Pennsylvania Real Estate Investment Trust
Q4 2015 Earnings Call Transcript

Published: 24 Feb 2016

[Operator:]

Good morning. And welcome to the PREIT Fourth Quarter 2015 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] I would now like to turn the conference over to Heather Crowell, VP of Investor Relations and Corporate Communications. Please go ahead.

[Heather Crowell:]

Good morning and thank you all for joining us for PREIT’s fourth quarter and full year 2015 earnings conference call. During this call, we will make certain forward-looking statements within the meaning of federal securities laws. These statements relate to expectations, beliefs, projections, trends and other matters that are not historical facts and are subject to risks and uncertainties that might affect future events or results. Descriptions of these risks are set forth in the Company’s SEC filings. Statement that PREIT makes today might be accurate only as of today, February 24, 2016, and PREIT makes no undertaking to update any such statements. Also, certain non-GAAP measures will be discussed. PREIT has included reconciliations of such measures to the comparable GAAP measures in its earnings release and other documents filed with the SEC. Members of management on the call today are Joe Coradino, PREIT CEO; and Bob McCadden, our CFO. It is now my pleasure to turn the call over to Joe Coradino.

[Joe Coradino:]

Thank you, Heather, and good morning everyone. We’re excited to share with you our 2015 results and 2016 outlook, highlighting our success in bringing this company and our portfolio into a new era of productivity. We put in place the foundation of a quality company with a powerful portfolio and reliable long-term earnings growth. We’ve made dramatic improvements to our portfolio by actively disposing of assets and attracting high performance retailers to our properties, while improving the strength of our balance sheet. In so doing, we’ve created a sustainable stable platform with a flexible balance sheet and realizable redevelopment in organic NOI growth opportunities. The results we have achieved including our sector leading sales growth and asset disposition programs are the result of the measured and laser focused execution of the strategic plan that will continue to create shareholder value. We recently hosted an Investor Day and outlined the vision to become a $500 per square foot company that generates a majority of our NOI from top 10 MSAs, growing at over 3% annually with leverage in the mid-40s and a balanced department store mix. Our strong 2015 performance and outlook for 2016, demonstrate our ability to achieve this vision. Despite tenant bankruptcy-related headwinds, Same Store NOI grew by 2.6% at the high end of our guidance range accompanied by 10% growth in sales to $435 per square foot, 6% renewal spreads and along with another non-core assets sold are a testament to the efforts we’ve put forward and an indicator of what you can expect from us in the future. There are many perspectives when the condition is a macro economy, let me share ours with you. We believe that if we collectively shout the word recession in our times, the market will respond, but we see economic indicators that are healthy. Unemployment is the slowest it’s been since 2008, gas prices are at bargain, consumer competence improved in January and people are spending money. All the work we’ve done over the past few years, were specifically intended to strengthen and de-risk our portfolio. We’ve achieved unprecedented sales growth, attracted an influx of new tenants, have a strong presence in two of the top 10 markets in the US and are operating in an environment of constrain supply. We feel good about the fact that we have strong properties with strong retailers that will withstand drifts in the economy and thrive doing economic expansion. During our Investor Day, we laid out the framework by which we intend to achieve our vision. We are continuing to optimize our portfolio through completion of our disposition program and executing on opportunities for strategic retailing. We’re also committed to delivering results in line with the new portfolio we’ve created, reflecting an improved attractiveness to retailers, driving renewal spreads, improving occupancy and expanding operating margins, and by executing strategic redevelopment initiatives that will create value and drive earnings. All while maintaining our capital allocation priorities to further strengthen our balance sheet and decrease leverage. Let me walk you through some of the highlights from 2015 and the progress we’ve made since laying out this vision. Continuing our industry leading lower productivity mall disposition program, during 2015 we sold two malls and one power center and placed a three mall package under agreement of sale. At our Investor Day just a month ago, we introduced that we’ve achieved non-refundable deposits on the three mall package and Palmer Park Mall. In the past several weeks our determination has resulted in noteworthy progress, the completed sale of Palmer Park Mall, an executed agreement of sale with a substantial non-refundable deposit on Lycoming Mall, and executed agreement of sale along with a multimillion dollar non-refundable deposit on two Philadelphia street retail properties, we expect that these three properties will close before the end of the first half of the year and are excited about our progress. When completed, these sales will bring total dispositions to over 640 million, since we initiated the program at the end of 2012. The success of our disposition program is powering our leasing effort, by creating a portfolio that is more compelling to retailers. Our portfolio renewal packages have greatly improved and you can see the acceleration in our renewal spread results over the course of the year, climbing to nearly 8% on a cash basis and 13.5% on an average rent basis for the fourth quarter and above 6% for the year. We expect to continue to drive results in excess of 6% in 2016. In 2015, we executed new leases for 646,000 square feet and generated 13% increases in comparable same suite deals. We continue our effort to bring new tenants to the portfolio through our new business development efforts. We currently have 30,000 square feet of portfolio transactions that we expect to come to provision and another 40,000 square feet of hot new prospects following behind. To date we have approximately 70% of our 2016 plan new deal activity commitments. We have found much success in strategically re-tenanting our properties and take advantage of our new platform. Our remerchandising efforts are underway in honest of four projects and on average are expected to deliver 18% NOI growth over the next two years. We are seeing results of the projects we’ve recently completed, like View mobile [ph] we have seen a 20% increase in NOI and a 24% increase in sales to a new high of $445per square foot. These efforts have led to organic sales growth across our portfolio a 4.5% in the past year. And our work toward systematically reducing the overexposure of under-performing anchor tenants is accelerating. We're pleased to have recently completed transactions with four new anchors. Occupying the lower level of the former JCPenney box at Exton Square Round 1, an entertainment concept from Japan, that is expanding rapidly within the US. Includes bowling, arcade games, billiards and represents unique family entertainment offering that will bring new customers to the property. This tenant is expected to open in time for this year's holiday season. In addition Whole Foods also at Exton Square and is expected to open in the third quarter next year. Dick Sporting Goods at Cumberland Mall which is replacing an underperforming JCPenney store that closed last year is under way schedule for a Q4 opening this year. A new Dick’s Field & Stream combo has been executed to replace a low productivity department store and one of our core growth properties that we cannot disclose at this time because in department store has not yet informed their employees. Legoland Discovery Center at Plymouth Meeting Mall, which will serve as a catalyst to create additional value in the enclosed portion of that property drawing customers from up to two hours away for extended duration visits. The project remains on track as planned early opening next year. We have also executed two more H&M leases, at [indiscernible] and Moorestown malls, in addition to the five we completed earlier in 2015, bringing our total to 13 H&M. stores. Replacing under-performing tenants and driving quality occupancy also continues to be a top priority for us and was a particular focus in 2015. This year we expect fewer bankruptcies and as such can replace underperforming tenants in a proactive discretionary manner. We expect 2016 occupancy to be up 80 to 100 basis points. We started 2015 with 266,000 square feet of tenants that has filed for bankruptcy. Today we have replacements for approximately 75% of the space with many of these leases taking effect in 2016. By way of example we have 7 H&M leasing with average store sizes of 20,000 square feet under construction for ‘16 openings. We currently have $17.5 million of annual gross rent in leases that are signed but not yet opened, which five million dollars representing over 250,000 square feet scheduled for ‘16. Also let’s recall that the tenant’s replacement paid about two thirds of our average portfolio rent and generated sales of only $168 a foot. We are focused on quality, when the quality of replacements while driving overall same store NOI. At Springfield Town Center, we're well on our way to stabilization. Sales at the property are strong at 507 per square foot and we have commitments for approximately 93% of the total space. The recently opened Dave and Busters is both a chain leading sales performance and endorsement for the continued sales growth at this property. At the fashion outlets of Philadelphia in January, we officially closed a significant portion of the property to begin demolition which is currently underway for a planned 2018 opening. We along with our partner continue to be extremely active in moving transactions with [indiscernible]. The project course is expected to range from 320 million to 380 million with a net investment of 275 million to 335 million. The yield is expected to be in the mid-8 range consistent with our articulated expectations. Our balance sheet and capital allocation continue to be a priority. We're making strides in our capital plan, driving towards our stated medium term objective of leveraging the mid forty's, reduced and EBITDA and ample liquidity. We're balancing these critical goals with the needs of our business and the opportunity to enhance the value of our assets. We're focused on our balance sheet and as with our portfolio reshaping efforts on a much improved lower risk position than we were three years ago. We believe that if we execute with continuity on all of these fronts our multiple will continue to drive towards that of our higher productivity periods more reflective of our portfolio. Now, I will turn the call over to Bob McCadden.

[Bob McCadden:]

Thanks Joe. We ended 2015 with a strong performance during the fourth quarter. Same store NOI excluding lease terminations increased by 3.2% over the prior year’s quarter. Factors contributing to the improved performance included an increase in base rents from new store openings, 13% increase in percentage rents and higher canned and utility margins. For the full year we delivered same store NOI growth of 2.6%, driven by a $4.9 million increase in revenues. Resulting from the strong renewal rent increase and we have generated, new store openings and 15.5% percent increase in percentage rent driven by our solid organic sales growth. 70% of our same store NOI increase was driven by increased revenue. Store closings from bankruptcies reduced revenues from our permanent tenants by $1.5 million for the quarter and $5.8 million for the year when compared to the prior periods. Non-same store NOI was favorably impacted by the addition of Springfield Town Centre to the portfolio in March and the opening of Gloucester Premium Outlets in August. Offsetting these favorable contributions where the loss of NOI from property sold and lower NOI from the year, from fashion outlets of Philadelphia related to releasing efforts and preparation for the redevelopment. FFO was adjusted per share for the full year was $1.89 compared with $1.96 in 2014and FFO was $1.79 per share compared to a $1.82 last year. The FFO adjustments included acquisition costs related to Springfield Town Center, which are expensed for GAAP purposes, employee separation costs and costs related to the early repayment of debt. Excluding the impact of the gallery, the 2014 and 2015 property sales were approximately $0.03 per share diluted for the quarter and $0.09 per share diluted for the full year. Let me turn to our capital plan for the upcoming year. Our capital allocation strategy has been to sell lower quality assets and recycle the proceeds from asset sales and reducing our leverage which are making investments and properties with significant value creation opportunities such as fashion outlets, any other projects mentioned earlier. We believe we have ample liquidity to fund our planned capital expenditures by replacing proceeds from assets sales, so half amount by of by credit facility borrowings. At the end of December, we had over $338 million of immediate liquidity including cash and amounts available under our credit facility. At the end of 2015, our bank leverage ratio was 49.3 percent a 90 basis point decline from September thirtieth. As mentioned previously, our bank leverage ratio will increase by approximately three hundred basis points at the end of the first quarter due to the formulae used to calculate gross asset value in our bank facilities. During the first year after acquisition we received value equal to the purchase price of our property. Thereafter bank’s gross asset value is determined by capitalizing rolling twelve months NOI at a 6.5% or 7.5% capitalization rate, this increase in variables [ph] will moderate as Springfield Town Centre moves towards stabilization. It's important to note however that our net debt to EBITDA ratio which is approximately eight times at the end of December will not be impacted by this change. Our expected interest rate at the end of the year was 4.33 %, a 69 basis point reduction from the year ago and our debt maturities are well added with only two mortgage loans coming due this year. At the end December, only 7% of our debt carried floating interest rates or was not hedged, leaving us well positioned to mitigate the impact of any increases in short term interest rates. In light of our current discount NAV and intermediate capital needs, we are exploring the sale of our partnership interest in three joint venture power centers and exploring bringing in a partner to JV Malls in our core growth category to raise additional capital if necessary to provide incremental liquidity or reduce leverage further. Now let's review our outlook for 2016. We're targeting same store NOI growth of 2.8% to 3.2% this year driven by occupancy growth, replacing underperforming patents realizing the ongoing benefit of our fixed income initiatives and growing revenue in the common area among other factors. We see occupancy growing at our same store malls by 80 to 100 basis points this year. I want to again clarify a point raised this quarter and last where three large format tenant leases included in our leasing active to report in the supplemental disclosure where we collected the rent that don't seem to offset the capital investments. These are leases structured as a percent rent transaction for the floor to provide us with downside protection. For disclosure purposes we only include the floor rent, based on our sales projections for these tenants and how they perform elsewhere in the portfolio, the payback on these transactions will be substantially shortened. The purposes of updating our guidance range, we're still assuming immediate sale of the five remaining malls and street retail properties. Optimistically, if we're able to close the properties under contract, near the end of the first quarter we would experience an additional $0.02 per share dilution which is not currently reflected in our guidance. The early closing of the sale on Palmer Park Mall will be about $0.01 per share diluted for the guidance we provided in January. Our capital spending is expected to be $165 million to $185 million this year including recurring capital expenditures and normal permit [ph] allowances. We expect NOI from the 23 malls currently in our portfolio that we expect to own through the end of 2016 excluding Springfield Town Center and fashion outlets to be in the $231 million to $233 million range. The NOI from properties being market for sale is estimated to be $20 million to $21 million. This includes a full year of income from the three power centers, income from Palmer Park for two months, of the half year of NOI from the five malls being marketed along with the two street retail properties. We expect the NOI contribution from the Springfield Town Center and our 25% interest Gloucester Premium Outlets to be approximately $22 million to $24 million. Our share of the income from fashion outlets contributed by the office tenants and Century 21 is expected to be approximately $4 million. To summarize our guidance presumes total NOI of $277 million to $282 million. In terms of sequencing, in light of our strong performance in the first quarter of 2015, we expect to see a relatively flat first quarter, rising up to the year to deliver the targeted 36% same store NOI growth. Interest expense is fairly predictable, given our emphasis on fixed rate financings has estimated to be $84 million to $85 million based on the disposition assumptions described earlier. Our G&A expenses are estimated to be about $34 million, a $700,000 decrease from 2015 amount. Given all these assumptions, we anticipate FFO to be in a range of a $1.83 to a $1.91 per diluted share in unit with net income per share of $0.03 to $0.06. And with that I will ask Chad, to open up the line for questions.

[Operator:]

[Operator Instructions] Our first question comes from Ki Bin Kim with SunTrust. Please go ahead.

[Ki Bin Kim:]

Thank you. Good morning. Could you talk about 80 to 100 basis points expected gain in occupancy in 2016. How much of that is already locked in from leasing we already done so far?

[Joe Coradino:]

I think in the commentary remark that we have at 75% of the new deal activity committed as of this point.

[Ki Bin Kim:]

Those 75% of the 100 basis - or the 90 basis points at midpoint is already locked in right?

[Joe Coradino:]

That's correct.

[Ki Bin Kim:]

Okay and what kind of lease spread should we expect from that kind of 75% of leasing?

[Bob McCadden:]

I think we expect on renewals spreads to be consistent with what we've seen in the second half of this year and for new deals we would expect to see great something comparable for this year, which had in the mid-teens.

[Ki Bin Kim:]

Okay and I think you made a comment about leasing that appears that CapEx is pretty high for new lease suites [indiscernible] getting just curious what type of retailer that actually tied to, is it tied to retailers like the Entertainment concept moving into Exton where maybe it's non-traditional, perhaps little bit riskier.

[Joe Coradino:]

No, these are large format apparel retailers.

[Ki Bin Kim:]

Okay got it, thanks. Just one last question how does the impact say in the government fairly or in that area where you are still expecting to get RACP funds or the EB-5 loan, if that does not come through, how do that impact the yield or cost for the [indiscernible]?

[Joe Coradino:]

Ki Bin, hi, this is Joe. I think generally we were main optimistic, we’ve had meetings as recently as last week with respect to the remaining funding request. So I mean that's number one. The second answer is we would - the project is on their way right. We're actually looking at the videos of the status of it, before the call today and we've had half a dozen tenants through the project this week alone. The MAC team is in our office and we'll just scale the project back and we don't have any certainty as to how we're going to do that, but at this point we have possibilities but we haven’t resolved anything in terms of we're going to do it because we remain optimistic that we will secure the funding.

[Ki Bin Kim:]

Okay so, is the $30 million of RACP funds that are in flux right now. Are you in your 275 to 335 net cost, if you don't get that does that 275 at the low end increase by 30 million or is that not in the number?

[Joe Coradino:]

First of all I'd rather not get into a conversation about the 30 million because there's no question in the newspapers or on this call. So I'd rather just leave it at will, we're optimistic and we believe that we can create a project that will be. Again slightly scaled back, but will be highly successful, with or without the money it won't be as dramatic certainly as it would be with those dollars and we continue to be optimistic.

[Ki Bin Kim:]

Okay, thanks guys.

[Operator:]

The next question is from Christy McElroy with Citi. Please go ahead.

[Unidentified Analyst:]

Good morning this is [indiscernible] on for Christy. For the project first on the new rate of element disclosure, as we think about the impact of deliveries, what are you expecting for the delta between initial yields upon completion relative to the stabilized outlook there?

[Bob McCadden:]

In most cases, we talk about other than the fashion outlets projects, which will obviously have a ramp up. The other redevelopments we are expecting to open at a stabilized level so you're talking about, whole Foods openings that will get rent upon them opening as well as Round 1 at Exton. At Plymouth Meeting we have Lego Discovery Center paying rent immediately and likewise for Dick Sporting Goods at Cumberland Mall, they were opened at effectively close to stabilize returns

[Unidentified Analyst:]

Okay, great thanks.

[Operator:]

The next question is from Michael Mueller with JPMorgan. Please go ahead.

[Michael Mueller:]

Yeah, hi. Just wondering, can you talk a little bit about if you look at the same store occupancy comps in the third quarter, you were year-over-year in the fourth quarter was down. It sounds like some of that tied to the remerchandising and just wondering, first can you give us a little more color on that?

[Bob McCadden:]

As Joe mentioned in his remark, I think we talked the past. With the bankruptcy that's really given us the opportunity to re-merchandise the properties. So we have as mentioned previously we have seven new H&M stores under construction. One will open in the first quarter this year the balance in the second half. So, toward the end of the year, we have to move a bunch of tenants around aggregate the space in order to accommodate those tenants.

[Michael Mueller:]

Got it.

[Bob McCadden:]

Just reiterating that I think that's all baked into our expectation of occupancy increase of 80 to 100 basis points in 2016.

[Michael Mueller:]

Yeah, okay and then Bob can you just recap I think I missed some of this, what part of the dilution is not in the range. Yeah I think you were talking about specific assets.

[Bob McCadden:]

If we were to close, we’re still assuming mid-year on the assets under contract, but we were working like how to close these early, so if we get them closed by the end of the first quarter. It would be about $0.02 dilutive.

[Michael Mueller:]

Okay and which aspect specifically?

[Bob McCadden:]

That would be the three mall portfolios, like Tommy Mall and the two street level retail properties.

[Michael Mueller:]

Got it, so all of that by end of the first quarter, okay. That was it, thank you.

[Joe Coradino:]

No, Mike just to be clear. We're working that way, but I don't know that we can commit to or committing to June 30th. This is Joe, we've always said that the non-core malls are an adventurous process and as much as we like to predict a date certain. Sometime they slip. Again on this particular group of properties we have, [indiscernible] for significant whatever the word is, the appropriate one hard deposit on them, but it's just a question of timing.

[Michael Mueller:]

I got it, so takeaway is basically if you stick to the plan and guidance it's what the range is. If somehow everything would get accelerated to the end of the first quarter, its $0.02 built up, I mean that’s the message right?

[Joe Coradino:]

Yeah it is correct.

[Michael Mueller:]

Yeah, okay, thank you.

[Operator:]

[Operator Instruction] The next question comes from Floris Van Dijkum with Boenning. Please go ahead.

[Floris Van Dijkum:]

Hey guys.

[Joe Coradino:]

Hi Floris

[Floris Van Dijkum:]

Question for you on your expense recovery ratio of the properties that are now for sale, the five assets for sale versus the remaining portfolio, is there a big difference in that and should we expect or can we expect the expense recovery going forward to be higher as a result of these sales.

[Joe Coradino:]

The answer is yes. I can't give you specifics at the moment but I think we've demonstrated that even in Investor Day and you can look at the chart that we had in the presentation which showed the impact of recoveries from selling the assets that we have closed on. So you would expect not as dramatic but still a meaningful improvement in recovery rates.

[Floris Van Dijkum:]

Great and would you also consider, I know that you talked about deleveraging and reinvesting, but as these sale proceed potentially coming quicker maybe than the mortgage has expected including ourselves, would you consider putting some of those proceeds to size for a potential share buyback with your stock trading where it is today?

[Joe Coradino:]

Well it's certainly something we continue to consider Floris but I think at this point our primary focus is paying down debt and utilization for enhancing some of the redevelopments that we're committed to. But again something we continue to consider, clearly we're not happy with our share price and we've done significant due diligence on share buybacks and continued to look at the real impact in a medium to long term basis in terms of increased share price and haven't found at least at this point, significant evidence of that but having said that it continues to be on the table for us, we are not pleased with our share price, the goal of our strategy that we've outlined in Investor Day and we communicated on this call is to drive our multiple and close the NAV gap and again that's something that we are considering

[Floris Van Dijkum:]

Great, one more question for me, you guys have actually been relatively successful of selling your CMOs [ph] maybe can you give us a little bit of perspective for the market or for CMOs right now and in particular on the financing side how is that right now because we're hearing some actually interesting tit bits saying that potentially CMO financing might be easier than BMO [ph] financing.

[Joe Coradino:]

Well, we certainly haven't heard that but if you do hear that can you give us the financing sources, but look. I mean most of these sales occur with high net worth individuals or groups with access to high net worth individuals significant equity contribution tend to be traditional bank financing and in many cases banks that are certainly unknown to us obscure that tend to be relationship banks with the buyers, but I mean generally the buyer pool for CMOs continues to be thing. I couldn't be more pleased with the progress our team is making and continues to make. We think we are a better company as we continue to dispose of those Concorde but make no mistake about it there is not been, which didn't, from our perspective a change in the financing climate for CMOs. If anything from our perspective, It's gotten a bit more difficult.

[Floris Van Dijkum:]

Okay, thanks.

[Operator:]

The next question is from DJ Busch with Green Street Advisors. Please go ahead.

[DJ Busch:]

Thank you, Bob, I don't know if you touched on it when you addressed Ki Bin’s question earlier in the call but the floor that you are referring to in the three deals sign in the fourth quarter of the big box, is that consistent with the small shop or the space under ten thousand square feet as well that the floor and that 15%, that the TIs look like they're representing. That could be much smaller as the kind of percentage spreads come in?

[Bob McCadden:]

Yes. The TA nothing more than the total amount divided by the number of months and years, so the TA will always be the same number on a per square foot basis but the relative percentage will decrease as we layer in the percentage rents, which could be equal to as much of the base rent itself. So we would expect.

[DJ Busch:]

But if the trigger for the under 10,000, less dramatic than for the big box just given the time.

[Bob McCadden:]

Absolutely yes.

[DJ Busch:]

Okay and then Joe you look kind of the GLA and how it's kind of I guess the vault over time it looks like big box or big format, makes up about 17% of occupied GLA. In small shops about 24% out imagine. The disclosure has been enhanced but I would imagine that's been a pretty dramatic increase in big box format. How do you see that continuing going ford is demand going to continue to come from big box and where do you see a good mix between small shop and big box within your mall.

[Joe Coradino:]

Well, I think first off, I think we're to a certain extent a lot of the big box as you call it or a large format. Retailers have been deployed and Core an opportunistic assets right. There are less prevalent in our premier group and even the top of our core group if you will. I think the - so I think you're going to see a higher proportion as you move down the quality spectrum, the asset quality spectrum, but generally I think we're seen more demand from the smaller in line retailer. Now, when you talk about large format I guess are you are you including H&M. in that group?

[DJ Busch:]

Well, I guess I would include anything that qualifies with any non-anchor tenants that are greater than ten thousand square feet. So I guess that would be H&M as well right?

[Joe Coradino:]

So I guess in that respect between the H&M, [indiscernible], Forever 21 you are seeing that group begin to increase. It was responding to a certain extent to more of the all to use and some of the other boxes that have deployed more in and in the B Mall base. So I mean I think the proportion will probably begin to grow or I think you're going to see Primark, I mean we are in to sweet spot. Primark in terms of their continued deployment of stores, they're talking about essentially a Boston, the Washington and initial deployment and given our present and those market will see Primark stores begin to begin to populate our centers, which minimum size about 65,000 feet, very difficult store to incorporate in a mall. I think [indiscernible] and another tenant that we're beginning to make some inroads with again larger format. So, I think you'll see that number begin to increase.

[DJ Busch:]

Okay and how does that affect or I guess the way you look at your I guess net effective rent, has that's grown as we have seen you're net effective rents actually declined and I know the sales, the percentage of rents that aren’t included in the disclosure make it difficult to kind of get to that net effect of rent number but have you seen net effect of rents decline on average because of the shift of big box versus small shop?

[Joe Coradino:]

No and the reasons for it primarily are driven by location in malls. One of the good things about H&M and they are tough deals by the way. I don't think you'll get any of our peers to deny that. One of the good things about H&M and even Primark etc. is they are typically not populating the quality space in a mall right. They typically are going into spaces that are closer to end zones. So in essence, what you're doing is you're getting space that was pro-formally occupied, but I would consider it to be marginal tenants where you have not necessarily good credit. You're beginning to populate those less desirable spaces with quality tenants and essentially service anchors right in the property and you got a good credit base and the rents that are I think generally accretive to that location in the mall, but it also provides an opportunity. We sit here today with our occupancy of course sitting around 12/7 right, and so we think generally as leases roll, given the way our sales are growing that we have opportunities to continue to drive rents and I think or that the H&Ms and the [indiscernible] do for us has continued to enhance that opportunity, by populating much desirable space and driving traffic to our centers. If you look at our H&M deals or 7 H&M deals are all going into core growth assets, right. Look at a property Wyoming Valley[ph] where it will be the only H&M for 30 or 40 miles, right, drive traffic, give us the ability to increase rents in the center.

[DJ Busch:]

Okay, great thank you.

[Joe Coradino:]

Sorry for the long winded answer.

[DJ Busch:]

It was very helpful.

[Operator:]

[Operator Instructions]

[Joe Coradino:]

Are there any other questions?

[Operator:]

Well, we have no further questions. So this concludes our question-and-answer session. I’d like to turn the conference back over to Joe Coradino for closing remarks.

[Joe Coradino:]

Thank you, Chad. Let me summarize to close - let me summarize our goals for the next several years. So there are obviously clear to us and clear to everyone. First off, to drive our operating results to new heights delivering same store NOI growth in excess of 3% on a consistent basis. To acquire an ideal mix of tenants in our portfolio to drive traffic sales in rents, to opportunistically execute on redevelopment opportunities that also drive value. And to proactively replace underperforming anchor tenants, which we had great success with and plan to continue to. To remain focused on creating defensive strong balance sheet. Our goals are clear, we are laser focused on them and we look forward to continuing a dialogue this year. So thank you all very much and I’m sure we’ll be seeing you over the next few days and weeks. Thank you.

[Operator:]

Thank you, Sir. The conference is now concluded. Thank you for attending. You may now disconnect.