscoring the growth from core leasing and spreads on renewals and options.

Also indicative of the quality of the results, is that 85% of the NOI improvement is the consequence of top line rent growth, with the balance coming from improved expense recovery in tandem with the occupancy increases.

Fourth quarter pro forma FFO was $0.44 per share, a $0.01 progression from the third quarter, and in line with our guidance, bringing the full year amount to $1.68 per share. Fortunately, we are one quarter closer to eliminating the pro forma presentation for current period results.

The first quarter 2014 will be the final period that we will have to account for the properties transferred to Blackstone, as this legal transfer took place on January 15. As such, the first quarter will be the last of this dual presentation. We will however, continue to provide the corresponding 2013 quarters for the income statement on a pro forma basis, so you can have a more meaningful comparison of period over period results.

With respect to guidance, our 2014 earnings and operating expectations remain the same as provided as part of last quarters earnings report, which should not be surprising, considering this guidance was established and communicated only two months ago. The drivers for the full year FFO guidance range of $1.80 to $1.84 per share, continue to be from NOI growth and improvement in interest costs.

Our FFO target represents a growth rate of between 7 % to 9.5%, as compared with full year 2013 results. The full year same property NOI growth target remains at between 3.7% to 4.1%.

With respect to how same property growth will trend within the year, I would offer that the first half of 2014 will tend to be on the lower end of the range, with the second half of the year on the upper end. For the simple reason that the opposite situation occurred in 2013, and you will have a bit of the tougher comp effect.

Moving to capital structure, our efforts here are tightly focused on three goals. First, reducing our level of secured debt, and increasing the size of our unencumbered asset pools. Second, eliminating high cost debt, be it secured or unsecured. And third, continuing to allocate a portion of free cash flow for absolute debt reduction.

As mentioned in our press release, we took certain actions in January to refinance over $480 million of secured mortgage debt, as well as eliminate $58 million of outstanding bonds, with an interest rate in excess of 7%. As a result, the Company increased its unencumbered pool to 47% of its properties from 40% at the end of December, and 44% of net operating income is now unencumbered.

As we use our credit facility to fund these pay-offs, we are currently in the market for a new five-year unsecured loan to term out the funding. The response from the banks indicated loan market has been great so far, and we expect to complete the transaction by the end of the quarter.

For the remainder of 2014, our plan calls for a further reduction of approximately $270 million of secured debt, and by the end of this year we expect that our proportion of unencumbered net operating income to total NOI will exceed 50%. Our net debt to EBITDA will be reduced by four tics, and our fixed charge coverage will increase up to 2.8 times.

There is also additional opportunity for interest savings beyond 2014, as the average rate of maturing and prepayable debt is in excess of 5.5% for 2015 and 2016. We will continue to aggressively manage the debt profile to be in the position as an issuer of investment grade bonds within the next 12 months. And now I will turn it over back to Mike.

Thank you. We'll open up for questions at this time.

(Operator Instructions)

Our first question comes from Michael Mueller at JPMorgan.

Yes, hi. Just a couple of things here. First of all, the line of credit, what is the balance of it now -- the balance on it now?

It's approximately $550 million.

Okay, and then what sort of term loan size are you looking for?

At a minimum, we will pursue a $400 million loan. That is where we've initiated the financing level at, and depending on the level of interest and activity, we would upsize if the money was there.

Got it, and in terms of the investment grade rating, did you say you hope to have one within a year, or begin the process of pursuing it within a year?

As we speak today, we are, and continue to be, in active dialogue with the rating agencies, and we are providing them a significant amount of analysis, in terms of our current situation, and our forward plans. So my point about -- within the 12 month period, is based on the projections of where our quantitative information is, and also qualitatively where we are heading. So ultimately it is the rating agencies' decision, but just based on the trend line and in that dialogue, it is my hope and expectation that we can get there within the next 12 months.

Got it and last question for me, can you talk a little bit about CapEx trends, just overall thinking what you're thinking about for 2014 and how you see that trending to 2015?

Yes, in total, total capital spend is somewhere in the neighborhood between $130 million to $150 million. That is a composite of maintenance CapEx at the properties, and ongoing and normal leasing capital, and then anchor repositioning and redevelopment capital. It is the sort of breakdown that you see in our supplemental report.

When we foresee that similar level of hurrying over the next few years, as additional opportunities on the anchor repositioning side occur, redevelopment expands. And then we begin a normalized process of maintenance CapEx, which we roughly estimate at about $0.20 a foot within the property base. So, expect a similar diet, Mike, over the course of the next few years.

Okay, that was it, thanks.

Thank you.

The next question comes from Christy McElroy at Citi.

Hi, good afternoon guys. Mike, just following up on Mike's CapEx question.

In terms of the $130 million to $140 million, and looking at the break out that you have on page 13 of the Sup; and versus the $157 million that you did in 2013, how would I split that $130 million to $140 million, which I think is related to just leasing, which does not include the building improvements, into those different buckets of revenue enhancing CapEx versus leasing costs? And then, with regard to the $67 million of in-process anchor repositioning on page 35, does that fall into the leasing cost bucket, or is that considered building additions and expansion?

The first question with respect to the break out, the maintenance CapEx, the building improvements that are capitalized that are considered non-revenue enhancing, that will be roughly in the $20 million range. It's a bit higher in 2013, as we finished up a program of some catch-up maintenance.

If you recall, in our S-11, we did provide some historical information associated with the level of spending. So, outside of that caption, the balance is going to be split between the tenant improvement and leasing commissions, and then the building expansions.

A different way that we cut it, is that roughly half of the remainder outside of the maintenance CapEx, will be focused on, for lack of a better term, the more traditional leasing tenant improvement and allowance dollars. And the other half, more focused on our anchor repositioning and redevelopment activities; and that is generally how we were splitting it.

Sometimes it relates to building additions, and sometimes it relates to direct payments to tenants. It all depends on the deal terms and the structure.

Okay, so just so I am clear, on just the anchor repositioning dollars, excluding the straight redevelopment projects, as we look a year forward and we look at the schedule that you have, does that fall into that building additions and expansions, or leasing, or are you saying that's half and half?

Sort of half and half. I think you should look and think, generally, that those building addition and expansion in the tenant improvement dollars are going to be relatively close together on a run rate basis.

Okay, got you. And then, sorry if you covered this on the last call.

In the 3.7% to 4.1%, what is the assumed impact from redevelopment? I think you said there was only 20 basis points in the quarter. And can you comment on how expense growth might play a role in that forecast?

Could you just repeat the last part of your question?

Sure, how expense growth might play a role there? So what's the impact of the same-store expense growth on the NOI?

As it relates to the composition, the redevelopment component, as I suggested on the previous call, is tough to predict, simply because of the timing of rent starts and the like, and the identification of new projects. But we've had two quarters, so far, of that information, and when you think about it, at 20 to 40, or 20 to 50 basis point impact at the low to high, that's generally it, because most of our value add capital is actually focused on, what we are calling, the bread-and-butter anchor repositionings, retenanting activities.

It is something that all shopping center companies do as a bread-and-butter part of their business. What we are separating out is some of the broader, larger redevelopment projects, which you can see from our schedule are generally higher-dollar projects. So, making that separation our redevelopments are not going to be as impact full as you would first think.

Now as to expense growth, clearly there will be some expense growth anticipated in our NOI results. However, we are very focused on expense containment, and we have in certain of our regions, in modeling, which we are locking in and aggregating costs more broadly with selected vendors. So, as we anticipate some expense growth, we think on balance, it will be somewhat muted, because of the procedures and the practices we have put in place to buy, if you will, in bulk.

Okay, and then just lastly, in regards to your 2014 FFO guidance. You guys have done a good job of laying out all of the drivers and the number seems pretty straightforward.

But are there any moving parts that we should be thinking about that could change your forecast? So, anything you would potentially get more visibility on as we go further into the year, whether it's leasing, or financing that has to do with some of the debt deals you are talking about?

Yes, last quarter, one thing I mentioned that the variation in the FFO guidance, and, in turn, the NOI guidance -- really our FFO guidance is two things, NOI and interest cost; and that's really it. I think it underscores the simplicity of our business model.

So, when you take each of those two components, certainly the NOI growth will be more driven than anything else, than timing of commencements and leasing velocity, which, as we sit here today, we feel good about. On the interest side of the equation, I think, the real determinant there is the extent of additional repayment of debt, and the interplay between variable rate debt, a line of credit, and, ultimately, when we lock in or fix that debt with longer term instruments, and that will be the variation. But, as each quarter goes by, we will give you updates on the guidance ranges based on what has actually transpired.

Great, thank you.

Our next question comes from Craig Schmidt at Banc of America.

Thank you. Given that there are no non-core assets at this point in the portfolio, that said, you do have 80 properties that not in the Top 100 MSAs. I just wonder what the projected growth rate is of these 80 assets, relative to those assets in the Top 100 MSAs?

Craig, it's Mike. That is something we had in the S-11, and one of the things that we have tried to communicate to people, is the growth rates there are similar, or slightly better, than what they are in the Top 50.

And when I look, even this quarter, our occupancy in the non-Top 50 markets are higher than what we have in the Top 50 markets by, what is it? 50 bps roughly?

It's a roughly 50 basis point difference. So we're still seeing great opportunities in those markets and opportunities to upgrade.

We are doing something right now in one of our markets where we are replacing a Sweetbay, which is a Food Lion brand, with a new Wal-Mart Neighborhood Market. And that is a big, quality upgrade, and we're confident that's going to drive very desirable shop leasing off the back of that. So, as long as we continue to see those opportunities we're very comfortable with what we own in those markets.

So, it sounds like you are pursuing redevelopment efforts for those 80 assets, or some of them?

We are if there's opportunities there, but, again, I would say more of what we are doing today -- and, I think, we are fortunate. We're fortunate to have a portfolio of below market leases, we can effectively maintain the same occupancy, but put in better tenants who will pay more for the space, because they can drive more sales out of the space and utilize it better.

So, that has been the primary opportunity that we've been taking advantage of, and you see in the supplemental, we have a very long list of anchor repositionings. And we continue to see those opportunities; and it really is, effectively, replacing one tenant with another who is going to pay more, and can do more business out of the space.

Thanks, that's helpful.

The next question comes from Jason White, Green Street Advisors.

Hi, guys. I know that a lot of times you receive sales information from some of your tenants, and I was wondering if you could give us, even anecdotally, some information on sales trends; and maybe, even if you could split that out between small shops and some of your larger boxes. Anything that you are seeing there would be helpful.

Sure. Well, I think it's certainly, I referenced in my opening comments that we are seeing 2% to 3% growth consistently from grocers, we have seen no falloff over -- and I am going to tell you, Jason, over a multi-year period. I think we can go back a decade and we continued to see good 2% to 3% growth from grocers.

But then, just looking at our portfolio and where we are seeing -- I will just give you somewhere we are seeing strength. We're seeing good strength in off-price apparel sales, have a 4% comp out of the home category in our portfolio, was north of 7.5%; entertainment, and pet, both north of 7%. And then on the weaker side of things, office, as you would expect, and books down, both in the 5% area.

So, I think that's consistent with where we would expect it, and I would take this opportunity, one, to take, too, some of the discussion on retail sales has been a little bit overblown. We don't see any signs of mass closings or anything like that; and I don't think that retailers don't base their capital plans on one quarter sales. It is more of a longer -- they take a longer term view.

We've heard nothing different coming out of what was a relatively soft December, and in January, it was soft, and February will be soft too, because of the weather. But our retailers -- their message to us is they're still filling out their capital plan, and at this point, basically, the 2014 plan is close to being baked, and they're working on their 2015 and 2016 plans.

So, we don't see any retreat or anything that gives us pause there. I think it's just normal cycle of retail sales.

Okay thanks. And then on the transaction front, I know you said previously, the reply wasn't going to be a lot this year. But, I was wondering if that is still the case, or is there anything else on the burner that you might be seeing?

No, it's still the case. I think as we move through the year, we're in the market, we're looking in the market, I will say.

But what we won, and what we are measuring capital allocation against, is the opportunities we have within the portfolio. So, I think, it'd have to be something that was very unique for us to be active this year, and, again, I'd say we're building more towards the latter half of next year as we think about that internally.

So what does your transaction team spend a lot of their time doing these days? Is it still evaluating a lot of opportunities even though you might not be active? Or is there something else they spend their time on?

No, look, ultimately, what we said, is we're in this business for growing NOI. And when we see slower NOI growth prospects, we start to think about what we're doing internally with the assets, and whether they are primed or whether we've achieved our targets and they are prime for dispositions, or trade areas change.

So, the team is actively working on a portfolio management view of looking at those assets, but also, reengaging back into the acquisition market with both brokers and sellers. And so, I think it would have been irresponsible of us to come out and say we were going to buy anything this year when we haven't been in the market.

So we're building back to be in the market. Again, what we're looking for it's grocery-anchored, it's got growth components to it; and we want to take our time and make sure that we are market intelligent when we're ready to pull the trigger on things.

Okay thank you. And last question, was as you've been identifying opportunities to lease up the portfolio and to trade out some tougher tenants into better tenants. Has there been any trouble spots you have encountered that, maybe, you thought would be easier than they have ended up being?

I will look to Tim Bruce, to maybe add something; but, I would say we've been pleasantly surprised. If you think about even the category that's had a lot of discussion this year, the office supply stores, we've renewed every one of them that we didn't choose to do a downsizing with.

So we didn't have any closings, any fall out in that category. And I'd say the nice thing about where we are with, both that, and if I think, about Barnes & Noble, where we have had no fall out and we've had them renew.

We've been able to do things where, we think, it's beneficial to us. We've been able to do things, potentially, on the short end of the curve, as it relates to lease terms, and be able to feel like that we can control our own destiny with those spaces on our schedule and not on theirs.

So, I think that would be one piece of it and then if I just step back, where we continue to watch Kmart, and know that over time, we are going to get stores back, and we think we'll be very fortunate to get those stores back, given the low rent levels; and that continues to be something we watch. But we do see any time we get anything back, we see very solid demands for it.

Jason, this is Tim. The ability to mark those leases that are clearly below market to market, as an anchor repositioning, or as a broader program on a redevelopment, those are real opportunities. That's the core of our business.

Because, on top of that, once those anchors open, we have a significant amount of follow on leasing from shop space; which, clearly then, everything rises. So it's a very good business for us.

Okay, thank you.

The next question comes from Steve Sakwa, ISI Group.

Thanks, good afternoon. Just two questions.

On the lease rollover schedule, it looks like about 75% of the tenants renewed or had options. I am just curious, one, if you think that a 75/25 split is a pretty reasonable guesstimate?

And I thought, Mike, you had said, or you were implying it, that the new lease spread, or you were signing leases in the $15s and leases coming off close to $11. Do you think the overall blended spreads at the 10% level, is a figure that can grow from here, or is that a number you think holds pretty constant, is the first question?

I think the blended spreads, we should be in the same range we are in now. And part of that, is because tenants do have options.

But I would say, Steve, we are doing a lot of proactive things, whether it be when tenant's options come up, the downsizing plays into that, those tenants have options. We are renewing them in smaller space at higher rents, and bringing new tenants in at higher rents. And we're doing a lot of just replacing.

And I will go back to this Sweetbay Wal-Mart example, as the type of leasing that we're doing, where we're growing NOI with the same occupancy, if you will. And so, I think, that's something that's a great opportunity in our portfolio, and it's part of a lot of reasons, whether it be the central years or just whether it be the makeup of our portfolio.

Being it's not a new construction portfolio, it's an in-fill portfolio, the average age of the shopping center built was 30 years ago. And so, we have the benefit of re-characterizing and repositioning the tenants and the centers to a very accretive rent advantage.

Okay, and then second question for Michael Pappagallo. I want to make sure I understand. The term loan that you're looking to get, that would be a floating rate loan, that would be able to be paid off whenever you did a bigger unsecured debt deal. Is that correct?

That's correct, Steve. It'll look very similar to the five year term loan that we originated in the Fall of last year.

Okay, and then just as we try and think out about estimates beyond 2014 and just thinking about 2015 and 2016, I realize you are going for this investment grade rating. Would it be fair to say that it's a large debut bond offering is probably at best case, a late 2015 event, maybe, early 2016 event?

I'd like to be more aggressive and positive in my thought process there, that it would be well before the latter part of 2015. And, again, I can't speak for the rating agencies in terms of when we can achieve investment grade status. But, as I look at the various metrics that exist today, and I look at where they are going and our plan, as well as our already demonstrated access to the capital market and our liquidity, I think there are many positive signals and positive situations that exist right now that could enable us to get there well before late 2015.

Okay, thanks a lot.

Our next question comes from Todd Thomas at KeyBanc Capital Markets.

Hi, thanks. Good afternoon. Just first question, circling back to expenses.

I was just wondering should we expect any impact in the first quarter from all of the snow and weather? Is there any increased expense slippage or anything that might not be reimbursed that we should be thinking about?

It is fair to say that because of the weather there will be some increases in expenses and some slippage, but we do not feel that it will be material or have any impact on our projections. One thing I would note, is as a follow on to what I said earlier about our expense growth, as part of the bulk buying and aggregation of contracts, we have a fixed price situation for snowplowing for this season, over many of the states and markets that were most impacted by the snow and the weather.

So for us, you can either say we dodged a bullet, or we did a smart thing; but clearly, our expenses are not rising to the level that one would expect considering the level of snow, and another [attendant] issue that came with that. So it's very manageable for us as we go through the first quarter.

Okay and then just looking at another breakout of your portfolio, where, roughly, one-third you characterize as traditional neighborhood shopping centers, and two-thirds as community centers. I was just wondering if you are seeing differences in demand between those two sub-property types, anything in terms of occupancy or growth there?

I would say no. We're not really seeing anything that's materially different.

I think we have seen a movement with specialty grocers in some of the larger centers looking to come into those, which we've been acting upon some of those; but, I think, the shop demand has been solid throughout. But, it gets back to a lot of what our story is, and we've done a lot of anchor leasing over the last two years, and we're now cycling through the commencements -- that those anchor commencements coming on.

And now, just being honest, the centers are more appealing. They're more sellable to those shop retailers, because we have good strong quality anchors in there. And what we've seen now, in the 5,000 and under space, where we have had an anchor open in the last year, we've increased shop occupancy -- small shop occupancy, 70 basis points.

So that really has been the most material change for us, and to some of the earlier questions, that's why we are so focused on this anchor repositioning. If we can get the right anchors in those spaces, and we can continue to invest money there, we absolutely see the benefits on the shop side.

Okay is there a noticeable difference in the occupancy rates between those two segments of the portfolio at all? Would you happen to have that metric by any chance?

I don't have it with me. I would say, if there's not a material difference, then we can get back to you with the exact numbers.

Okay, and then just lastly, I was just wondering when the same-store pool, when will that reflect the entire IPO portfolio, all 522 properties?

That will be the first quarter of 2015.

Okay, got it, thanks.

Next question comes from Ki Bin Kim at SunTrust.

Thanks.

Hi, how you doing?

I am sorry, it looks like Mr. Kim disconnected. So, we will go on to Vincent Chao at Deutsche Bank.

Hi, everyone. Just a quick question going back to the secured debt repayments that already happened, plus, I think I heard, 270 more for the rest of the year.

Just curious where that's coming out of, in terms of the maturity schedule as it stands today. Is it largely coming from the 2014 or 2015 or are you digging into some of 2016 as well?

Yes, well in our supplemental package on the debt maturity schedule page. We did pro forma the impact on the maturity table, at least as what's been repaid so far, and that's on page 15, for your reference. And as we look to the balance of the year, it will be a mix between the 2015 stack and 2016 stack, but for the most part, 2015.

Okay, that's all I had. Thanks a lot.

Okay we'll try to go back to Mr. Ki Bin Kim at SunTrust.

Thanks, I got a little too excited there. So just a couple quick follow-ups.

If I look at the disclosure on page 34 and 36 on your base rent for new leases, just using the fourth quarter as an example, it says $15.04 on page 34 and a little bit different on page 36. Is the difference basically a cash versus GAAP? It's a little bit different for every quarter previous to that, too.

The page 34 is the year 1 rent. Page 36 is more the average rent over the term.

Okay, and I might have asked this in the past, but if you can just remind us, given that a lot of your leases do have tenant options, what is the predominant language in those options? And what percent of it goes at fair market rent versus fixed increase?

Hi, it's Tim. On a contract basis, as you mentioned, the terms vary from lease requirements and by market.

Generally, it bumps in the 10% range, sometimes, with the CPI line of fire, in some markets it's not a fair market value, it's all over the board. But generally, safe to say it's in the 10% range.

And it seems like for new leases your term looks pretty high at nine years. I think that's higher than a lot of your peers. Is that just a mix issue where a lot of it is anchor versus small shop?

I think that's correct.

One last question. If I go back to your IPO documents, I think in 2014 you had a plan for a $500 million term loan, but also an additional $300 million, and, I think, at a 3.1% interest rate. Is that still in the plan, or has that changed?

Our plan is still to access the market primarily through bank debt, which, essentially, is a term loan, and continued use of our credit facility. What is still on the table, based on some of the other questions you've heard here, is at what point will we be in a position to term out the debt even further, through the investment grade market and the like? But as a general matter, relative to the analytics that you may have done during the IPO process and where we are today, for all intents and purposes, we're on the same track.

Okay, thank you.

The next question comes from Alexander Goldfarb, Sandler O'Neill.

Yes, hi. Good afternoon. Just two questions here.

The first one is just going into the lease table that you guys provide. With the extensions that take, let's say, the next year or two, takes about 10 points out of the rollover out, so it brings 9.4 down to 4, and 14.5 down to 4.5. Is it your view that most of those people extend, or take advantage, of those options, or as you guys try to aggressively go after under market space, is there a way to get at more of that space than this schedule would suggest?

Well, our view is they will take a good percentage of those options. But, I think we had this a little bit in earlier questions; but, yes, we are trying to aggressively get into that space.

And, I think, when you think about the macro environment right now, where you have retailers still very focused on efficient store size, that's a great opportunity for us. This whole idea of downsizing and that dislocation around that space, gives us the opportunity to work with these tenants on modifying those terms, and today, we've been very successful doing that.

Modifying terms with tenants, holding out the carrot of putting them in the right size space where, in their view, they can do almost the same sales, they will pay more rent for that efficiency and we've been able to do that, and then backfill the remaining space with a market rent tenant. So it's been a good opportunity and something that we're very focused on.

Okay, and then the next question is for Mike P. As you talked about the term loan possibly entering that market and the investment grade option, what is your view on hedgings?

If you were seeing that investment grade was an opportunity, or an option, in the foreseeable future, is your inclination to lock in a hedge, or your view is that trying to call where interest rates are going is always a very tough proposition, and therefore, just take the market where it is and not pay that additional cost of hedging?

I don't know if I would characterize it as me attempting to call the market. I generally have not been successful in the past on that.

But as a general matter though, I don't think we would aggressively pursue a derivative or anticipatory hedging strategy as part of the process. If we look even as a parallel course of action for a term loan than into an investment grade positioning, there is always a private placement market as well as an alternative, and we've received good feedback that that's a viable alternative to access longer dated fixed interest rate funding.

So that would be another course of action should the tea leaves indicate it would be a longer move to investment grade. And then, that's, I believe, that really is at our disposal today, if we wanted to.

Okay that's helpful, thank you.

The next question comes from Linda Tsai, Barclays.

Hi. I'm looking at the rent growth by tenant size on page 34, and it seems like the greatest growth was in the $20,000 to $35,000 size box where you had about 20% growth. Was there anything driving that in particular?

Primarily our anchor repositioning deals that we've done. And in the last quarter, we had two LA Fitness deals be completed, a Jo-Ann's deal in Cleveland, Ohio; and a Planet Fitness in Trenton, New Jersey.

I think when you look at our portfolio, Linda, the age of the spaces and those -- the era when a lot of those existing leases were cut, really provides a great opportunity. And Tim mentioned, one of the projects was in Hamilton, New Jersey, which is basically Trenton.

That's a 30 year-old Acme store, at roughly a $3 rent, and we're able to repurpose that at a double-digit rent to a new tenant. It really adds a lot of growth in that category for us. So that is the opportunity we have in the portfolio, unlike others who may have new construction portfolios, that's not the makeup of this portfolio.

So do you think a mid- to high-teen rate for that category would be appropriate going forward?

Look it's always going to vary by center and by the opportunity. And I would tell you that as we look out today, we still have great opportunity in that space, but we are being very aggressive in where we think we can pick up a $3 spread, which may only be a 15% lift, we're trying to pick that up. So I think, it's going to continue to trend high, but it's a hard thing to gauge on a quarter-to-quarter basis.

Thanks. And then when you look at your mix of retailers, are there certain categories growing faster than others when you break it out between grocers, various services, General Merchandise? I realize the mix isn't going to move quickly, but are there any emerging trends to think about?

I'll start, and I'll let Tim come in on it. This year, we had a big movement with services and restaurants, and I'd say, one of the categories that is working really well for us is medical. We're seeing a lot.

We think it's in advance, it has been in advance of Obamacare, and the anticipation of a lot of people having access to insurance that didn't have it before. And we've seen a lot of the regional hospital chains and medical providers looking for 3,000- to 5,000-square foot units in our shopping centers.

And we think that's a perfect complement to a neighborhood or a community, grocery-anchored shopping center. So, that's been a nice piece, and then the food uses have been -- restaurant uses have been strong and some other examples there.

We did 59 new leases with medical tenants last year, and we expect that to increase in 2014. And the new lease bases, by total, is up by over 50% -- 48% by GLA, and 43% by APR.

We're targeting regional healthcare providers and affiliates of regional hospitals, and again, as I mentioned earlier, we expect this to grow. And we're seeing that across the country, it's a significant part of our business right now.

And then on the restaurants, in 2013, we did 158 new leases with restaurants. That's the second highest in our category of tenants, and again, we continue to see that business continue to grow.

Plenty of Chipotle, and Panera Bread, and other opportunities like that, that continue to be expanding out there.

Thanks.

At this time there are no further questions. I would like to turn the conference back over to Mr. Carroll for any closing remarks.

Thank you very much, it's our pleasure and we look forward to talking to you next quarter.

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