Retail Properties of America, Inc.
Q3 2014 Earnings Call Transcript

Published: 28 Oct 2014

[Operator:]

Greetings and welcome to the Retail Properties of America Third Quarter 2014 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. (Operator Instructions) As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mike Fitzmaurice, Vice President of Finance. Please go ahead sir.

[Michael Fitzmaurice:]

Thank you operator and welcome to the Retail Properties of America third quarter 2014 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 Investor Relations section on our website at www.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, included in our guidance for 2014, and will be affected by a variety of risks and factors that are beyond our control, including, without limitation, 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 represent management’s estimates as of today October 28, 2014. 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 definition of these non-GAAP financial measures in our quarterly supplemental package and our earnings release, which are available in the Investor Relations section of our website at www.rpai.com. On today’s call, our speakers will be Steve Grimes, President and Chief Executive Officer; and Angela Aman, 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 will open up the call to your questions. And with that, I will now turn the call over to Steve Grimes.

[Steven P. Grimes:]

Thanks, Mike, and thank you all for joining us today. We’re very pleased to report another solid quarter of financial and operational performance in addition to incremental progress on our strategic portfolio and balance sheet initiatives. As we execute on our key objectives, we continue to enhance our positioning within the marketplace and our ability to find and harvest attractive growth opportunities both internally and externally. From an operational standpoint, we maintained strong leasing momentum with 1.2 million square feet of retail leases signed during the quarter, resulting in a lease rate of 95%, an increase of a 100 basis points over the prior year. As an owner of high quality multi-talent retail assets, we continue to benefit from the broad-based lack of new Class A retail supply in our major markets. This dynamic has resulted in stronger renewal activity across the portfolio as evidenced by the nearly 1 million square feet of renewals signed during the quarter, representing 92% retention rate. With occupancy nearing stabilization in a supply environment that is very favorable to landlords. We continue to explore opportunities to enhance the dominance of our centers, while also creating incremental value for our shareholders. As we articulated last quarter, we will continue to proactively identify and execute on remerchandising and repositioning opportunities across the portfolio, as we have done so over the course of 2014 by focusing on upgrading our tenancy while driving significant rental rate upsides. Well, this may result in downtime that could impact near-term performance. These initiatives will contribute to the long-term vibrancy of our shopping centers and drive additional traffic to our tenants. In addition, we are now focusing more of our timing attention on a growing pipeline of redevelopment opportunities within our existing portfolio. As you may recall earlier this year, we discussed preliminary plans for the Boulevard at The Capital Center located in Washington D.C. MSA where we expect to have the ability over time to add significant density to the side and solidify the assets positioning in the market. Over the last two quarters, we have identified several additional properties where the potential exists for us to meaningfully increase density and we look forward to sharing details regarding our plans over the course of 2015, as the scope of these opportunities take shape. At the same time, we continue to demonstrate measurable progress on our portfolio repositioning strategy. Year-to-date, we have completed $269 million of high-quality acquisitions primarily in our target market. We are also capitalizing on robust demand for assets in secondary and tertiary markets. Year-to-date including activities subsequent to quarter end, we have closed just over $200 million of dispositions, representing about non-core, single tenant assets, as well as non-strategic multi-tenant retail assets. Furthermore, we have an additional $97 million of dispositions under contract and we now expect that our full year disposition volume will come in the near – the mid point of our guidance range of $300 million to $350 million. Finally, I’m pleased to report that last week we received an investment grade rating from S&P, a strong acknowledgement of the quality of our portfolio, our discipline and measured approach to capital allocation and the conservative management of our balance sheet. This achievement further enhances our ability to continue to execute on our long-term strategy and drive value for shareholders. And with that, I will turn the call over to Angela to discuss our financial results in more detail.

[Angela M. Aman:]

Thank you, Steve, and good morning. Operating FFO was $0.28 per share for the third quarter, up from $0.27 per share in the third quarter of last year. Higher NOI and lower recurring interest expense, were partially offset by lower joint venture fee income and lease termination fees. Including non-operating items FFO was also $0.28 per share, up from $0.27 per share in the third quarter of last year. Non-operating items this quarter were primarily related to the early repayment of debt, offset by the one time reversal of an excise tax accrual, related to a legacy joint venture investment. The $4.6 million liability reversal was recognized as income within other income net, during the quarter. During the period we’ve recognized approximately $55 million of impairment charges, including a $43 million charge related to The Gateway, a lifestyle center located in Salt Lake City, Utah, which was written down to a value of approximately $75 million. We’ve discussed the ongoing challenges of this center on previous call. Given our geographic repositioning strategy and the specific circumstances surrounding this asset and the Salt Lake City market, our primary objective has been to stabilize and dispose of the center at the appropriate time. These uncertain leasing successes in early 2014, we marketed the asset for sale in the first half of the year and we were at various times under contracts with two separate buyers that values over $100 million. However, as operational results of the property have continued to deteriorate, we’ve been unable to close the transaction with the potential buyer and we now expect the NOI to drop and occupancy to stabilize at lower levels since previously expected, resulting in the need to impair the asset of this quarter. We will continue to work towards the successful repositioning and remerchandising of the Gateway. We’re also continuing to explore strategic alternatives for this asset. Same-store NOI in the third quarter was up 2.4%, representing an anticipated decelerations in the first half of 2014. The positive contribution to same-store NOI growth from rental income remain generally consistent with the first half of the year, due to overall positive fundamental trends including significant occupancy gains, positive releasing spreads, and contractual rent increases. Total operating expenses, net of recovery income structured approximately 30 basis points from same-store NOI growth during the third quarter, after being a significant positive contributor in the first half of the year. We now expect that same-store NOI growth for 2014 will be between 2.5% and 3.5%, representing a 50 basis point increase at the mid-point of the range. Additionally, we have also increased our full-year operating FFO guidance to a range of $1.07 to $1.09 per share from the previous range of $1.04 to $1.07 per share. The increase in operating FFO guidance reflects our higher same-store NOI growth guidance as well as revised disposition timing assumptions. Although, we will not be proving 2015 guidance until early next year, we do now expect that the Gateway will continue to be a headwind to same-store NOI growth in 2015 and that the magnitude of the impact will be greater than the 25 basis points to 50 basis points impact we expect for this asset in 2014. In addition, as we noted on last quarter’s call, 2014 G&A would likely come in lower than originally expected, primarily as a result of lower acquisition costs. Looking forward, we would expect that G&A in 2015 will include more normalized acquisition costs in the $1.5 million to $2 million range. Turning to the balance sheet; during the quarter, we’ve repaid $94 million of mortgage loans with a weighted average interest rate of 5.94%. Our net debt-to-adjusted EBITDA ratio ended the quarter at 5.6 times, quietly lower than expected due to the reversal of the excise tax accrual I mentioned in my earlier remarks. Excluding this reversal, net debt-to-adjusted EBITDA would have been approximately 5.8 times, which is roughly in line with where we expect to end 2014. As Steve mentioned subsequent to quarter end, we received an investment grade credit rating from S&P, which follows the investment grade rating we’ve received from Moody’s in January of this year. We’re very pleased by this announcement which underscores the balance sheet transformation that has occurred over the last three years. We’re now well positioned to take advantage of the diverse sources of capital available to us to execute on our portfolio and operational strategy, reducing our overall cost of capital, and creating long-term value for our shareholders. And with that I’ll turn the call over to Shane.

[Shane C. Garrison:]

Thank you and good morning. As Steve and Angela have highlighted, we delivered yet another strong quarter of operational and transactional results as we continue to advance our portfolio strategy and focus on pursuing additional value creation opportunities. During the quarter, we signed 188 leases, representing 1.2 million square feet of space. As a result, we ended the quarter with 93.7% occupancy, up 120 basis points year-over-year. We continue to drive significant momentum in small shop leasing with small shop occupancy ending the quarter at 83.9%, up 250 basis points year-over-year. Including the leases signed but not yet commenced, our small shop lease rate is now 86.3%, our highest level since 2009. With occupancy near stabilization across our portfolio, the favorable supply dynamic in the market and a slowly but steadily improving economy, we are seeing the friction necessary to push rent and deliver strong releasing spreads. For the third quarter, we realized a compelling 10.8% cash spread on a comparable new leases or 14.9% year to-date. For all comparable new and renewal leases signed in the quarter our blended cash releasing spreads were 4.4% or 5.9% for the full year. From a transactional standpoint, we closed on $89 million of dispositions during the third quarter, and subsequent to quarter end we closed on an additional $35 million. These transactions comprised 13 individual dispositions, including five non-strategic multi-tenant retail assets, six single-tenant retail assets and two office assets. Year-to-date, including the activity that has occurred subsequent to quarter end, we have closing on $204 million of dispositions. As we execute on our disposition goals, we continue to take steps to position our assets in order to maximize value upon sale, while capitalizing on the high-quality nature of the centers in our long-term disposition pool, the favorable supply and the demand dynamics in our industry and liquidity in the marketplace, which have resulted in robust demand for asset in secondary and tertiary markets. Buyer interest remained strong for the assets we are marketing and we now believe that our full year disposition volume will come in near the midpoint of our guidance range of $300 million to $350 million. In terms of acquisitions, year to-date we have completed $269 million of high-quality acquisitions and continue to anticipate that full year acquisition volume will come in at the low end of our guidance rage of $300 million to $350 million. As we look ahead, we expect the transaction market to continue to favor sellers. Given our disciplined approach to capital allocation and the strength of the disposition market, we now expect to be a net seller in 2015 with dispositions totaling as much as $500 million and acquisitions total approximately $350 million. As we have communicated in the past, the portfolio recycling strategy will be neutral over the longer-term and that expectation has not changed. That said, we are conscious of the fact that the success of our portfolio repositioning efforts will depend on our ability and willingness to take advantage of market conditions when they present themselves. As Steve mentioned in his earlier remarks, we believe that over the next several years, we will have additional levers to pull to organically grow the company. As we continue to transform our portfolio through our proactive hands on management approach, we are uncovering a growing pipeline of significant remerchandising and redevelopment opportunities. And with that, I would like to turn the call back over to Steve for his closing remarks.

[Steven P. Grimes:]

Thank you Angela and Shane for your updates on the quarter. It goes without saying that we continue to be extremely proud of our progress against our strategic initiatives and I would like to thank our incredible team for delivering yet another solid quarter. And with that I would like to turn the call over to the operator for questions.

[Operator:]

Thank you. At this time, we will be conducting a question-and-answer session. (Operator Instructions) Our first question today is coming from Todd Thomas from KeyBanc Capital Markets. Please proceed with your question.

[Todd Thomas:]

Hi thanks. Good morning. Angela, this first question, the same-store NOI growth increased in the quarter of 50 basis points. What was the driver behind that, was it better leasing and occupancy or a change in the mix of assets held throughout the year based on how your capital recycling initiatives played out or something else?

[Angela M. Aman:]

Hello.

[Todd Thomas:]

Yes, Angela, can you hear me?

[Angela M. Aman:]

Yes, can you still hear me Todd?

[Todd Thomas:]

Yes, all right.

[Angela M. Aman:]

Okay, could you hear any of that response?

[Todd Thomas:]

No, I didn’t.

[Angela M. Aman:]

Okay, sorry, there seem to be having problems. Okay, thanks for the question. The disposition pool for the year did not have an impact on the full year same-store NOI guidance range. It was a negligible impact for the full year. So it’s not really driven by a change in in-depth position assumptions. The drivers are really, as you said, a minimum rent grows as a result of stronger than expected occupancy and in the mix of that occupancy gain, as well as strong releasing spreads across the portfolio. But also was driven by higher percentage rent, and specialty income and other property income, obviously coming into 2014, we had a smaller inventory of available space to work with from a specialty leasing standpoint and the team has done a good job of harvesting other ancillary income opportunities across the portfolio, was really a combination of things, but not driven by this decision.

[Todd Thomas:]

Okay. And then, Shane just a question for you on the renewal leasing activity. Are you starting to see a little more pricing power, I guess how does that number, or the leasing spread for renewals, how does that trend in 2015, can you see that, should we expect to see that start to increase by a few percentage points towards the high single digits or do you think that it remains roughly consistent at current levels.

[Steven P. Grimes:]

Yes I think this quarter was a bit of an anomaly, Todd. We admittedly had one top renewal and called 60,000 feet in the non-strategic asset that just made a lot of sense. So I think to your point mid-single digits feels better than what this quarter indicated. So we should see some moment.

[Todd Thomas:]

Okay. And then I was wondering if you could comment at all, there were reports about Sears closing at Fordham Place which you acquired not that long ago. I was just wondering if you can give us an update on that space, specifically what type of re-tenanting opportunity you see in terms of merchandizing the space and also potential rent upside.

[Steven P. Grimes:]

Sure. So in due diligence, we were certainly aware of the fact that Sears view that store as not long term. I think that’s their last store in the Bronx. Looking at rent at whole center and their space in particular, we think there certainly some upside there. The real key to unlocking value would be for to secure some of the existing First Corp space from one of the other tenants there to really get a better corridor and blend the space together. So we’re looking at different iterations from an architecture and layout standpoint today, but from a Sears agreement standpoint, we have nothing to announce, and certainly do not contemplate any Sears revenue in our numbers this year.

[Todd Thomas:]

Okay. Is there anything – is there any lease termination fee income that you expect to receive from Sears for that space?

[Steven P. Grimes:]

Yes that’s what I was talking. So, we don’t expect any Sears termination revenue this year, they are still obviously paying rent. If and when we have something to announce, we’ll obviously do, but nothing today.

[Angela M. Aman:]

Yes, guidance does assume basically a $2 million lease termination fee or $2 millions of lease termination fee income in the fourth quarter, that was announced last quarter and that’s still our expectation, so we haven’t moved that higher.

[Todd Thomas:]

Okay, great. Thank you.

[Operator:]

Thank you. Our next question is coming from Christy McElroy from Citi. Please proceed with the question.

[Christy McElroy:]

Hi, good morning everyone. Angela, the 2.5% to 3.5% same store NOI guidance implied a pretty wide range for Q4. I assume that guidance is for the full year. So if I think about Q4, what are sort of the major drivers that impact growth in the quarter? And can you maybe provide a bit of a tighter range for where Q4 is likely to end up.

[Angela M. Aman:]

Well, I mean, obviously, we just initiate up the range last night. So I think the range stands for the full year. I would say to help you sort of see the midpoint of the range from an outcome perspective in Q4 would imply basically 3% same store NOI growth, effectively flat same store NOI growth in the fourth quarter. That’s being driven mostly. As you may recall, last quarter we talked about the way that – the contribution to same store NOI growth from operating expenses, net of recovery and come what changes as we move through the year, and we’ve seen that sort of play out differently, sort of play out this quarter where the contribution from those line items was a slight distraction from same store NOI after being a significant positive contributor in the first half of the year. But based on the way the recovery ratio changed over the course of 2013, we would expect a significant deceleration related to those line items on a year-over-year basis. So operating expenses, net recovery income could actually detract around 200 basis points at the midpoint of the range. To be clear that doesn’t assume that the recovery ratio in 2014 is moderating from the third quarter level of around 68%. We would expect the recovery ratio in the fourth quarter to be generally consistent. We’re just up against some more difficult comp in the fourth quarter of last year.

[Christy McElroy:]

Okay. And then, Shane, just a follow-up on dispositions. Last quarter, you expressed there’s pretty good degree of confidence that about $130 million to $150 million of dispositions have closed in Q3. At that point, I think you were guiding towards the higher end of the $300 million to $350 million range for the year, but it looks like deals have been closing at a slower pace than you would have expected with lower volume in Q3. You’re now guiding towards the midpoint. Can you provide some color around that?

[Shane C. Garrison:]

Sure. It’s really one asset, Christy. We have a power center, call it, a little north of $40 million. We had a false in that quarter and now we look for that asset to trade next year in the pool. The good news is that we’ve actually leased some space there. So we should be able to grab some additional value through that sale, but that’s really been the big factor.

[Christy McElroy:]

Okay. And then, just a follow-up on your comments on 2015. The $150 million delta between your execution for dispositions and acquisitions, how would you expect to reallocate the excess proceeds?

[Angela M. Aman:]

Yes, I mean, we’ve talked about sort of all the work we’re doing, I think, broadly to harvest more broader sales repositioning and then redevelopment opportunities over the course of the next few years and have a few things identified, but there were unlikely to be spends related to those things in 2015. So I think it’s mostly going to be taking asset secured debt maturities next year and just continuing to enhance the balance sheet and position us for growth going forward.

[Christy McElroy:]

Okay. Thanks guys.

[Operator:]

Thank you. Your next question today is coming from Jay Carlington from Green Street Advisors. Please proceed with your question.

[Jay Carlington:]

Great, thank you. So I guess in your 10-K, your current cost base in the Gateway is around $120 million prior to the impairment. And I’m just looking at the secured mortgage that’s coming due in early 2017. Do you have the ability to hand the keys back earlier? Or is there anything that prevents you from doing that at all?

[Angela M. Aman:]

Hi, Jay. The loan is currently in cash management and covering debt service, so we’re going to continue to as we said in our prepared remarks on the call. So we’re kind of repositioning and stabilizing the asset while continuing to explore all of our strategic alternatives.

[Jay Carlington:]

Okay. I guess Shane or Steve maybe on to your disposition this quarter the Battle Ridge in Atlanta and Four Peaks in Phoenix. Those are kind of two properties in your target markets. So I am just curious kind of what the strategic rationale for selling those assets and markets where you’re looking to grow over time?

[Steven P. Grimes:]

They’re definitely in target markets Jay. I think when we look across the spectrum, we continue to try to focus on lower growth assets, longer term regardless and those were certainly lower growth assets in our view. So happy to sell those into this market.

[Jay Carlington:]

Okay. And may be a last question just on small shop leasing stats on page 15 of the deck. I guess if you strip out Gateway in the west and maybe (indiscernible) in the north. You’re already – your 5-K to 10-K bucket is around 90% leased in that small shop part and I guess you’re under 5-K, you’re around mid 80%. So just kind of thinking about the remaining vacancies, is that structural or how much more lease up potential is there in those two pools?

[Steven P. Grimes:]

Yes, I think on a blended basis, we still think we can get to high 80s, it caught in the small category, but clearly opportunity is below 5,000. So I would say, Jay, call it for next 12 months to 18 months, we should still be able to incrementally move that towards the higher number.

[Jay Carlington:]

Okay. And the single asset sales that you had in I guess post Q3, was that a bulk sale or were those individual sales?

[Steven P. Grimes:]

Those are bulk sale of those five drug stores.

[Jay Carlington:]

Okay.

[Steven P. Grimes:]

Three were Right Aids and a CVS and Walgreens…

[Jay Carlington:]

Okay, there is one another 30 left in that pool?

[Steven P. Grimes:]

That’s a different pool. The big pool that you’re talking about is the 25 Rite Aid located in New York, which become unencumbered late next year.

[Jay Carlington:]

Okay, great thank you.

[Steven P. Grimes:]

Sure.

[Operator:]

Thank you. (Operator Instructions) Our next question today is coming from Vincent Chao from Deutsche Bank. Please proceed with your question.

[Vincent Chao:]

Hey, good morning everyone. I just want to go back to the Gateway real quick. I mean, I know there was a remerchandising plan put in place, sort of reposition it versus the Thalmann asset. Just curious in terms of the difficulties in sort of leasing up that asset, I mean, the strategy, do you feel needs a change or is it just the market is a little slower than you thought to be?

[Steven P. Grimes:]

I think it’s a good question. When you look at the asset today versus, I guess, its heyday, call it in 2010, 2011, this is an asset that was – sales were call it $400 to $450 a foot, albeit with an Apple. Today we’re probably half that and when we look at on the horizon, we’re still scrambling for occupancy. I don’t really see a catalyst to drive rent there. I certainly think GameWorks when it opens helps the asset, but again I don’t think it drives long-term sales. So when we look at our ability to drive rent there longer term, and look at occupancy costs and where they need to be through that lease-up process, we ended up recasting quite a bit and that’s where we’re at from an impairment standpoint.

[Vincent Chao:]

Okay. And just maybe going back to, a lot of folks are coming out with different programs or maybe it’s just a marketing thing by just talking about sort of – focusing on some of these problematic retailers and really going after them proactively, I mean assuming that’s part of your normal process, but just curious if there is any differences or changes in how you’re approaching some of those kinds of retailers versus year ago.

[Steven P. Grimes:]

No, there’s no difference. I think this is the most portfolio reviews we will have in any year, going north of 60. So we continue to be very active in a market that has some great dynamics to drive long-term rent. Specific to next year, from a remerchandising standpoint, we will take back some space. First quarter alone, there’s three boxes we will take back on the watch list in Texas. And there is a, call it second quarter – there is a Wal-Mart 150,000 feet that we will take back and a non-core center, but we think it certainly makes sense to drive value there over the next 24 months before we monetize it. So as we backfill there, we already have an organic growth share. We’ve done a high-end gym deal and we continue to look at higher end concepts in a demo that is north of $100,000 incumbent at the three and five miles. So we’re very focused on driving value, incrementally whether it’s long-term, or certainly in assets we intend to monetize. And it continues to be a great environment in that regard.

[Vincent Chao:]

Okay. Thank you.

[Operator:]

Thank you. Our next question today is coming from Michael Mueller from JPMorgan. Please proceed with your question.

[Michael W. Mueller:]

Hi. When you’re looking out to 2015 for the – if the asset sales and the acquisitions you were talking about, can you talk a little bit about the cap rates, the yields on both of those buckets, and if you expect them to be notably different than what you’re executing or achieving this year?

[Shane C. Garrison:]

Sure, Mike. So $500 million in dispositions, we expect to tighten a bit on the cap rates. I think the pool is better quality than it was this year, 7 to 7.25, call it on the $500 million. Acquisitions, you know, that environment continues to tighten and continues to be challenging, but we would expect to be sub 6 cap rate on call it $350 million. There are a couple of things of note I think from a disposition standpoint. One, we contemplate being out of the office and industrial portfolio, but for Zurich which is here in Chicago at the end of 2015. Secondly and more importantly, we will demonstrate significant progress from a geographical standpoint relative to our strategic plan that we announced 6 quarters ago. Looking at the $500 million, we think we could exit 10 to 15 markets next year and five states, specifically we will look to exit Las Vegas and Nevada accordingly. Also, on the list would be Oklahoma, Kansas, Montana, and New Mexico. So I think again this is going to be a transformational year for us in a lot of ways but specific to the portfolio done with office and industrial, but for one asset in a big move geographically.

[Michael W. Mueller:]

Okay, and last question. Does it seem at this point if you’re taking it out a year further you’re back to being balanced between the two as you go to 2016 or do you think there is a shot you continue to be able to book more – sale weighted?

[Shane C. Garrison:]

I think we’ll just remain flexible, right. That’s been the key to the plan. They will just depend on what the environment is.

[Michael W. Mueller:]

Got it. Okay, thank you.

[Shane C. Garrison:]

Sure.

[Operator:]

Thank you. Our next question today is coming from Chris Lucas from CapitalOne Securities. Please proceed with your question.

[Chris Lucas:]

Just a couple of follow-ups. On the tenant retention rate that was cited earlier, how big of an impact was that to the same store NOI metric so far this year as it relates to what was current – was originally contemplated in the initial guidance?

[Angela M. Aman:]

I don’t know that that by itself had a significant move to the same store NOI guidance like I said I mean a small part of the increase, a 50 basis point increase in guidance was related to minimum rent more broadly including probably a small component related to the renewals, but also new leasing activity and strong releasing spreads across the portfolio and then the percentage rent specialty income bucket as well. So that by itself wasn’t significant of a driver.

[Chris Lucas:]

Okay, and then as it relates to trying to acquire kind of space more proactively. I guess the question I would have is with specific tenants and I am thinking of Kmart, Sears, and the Office Depot circumstances. Are you seeing them being more receptive to executing on lease terminations and moving on or is there a still some inability to come to conclusion with each of those retailers?

[Shane C. Garrison:]

Sure, we don’t have any Kmart. We only have one Sears. So we have a limited visibility into what they’re doing currently. The office product remains a bit frustrating, a lot of the space we would like to take back. We have just not been able to access. We have made a few – a little bit of incremental progress. I think we will get two or three back in the office space next year, but not anywhere near we would like to have at this point.

[Chris Lucas:]

Great, thanks a lot.

[Shane C. Garrison:]

Sure.

[Operator:]

Thank you. We have reached the end of our question-and-answer session. I would like to now turn the floor back over to Mr. Grimes.

[Steven P. Grimes:]

Well, thank you very much. We know it’s an extremely tight quarter for all of you given that NAREIT is a little bit ahead of schedule this year, a week earlier. So we do appreciate your time today. Hopefully all of your questions were answered at least for now and I know as we see some of you next week we’ll have some further follow-up. So thanks for your time today and good luck with this earnings season.

[Operator:]

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