Retail Properties of America, Inc.
Q2 2017 Earnings Call Transcript

Published: 2 Aug 2017

[Operator:]

Welcome to the retail Properties of America Second Quarter 2017 Earnings Conference Call. [Operator Instructions]. As a reminder, this conference is being recorded. It is now my pleasure to turn the call was over to your host, Mr. Michael Fitzmaurice. Thank you, you may begin.

[Michael Fitzmaurice:]

Thank you, operator and welcome to retail Properties of America Second Quarter 2017 Earnings Conference Call. In addition to the press release distributed last evening, we have posted a quarterly supplemental package with additional details on our results in the Invest Section on our website at rpai.com. On today's call, management's prepared remarks and answers to your questions may include statements that constitute forward-looking statements under Federal Securities Laws. These statements are usually identified by the use of words, such as anticipates, believes, expects and variations of such words or similar expressions. Actual results may differ materially from those described in any forward-looking statements, including in our guidance for 2017 and will be affected by a variety of risks and factors that are beyond our control, including without limitation and those set forth in our earnings release issued last night and the risk factors set forth in our most recent Form 10-K, 10-Q and other SEC filings. As a reminder, forward-looking statements represents management's estimates as of today, August 2, 2017 and we assume no obligation to update publicly any forward-looking statements whether as a result of new information, future events or otherwise. Additionally, on this conference call, we may refer to certain non-GAAP financial measures. You can find a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP numbers and definitions of these non-GAAP financial measures and a quarterly supplemental package and our earnings release which are available in the Invest Section at our website at rpai.com. On today's call, our speakers will be Steve Grimes, President and Chief Executive Officer; Heath Fear, Executive Vice President, Chief Financial Officer and Treasurer; and Shane Garrison, Executive Vice President, Chief Operating Officer and Chief Investment Officer. After the prepared remarks, we'll open up the call to your questions. With that, I will turn the call over to Steve Grimes.

[Steven Grimes:]

Thank you, Mike. Last quarter, I joined my peers in attempting to dispel the myth that retail real estate is dying by drawing an analogy to the office sector in the mid-1990s. If you recall, telecommuting was going to decimate demand for office space, but that's forward to 2017 and companies like IBM are calling back their remote workforces. I'm going to spare all of you any further thoughts on this topic. There is no amount of table content that will change the current perception on retail. Only solid results and time matter. And we delivered, along with our peers, yet again despite the current retail narrative. We're driving rents, upgrading tenancy, completing and commencing development projects, selling assets in our nontarget markets, improving leverage and maintaining a disciplined approach to capital allocation. Today, our ABR per square foot stands at $18 in our retail portfolio and nearly $20 in our target markets. Lending releasing spreads, when excluding 1 lease to the nontarget assets, were nearly 10% for the second consecutive quarter. While our average annual contractual rent increase for our negotiated leases signed during the quarter was approximately 180 basis points. We continue to aggressively pursue the backfill opportunities afforded to us by hhgregg and Gander Mountain bankruptcies and are on track to upgrade tenancy at compelling releasing spreads with manageable down time. Our high quality portfolio continued to demonstrate resiliency and the ability to deliver strong rent growth in the face of retail headwinds. During the quarter, we delivered on 2 pad developments. And just after the quarter, we broke ground with AvalonBay on our Towson circle redevelopment project which will be transformed into a vibrant mixed used assets, including both retail and multi-family components. Today, we have total disposition activity of approximately $840 million with nearly $1.5 billion closed. And the balance is under contract or under LOI. It's important to note that the activity today, together with the expected sale of Schaumburg Towers, indicates that the total 2017 dispositions may exceed the top-end of our current range of $800 million to $900 million. The activity today reflects our commitment to move as swiftly as possible. We continue to expect our 2017 dispositions to be completed within blended cap rate of 6.5% to 7.5%. We're maintaining our acquisition target of $375 million to $475 million with the understanding that this allocation includes both asset acquisitions and common stock repurchases. Today, the company committed a total of $224 million, including the repurchase of over 6 million shares of our common stock for approximately $76 million at an average price of $12.55 per share. For the balance of 2017, our investment committee will continue to evaluate any future asset acquisition, alongside our opportunity, to repurchase common stock. It's important to note that any common stock repurchases will be on a leverage neutral basis. Our net debt-to-EBITDA is currently at 5.2x. Approximately 86% of our NOI is unencumbered. And our fixed charge and interest coverage ratios are 3.2x and 3.9x, respectively. We have multiple avenues of liquidity and a very manageable maturity ladder. Our fortress like balance sheet is built to thrive in any environment. I will end with the same sentiment that I opened with. We believe that we have delivered solid results despite the retail narrative. And now I'd like to turn the call over to Heath.

[Heath Fear:]

Thank you, Steve. This morning, I'll discuss our second quarter results and our outlook for the remainder of 2017. Operating FFO for the second quarter was $0.27 per share compared to $0.28 per share in the same period in 2016. This change was primarily driven by a lower interest expense, net of prepayment penalties of $0.03 and higher same-store NOI of $0.01, offset by lower NOI from other investment properties of $0.05 due to our capital recycling activities. It's important more that our lower interest expense for the quarter is directly related to the defeasance of the $379 million, IW JV loan which has an interest rate of 7.5% compared to the current blended rate of 3.64%. Same-store NOI growth was 1.8% during the second quarter, primarily driven by higher rental income of 115 basis points from a combination of strong contractual rent increases and releasing spreads as well as higher network recoveries and other property income of 50 basis points and a decrease in debt expense of 15 basis points due to unanticipated bad debt recovery. Turning to guidance. We're maintaining our operating FFO guidance of $1 to $1.5. But 1.5 penny of operating FFO accretion related to the share repurchases during the quarter was roughly offset by changes in transaction timing. We're also maintaining the following guided assumptions, our dispositions range of $800 million to $900 million inclusive of the Schaumburg Towers; G&A expense between $42 million and $44 million; and same-store NOI growth of 1.25% to 2.25%. We're maintaining our acquisition range of $375 million to $475 million, inclusive of share repurchases. If you recall, last quarter we revised our same-store NOI growth assumption to reflected deception related to bankruptcy is of hhgregg, Gander Mountain and this Family Christian. At the time, to account for any further disruption from our watchlist, a midpoint of our first quarter same-store NOI growth assumption attention contemplated a bad debt reserve equal to 50 basis points of remaining same-store revenues for 2017 which equated to 55 basis points or approximately $1.6 million of full year same-store NOI. So what has happened since last quarter's call? Payless has notified us that there will be closing 5 of our 16 locations. Rue 21 and Gymboree filed for bankruptcy and are expected to close 4 of our 16 locations. The incremental 2017 disruption associate with Payless, Rue 21 and Gymboree. In addition to a few other isolated smaller tenant bankruptcies, represents roughly 25 basis points of full year same-store NOI or approximately $800,000. Notwithstanding this incremental impact at the midpoint of our current same-store NOI growth assumption, 1.75%, we're maintaining a bad debt assumption of 50 basis points of same-store revenues for the second half of 2017 which equates to 35 basis points or $1.1 million of full year same-store NOI. In terms of additional risk in 2017, I'm going to frame up with same approach as last quarter. In the extremely unlikely event, all of the remaining locations for Rue 21, Payless and Gymboree would've closed on September 30, with no assume to 2017 backfills. And these closures would attract $475,000 which translates into approximately 15 basis points of full year same-store NOI which will be more than covered by the bad debt assumption, I noted earlier. As per the trajectory of the remaining 2017 same-store NOI growth, we expect to decelerate in the third quarter, as we experienced the full effects of the 2017 bankruptcies followed by a deceleration of fourth quarter, primarily as a result of some of our former Sport Authority spaces and one of our hhgregg coming back online. Before turning the call over to Shane, I want to echo Steve's segments as it relates our balance sheet. We're experiencing an all-time low with net debt-to-adjusted EBITDA and all-time highs as it related a unencumbered NOI and covered ratios. These metrics will continue to improve as our intent is to use the dispositions proceeds to fund acquisitions, retire debt and redeem our 7% preferred stock. As of June 30, the average duration of the remaining debt, assuming exercise of expansion options, is approximately 6 years and a weighted-average interest rate is 3.64%. Based on our current liquidity position and assuming we exercise all available options, we can satisfy all the maturities through the end of 2020. For just like - feels like an understatement. And with that, I'll turn the call over to Shane.

[Shane Garrison:]

Thank you, Heath and we're extended pleased with our year-to-date second quarter performance. Consistent with last quarter, blended comparable releasing spreads were nearly 10% when excluding 1 lease to the nontarget assets and comparable to new releasing spreads were over 28%. Our same-store retail lease rate at the end of this quarter stood at 94.8%, down 50 basis points sequentially while our same-store retail economic occupancy was 93.7%, down 70 basis points sequentially, both primarily driven by the hhgregg bankruptcy. Specific to the form of hhgregg and Gander Mountain spaces, we continued to make progress on our backfilling efforts. We have 5 hhgregg boxes of which 1 was located at our pending redevelopment projects in Washington, D.C, the status of our full remaining hhgregg locations is as follows, we leased 1 to a furniture concept which is expected to open by the end of 2017 as a compelling double-digit releasing spread and we're in active negotiations on the 3 remaining locations. Regarding out 2 Gander Mountain locations, we're under contract to sell 1 and we're in active lease negotiations on our remaining store. We continue to expect that all of our former hhgregg and Gander locations will be released within an approximately 12 months of vacating at blended double-digit releasing spreads. Merchandising categories continue to improve specialty grocers, discount soft goods, line of space, furniture, fitness and entertainment. We're extremely pleased with the leasing velocity to date and we're in the inevitable position of having multiple tenant options at each location to choose from. On the asset sales front, we have taken a significant amount of risk off the table to meet our 2017 retail Disposition goals with over 80% sold or under contract. In contemplation of a robust goal of the beginning of the year, we started off quickly and have closed on 27 assets or approximately $490 million to date. The pool of 90% leased and while dilutive to our current occupancy, we continue to maximize value while rapidly executing on this final stages of our portfolio repositioning strategy. Given the progress today in the consideration of the broad based benefits, the completion of the plan quickly, we continued to be aggressive on the disposition front. And if there's an opportunity to accelerate additional assets sales above and beyond our stated goal of $800 million to $900 million, we're poised to act quickly or to the tax planning and operational perspective. Regarding at Schaumburg Towers, this asset official hit the market this week as we're now over 60% leased, including tenant expansion rights. We look forward to providing you updates on the sales process over the near term as we continue to anticipate monetizing this asset by the end of the year. From an acquisition standpoint, the market for institutional quality shopping centers continues to be very competitive. Admittedly, there are a limited number of properties within our target markets that are available and meet our strict investment criteria and we're happy to be patient. Subsequent to quarter, we acquired 1 multi-tenant retail center for $22 million located in the New Hyde Park and the New York MSA and our footprint in the New York market now stands at $1.3 million feet. As expected during the quarter, we acquired 2 additional phases at our One Loudoun Downtown asset for approximately $6 million, including the development rights to an additional 123 multi-family units bringing the total amount to 408 units for Loudoun. On the development front, way continue to execute on organic value-creation opportunities within our existing portfolio. During the quarter, we completed 2 projects, we expanded a former Sports Authority bobs by 32,000 square feet to accommodate one in the core We also delivered a 25,000 square foot box to Total Wine and Dallas U.S.A. Combined, these projects resulted in roughly 725,000 in incremental annualized NOI with a weighted average return on cost of approximately 11%. Out of smaller in scale, these projects in aggregate are meaningful growth driver for RPAI. In fact, as disclosed on Page 11 of our quarterly supplemental, we have nearly 600,000 square feet of expansion and pad development opportunities within our existing portfolio. In addition to a growing multi-family component, that we've fully intend to capitalize on over the medium term. Lastly, regarding the Towson Circle redevelopment project in Boltimor, we're pleased to announce that in corporation with AvalonBay, we've received full zoning and design approvals from the county to transform this project into an exponential inclement with the customer can live, work, shop and play. Total returns are expected to be in the 8% to 10% rates range based on net cost of $33 million to $35 million. As previously outlined, we started construction activities in July with projected stabilization in Q4 of 2019. I look forward to providing you quarterly updates as we progress with the project. And with that, we'd like to turn the call back over to Steve for his closing remarks.

[Steven Grimes:]

Thank you, Heath and Shane and thank you all for joining us today. As evidenced by our results, another quarter has passed and we're defined in the retail narrative. While the challenges in our space remain, we see opportunities amidst the fall out, opportunity that we're harnessing each and every day. And with that, I would like to turn the call back to the operator for Q&A.

[Operator:]

[Operator Instructions]. Our first question comes from Christy McElroy from Citi.

[Christine McElroy:]

Just on Schaumburg, it sounds like 60% leased today. Does that mean the Paylocity exercise their option to expand their space? And can you remind us on the expected proceeds from sales?

[Steven Grimes:]

Yes, Christy, 60% or a little north of 60% assumes or incorporates the expansion right for Paylocity. The expected proceeds that we have right now are $8,200 million

[Heath Fear:]

Christy, just to be clear that they have not exercised that expansion rates just yet.

[Christine McElroy:]

Okay. So the 60% does not include the expansion rate?

[Shane Garrison:]

No, it does. It assumes the expansion rate in the space of...

[Christine McElroy:]

So it assumes the expansion rate. Got it. Okay. And in terms of the reacceleration, I've seen some NOI growth in Q4 that you mentioned and this kind of looking out further into 2018. How should we think about the degree of reaccelration? So if I'm looking at even applied for the back half, but kind of dip should we expect in same-store in the third quarter and then the recovery in the fourth quarter?

[Steven Grimes:]

Right. These are assumptions in the reacceleration front, this the function of cost from 2015. So it's about - so in the third quarter, we're still getting close to 440. So we actually put up a really strong number, 4.6% in the full third quarter of 2016. Contrasted to this year in 2017, we're actually having the full effect of the tenant bankruptcies from 2017 are occurring in the third quarter. And we move forward to the fourth quarter, if you recall in 2016, we have a full 50% of our full year Sports Authority disruption occurred in the fourth quarter. So the fourth quarter number in 2016 was 1.9%. In contrast to this year, we actually have several of those Sports Authority boxes and an hhgregg box coming back online. So you're going to see a significant re-acceleration into the fourth quarter.

[Christine McElroy:]

Okay. And then just finally, on cap rates in terms of mentioning the cap rate range for the year, what was the average cap rate on dispositions in Q2? And then, what you've done in subsequently? And then just what you're seeing in terms of changing the pricing in the market?

[Shane Garrison:]

Yes, Christy, this is Shane again. We're in the low-7s, I think, for the quarter. I think, we're still very comfortable in the range, in general. Grocery has held, community centers haven't generally held. I would say power center pricing is becoming more subjective. And that subjectivity is driven by what you would expect, average lease duration, CapEx profile and sales. And we continue see that play out today. So generally - again, very comfortable in the range and only power centers have moved a bit.

[Operator:]

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

[Jordan Sadler:]

This is Jordan for Todd today. Just curious with the lease percentage of Schaumburg would be without the Paylocity expansion assumed, is there any indication around timing, any changes there? And also any early interest since the asset is going to the market?

[Shane Garrison:]

Well, we're in the mid-40s at the expansion rate. There has been early interest, obviously, given the visibility and importance of monetizing assets we want to run a full process. So we have had some decent traction on the front-end. And fully expect to liquidate the asset this year.

[Jordan Sadler:]

Great, and then just another quick one. The occupancy in lease fell a bit, do you guys expect that to rebound 3Q or is that potentially kind of fall a little bit before rebounding, just curious what your thoughts on that?

[Jordan Sadler:]

I guess, it still depends. As a reminder and I said in my prepared mass, some of it was driven by the bankruptcy. I would say the balance also was driven by the dispositions, we're over 98% year-to-date occupied on dispositions pool. So we're maximizing value there or be at sacrificing a bit for current occupancy. We will get back 1 of the Ganders in Q3 other than that we don't see any significant occupancy dip and we should start to delivering more space. So I would expect we should have a drop from an occupancy's stand point, we should see some gains throughout the year from here.

[Operator:]

Our next question comes from RJ Milligan with Robert W Baird.

[Richard Milligan:]

You talked about the dispositions guidance. You maintained guidance for the year. You've already sort of at the midpoint of that with the activity and with under contract or LOI. So curious if you're successful in selling Schaumburg, how much more activity do you think you'll do outside of Schaumburg in the back half of the year? How much more can you exceed that guidance of $800 million to $900 million?

[Steven Grimes:]

Hey, R.J., it's Steve. I'll just kind of go back to the Investor Day last September where we talked about the $850 million on the high side this year. Knowing that, if there was an opportunity for us to accelerate some dispositions from a strategy perspective, we would certainly do that, as long as we're doing it in a tax efficient manner. To Shane's credit, he got out there early. Got a lot of activity early on in the year. He can certainly share with you what he thinks he might see in the back half of this year. But for all intent and purposes, I think we could can probably be in a position to exceed that guidance to the tune of anywhere from $100 million to $200 million. I think Heath can share with you the details of the numbers, but from a Safe Harbor's perspective, a little bit higher we go, the more that puts pressure on a need for an acquisition. So we're just being very mindful as we kind of tap out the range, but certainly taking advantage of any opportunity to dispose earlier and faster, whenever we can.

[Shane Garrison:]

Yes, I would echo that. I mean, the market has certainly been there, we're still comfortable in the range. From a tax finding perspective, I believe we're complete at the midpoint right now. So to Steve's point, fixed that, we run out. I think the most we can do, all things considered, would be $1 billion to $1.1 billion this year. Obviously, we've run hard at the beginning of the year to setup closings in Q1 as well. I think the guiding point here is that we certainly appreciate the merits of running as hard and fast as we can. That is not lost on us, the merits both internally and externally are compelling. Internally, from a productivity and focus standpoint as well as morale and externally, obviously, from a multiple and closing the gap on NAV. So we are focused, we are on it, and we are running hard, no question.

[Heath Fear:]

Yes, and just a follow up, R.J. When we're talking about tax planning, the constraint is really the prohibitive transaction rules. So for the Safe Harbor - right now, what we've done today, it would allow us to transact to probably close to $1 billion, if we wanted to transact higher than that, we would actually have to do some acquisitions. And as Shane mentioned, we don't want to be forced to do an acquisition. So we're just doing what we can to make sure that we buy ourselves flexibility to move as swiftly as possible.

[Richard Milligan:]

Thanks for that color. Can you give more detailed to us as who the buyer pool is for these assets or the progress that you've made year-to-date? Individual buyer, institutional buyers, if you could give us a little color on that?

[Shane Garrison:]

It's been all of that. We've sold to individuals. We've sold to funds, we've sold to REITs, public and private. And I think everybody wants to know who's buying power centers. Grocery, I think, it's not a secret. Everybody shows up for grocery as long as the sales are there and it's #1, 2, or 3 in the market. From a power perspective - from a cap rates first, look, we've sold [indiscernible] at 9, we sold [indiscernible] in the 6. Luckily we sold close to the low end in the higher range. And it's again, it's subjective, based on remaining lease duration CapEx profiles and sales. So it is, I think, a wider net or a spectrum, and a little deeper bidding pool than we initially thought it would be early in the year. And the good news is, the traction and liquidity profile generally remains, and you're seeing that in our overall execution.

[Richard Milligan:]

Okay. And my last question for Heath. You guys have gotten leverage down to 5.2x. Is that where you're comfortable? Or would you like to continue to drive that lower?

[Heath Fear:]

Just to revise, RJ, that 5.2x doesn't include the redemption of the preferred happening right this year. So that will pop up to 5.6x. And we think will end the year based on our dispositions in somewhere in the mid-5. Then over the course of 2018, as we continue to sell, you'll see that number turn down.

[Jordan Sadler:]

Okay, but no intention of running at any lower than where it is, currently?

[Steven Grimes:]

I mean just by the virtue of being a net seller, it will go lower. As you recall from our Investor Day, our whole idea was to get ourselves down from the end of 2018, somewhere in the mid-4s which will give us a lot of excess to liquidity. But sort of as anchoring point like what I think stabilize basis, the company should have its leverage. Probably 5.5 is a comfortable anchor.

[Operator:]

Our next question comes from Vin Chao from Deutsche Bank.

[Vincent Chao:]

Just a quick question with [indiscernible] just curious how your conversations are going on with that tenant, following their announced store closure plans?

[Shane Garrison:]

It's Shane. So we're - our exposure to see currently, all it's moving with dispositions profile. It's about 140 basis points, where they are. We talk to them quarterly, obviously, given 40 plus stores, it's substitute relationship. We're appreciative of what you're trying to do. And the relationship is substantive. And it's literally a store-by-store conversation. And we have not seen or done any rank reductions there. But obviously, we're trying to maintain that relationship. And certainly, we're going to have to use some strategic renewals through the remaining dispositions pool, but we don't see anything that's meaningful.

[Vincent Chao:]

And then, I guess, so we've seen and we know about them. Are there more tenants out there that are talking in a similar lane I guess?

[Shane Garrison:]

We haven't. Given the sentiment I would have expected a lot more than I see what we have seen. I would tell you any substantive conversations we've had on a relative store count have really been with the bankruptcy tenants, Payless through Gymboree. So haven't really seen an effect relative to again what you would expect from overall sentiment and retail. And then as we look forward to next year, it's pretty muted for us on a relative basis. We don't have any department for exposure and we don't see any significant bankruptcy exposure for us as we look forward on the stabilized portfolio.

[Vincent Chao:]

Okay. And then maybe just sticking with expiration schedule. If you look at further out to 2019 anchor rollover. I am just curious, it looks like the ABR perspective for the expiring there is bit high given maybe a smaller average anchor size in that period? I was just curious if there's any risk or if you had a sense what the mark-to-market on 2019 anchor expirations will look like?

[Shane Garrison:]

When we go through the acquisition and annual or semi-annual NAV and underwrite exercise, we talk about this all the way through the tenure, nothing in '19 sticks out in my mind has been a concern from mark-to-market perspective. You do have some anchors that are in more infill higher-quality locations, but we don't expect any volatility.

[Vincent Chao:]

Okay. And then, maybe, Heath one for you or both of you I guess, Shane and Heath, in terms of going over on the dispose, you said that you put more pressure to acquire more assets, but obviously, you also have a shared repurchase as a potential use of proceeds. Just curious, should we be modeling it out as like-for-like increase in acquisitions or a shared repo if dispositions end up being higher than you expect? And then I think in the past conversations, this share repurchases, they have got pluses and minuses, I'm just curious what sort of push you over the edge to be more aggressive on that front?

[Heath Fear:]

I'll answer the earnings impact and I'll let Steve handle the share repurchase program going forward. So we have enough room in our range. We're not considered if we exceed the dispositions range and we're not - we don't final acquisition and we don't materially accelerate share repurchases that will fall out in the range. So even though we accelerate because what's happens is most of those incremental dispositions will occur in the fourth quarter. So you're not going to see bunch of disruption in your off to fall.

[Steven Grimes:]

As for the repurchases, Vin, we're definitely looking at those as a very good competitor and in acquisitions that are out there for us for the back half of this year were similarly to what we've done to date. We brag about $165 million left in the authorization. Not stated. We're going to out there programmatically buying those. But it is definitely a very viable use of proceeds for us in light of the competitive acquisition environment that we're seeing right now. And obviously, at the pricing levels that we've done to date, it's been very, very compelling. So should we opportunity to continue to present itself from the share price perspective, it's definitely something that we will consider.

[Operator:]

[Operator Instructions]. Our next question comes from Tayo Okusanya with Jefferies

[Tayo Okusanya:]

The increase in the provisioning expense in the second half of '17, could you talk a little bit about kind of how you come up with that? Is that just on the current bankrupt tenants like Gymboree and Payless? Or you kind of doing a further assessment of the portfolio and looking for where you could have additional risks. Just kind of curious how you kind of quantify that number?

[Heath Fear:]

So what we do is, this is sort of an extreme case scenario to give folks comfort at the midpoint of a range. Just to remind you, at the midpoint of the range, we still have a 35 basis points of bad debt reserve, which is about $1.1 million. So what we're saying is that, if these 3 guys, in a very unlikely scenario, were not to give us any rent in the fourth quarter, our continuing bad debt reserve would cover them. More than cover that, that potential, call it, 15 basis points of disruption. So we're not - we don't think anything's going can happen, especially now with Payless for example, Payless just filed its plan of reorganization. So we think that the 5 stores that they closed are the only ones that are going to close for us. It was just to give an example of what doomsday scenario could happen. And we're not looking at any other tenants in the fourth quarter that we think are going to file. Typically, tenants don't file on the fourth. They try to give it one more shot during in the holiday season, to try to turn a profit. So again, this just a [indiscernible]

[Operator:]

Our next question comes from Floris van Dijkum with Boenning and Scattergood.

[Floris van Dijkum:]

I wanted to talk about the dispositions and how you might exceed, would you look to increase your dispositions, potentially, if you make good headway on, particularly, on Schaumburg Towers? And would you consider further dispositions for the following year?

[Shane Garrison:]

Floris, this is Shane. We have covered a bit, but we're at $840 million right now, assuming all of that is closed while Schaumburg takes you somewhere between $925 million to $940 million. I think on the high end, we could get to $1 billion to $1.1 million. We have a little additional Safe Harbor in tax findings as we accomplish that and nothing significant that will take away from our ability to continue to allocate to share repurchases should that merit be there. And then, obviously, next year, the comment that we want to run as hard and fast as we can for all the right reasons, as we discussed earlier. So we fully intend, if the market holds up, we think it will at this point to try to push hard to get on and quickly, hopefully, first, second quarter next year.

[Floris van Dijkum:]

And so I guess, is the related question to that would be. So would you look to, obviously, renew the authorization or increase the authorization if you were to use that up by the end of the year? Is that the more the question for board, but - let me ask you a question on the percentage rent as well, if I can. Percentage rent declined during the quarter. Just curious is that just the soft retail outlook or was that more tenants specific? And it shouldn't be a big part of your portfolio anyway, but just curious to get your comments on that.

[Shane Garrison:]

Yes, it's a little constraint to what you would extract on that face value. So as we fill up boxes, we've actually charged some good tenancy rents. So you're actually close to what is a true percentage rent than you have been over the last call at 3 quarters.

[Steven Grimes:]

Well, this is Steve. I think you had a question in there about the authorization. We do have a current authorization totaled $250 million, there's about a $160 million lost in that current authorization. And to the extent that we were to run high on that, certainly, I think we will go back to upsize that authorization.

[Operator:]

The next question comes from Chris Lucas with Capital One.

[Christopher Lucas:]

Just a couple of questions related to guidance. You guys ran at $0.55 for the first portion of the year. So sort of employs $0.45 to $0.50 for the back half on the current guidance. Other than the disposition timing, is there anything else that would can get you to the lower end what we should be thinking about?

[Heath Fear:]

I think this is what we've discussed in my last year's example that there's some more disruption that we're not focusing on. Other than that, it's really all about transaction timing.

[Christopher Lucas:]

Okay. And then, Shane, I was actually kind of surprised that you suggested that your visibility, at least right now, was actually not too poor for looking into next year. I guess, if you had to provide a guidance and number today, I'm not looking for the actual number, but I'm thinking about the range. So this year, you've been running sort of 5% range between the 1 and 1.5. As you look out to 2018, should we expect that guidance range to be roughly the same? Or should we be thinking about wider as you look into 2018 given the uncertainties in the marketplace?

[Shane Garrison:]

I don't think we're going to guide for '18. But I would tell you from an operational, like a same-store's perspective, Chris, I think the setup for us is extremely compelling. And there's a couple of points here, but I'll try to keep it brief, one, we think we have relatively low bankruptcy exposure. Additionally, we have a much more smaller denominator, obviously, the faster we go, the smaller that denominator gets and we think works to our benefit. Some from lower G&A, as we discussed in the Investor Day. And then we have some significant comps that we've talked about hhgregg, you've seen kind of 25%, 26% number year-to-date. I would expect the new comp number to increase based on some of the next year's opportunities we have in addition to some of the anchor mark-to-markets that we're going to push through in the next couple of quarters. And then, we have a significant configuration benefit that continues to play out. When we started this process, we were about 38% in line, 62% or so from an anchor perspective on ABR. And we're fast approaching 50-50 and you'll continue see that benefit plays through a contractual standpoint as well as our recoveries. You see our recoveries at 75. We thing we can get to 80 in a pretty short order. Especially, as we wind down this process. So without guiding to '18, just from the operational same-store perspective, I would tell you it feels very good.

[Operator:]

Our next question is from Mike Mueller with JP Morgan .

[Michael Mueller:]

Just a quick number's question here. I think, you talked about releasing the boxes; hhgregg and Gander, within a year or so when you get them back. Can you walk us through like how many have you gotten back so far? What's left to get back? And then just what's the total dollar rent associated with all of those?

[Steven Grimes:]

So go ahead with the hhgregg and Gander's drive into.

[Heath Fear:]

Yes. The hhgregg, we had 4 boxes, effectively. One was the cap center, which is now part of a broader redevelopment. So 4 to address, 1 has been leased. The rent has actually - the rent [indiscernible] starts in fourth quarter. So that leaves 3 for us. Effectively, for the 3 boxes combined, we were somewhere along $1 million in ABR, the remaining 3. So we think the mark-to-mark on those boxes is well into double digits - or I'm sorry, Mike, well into double digits and then expect to have that done again in the next 12 months.

[Michael Mueller:]

Okay. Assuming all of those back down. They're all?

[Steven Grimes:]

We do. We do, yes. And then as for the Ganders, we have those 2 back as well, one of which for disposition. And the other one, well, there's a backward from the renegotiations going on.

[Michael Mueller:]

So it's sounds like by mid next year?

[Shane Garrison:]

Everything will be there.

[Operator:]

Ladies and gentlemen, we reaching the end of the question-and-answer session. At this time, I'd like to turn the call back to Steve Grimes for closing comments.

[Steven Grimes:]

Thanks for joining us today. We understand as always, it's a very busy time for you all. We hope that we provided you with certainly enough information to understand where we're as of the end of June. And a little bit of insight about how we expect to end the year. That being said, obviously, the transcript will hold the lot of information that may cause some additional questions, but to the extent that you have any, we're certainly here and available for you. Have a great day everybody.

[Operator:]

This concludes today's conference. You may disconnect your lines at this time and we thank you for your participation.