Washington Prime Group Inc.
Q1 2017 Earnings Call Transcript

Published: 27 Apr 2017

[Operator:]

Good day, ladies and gentlemen and welcome to the Washington Prime Group First Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will have a question-and-answer session and instructions will be given at that time. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the call over to your host for today’s conference Ms. Lisa Indest, Senior Vice President and Chief Accounting Officer. Ma’am you may begin.

[Lisa Indest:]

Good afternoon and welcome to our first quarter earnings call. During today's call, we will make certain forward-looking statements as defined by the federal securities laws. These statements relate to expectations, beliefs, projections, plans and other matters that are not historical and are subject to the risks and uncertainties that might affect future events or results. For a detailed description of these risks, please refer to our earnings release and various SEC filings. Management may also discuss certain non-GAAP financial measures. Reconciliations of these non-GAAP financial measures to the comparable GAAP measures are included in our Press Release, Supplemental Information Packet and SEC filings which are available on the Investor Relations section of our website. Members of Management with us today are Lou Conforti, CEO; Butch Knerr, COO; and Mark Yale, CFO. Now, I would like to turn the call over to Lou.

[Louis Conforti:]

Thanks Lisa, all right, let's get down to business. I’ll provide operational, financial, strategic and innovation highlights and Butch and Mark will fill in the details. First, I'd like to address the current binary path which exist today for retail assets below an arbitrary break point are relegated to deadmalls.com. This heavy handed demarcation based upon pretty blunt edged metric such as MSA size or solely upon sales per square foot, it’s just overly simplistic, of course sales per square foot is an important variable. However, other factors need to be weighted accordingly including occupancy cost, catchment, competitor proximity, travel distance and cost of living adjustment. Take for instance infatuation with the country's largest MSAs. One of the most cited statistics out there, now you’ll hear it from just about everybody is 25 square feet of retail per capita, make no mistake this isn't about refuting the fact we're over retailed. The real question is exactly where this over concentration exists and the answer might surprise you. We recently completed a study which showed there is a 12 largest MSAs exhibit 2.6 times more retail per capita when compared to the rest of the U.S. at 17.2 square feet. So we anticipated a relative wealth argument and so we employed cost of living adjustment in order to normalize median household income, guess what. [Concision] residing within our catchments materially benefit from less expensive housing as well as other living expenses. In fact they exhibited a higher adjusted median household income than the national average. It's time for a more rational assessment of our cash flow characteristics. And for that matter, for hours as for that matter our entire peer group. Listen, I'm not here to defend landlords who haven't changed the look and feel of their assets. In Dallas, the housekeeper took Marcia Brady shopping for her first pair of White Whale Corduroy’s. Nor am I an apologist for assets nearing functional obsolescence. The answer is to raise those. As for those retailers that are still out there, they quite frankly should gracefully take the escalator up to their great big checkout line in the sky where they can sit on a Bombay Company Rocking Chair in front of a Woolworths, Playing Checkers from KB Toys and listening to a CD shoplifted from Sam Goody. Reminiscing about the good old days with County Seat, Chess King, Fashion Bug, Merry-Go-Round you guys - you get the point there is a lot of dynamism in this business and I think that we're going to continue to see change and it's up to us to a continue to help our tenants in a very different landlord tenant relationship. Operational, so stabilization continues and we are improving visibility with respect to those activities and it's best illustrated by the following. Our portfolio wide occupancy was flat at 92%, while Tier-1 and Tier-2 Enclosed increased about 50 basis points to 90.7%. Tier-1 Enclosed which is comprised of 37 asset delivered comp NOI growth of 1.5%, which excluded a one-time property tax saving from the first quarter of last year. Open Air delivered comp NOI growth of 2.9%, portfolio wide grew by 20 basis points, leasing volume totaled 1.5 million square feet, which was a year-over-year increase of 13%. And as it relates to two new lease signed, we sign 148 of them, which is a 53% year-over-year increase, pretty pleased about that. I'd like to also point out that of the 1.5 million square feet for the quarter, 35% was food and beverage as well as entertainment related. We are first and foremost a leasing company. We initiated an incentive program in January, intended to diversify tenant mix and address low productivity space. Since implementing more than 125 leases satisfying these requirements have been approved. Redevelopment is crucial. It is also crucial as you guys are all aware. As we promote our hybrid asset model of combining and closed an Open Air formats into vibrant town centers. We currently have 45 projects ranging between $1 million and $60 million, which substantiate $125 million to $150 million of annual capital spend and again we have a projected average ROIs and this is from historical presence standpoint of 9.5% and we hope to continue as such. Butch will provide a detailed discussion of the various projects when he is up next, as well as our success and filling up vacated department stores boxes, in line space and just in general how we continue to reduce exposure to troubled retailers, quickly financial and strategic, which Mark of course will provide in great detail. From those standpoints, our JV with O'Connor is expected to close by the end of the second quarter. As we discussed previously, it will result in reducing our net debt-to-EBITDA to 6.3 times, which will position us quite frankly as one of the best regional mall rates from a financial metrics standpoint. This week we completed a discounted payoff of the $87.3 million loan secured by Mesa Mall $63 million. Think about it like this, Mesa Mall is the quintessential dominant secondary asset. It was just too darn levered where as the yield on the previous loan was 9%, the yield today after the $24.3 million lender write-down is 13%. So Mark will detail the financial happenings during the quarter and I just want everyone to rest assured that every action we undertake whether per capital spend for redevelopment or an effect buying back may some off, all of those are subject to risk adjusted scrutiny. So innovation, innovation from common area utilization as well as dining and entertainment is a priority. Our newly formed joint venture with Cleveland Avenue, a food and beverage venture capital accelerator provides us with the opportunity to beta test new restaurant concepts. We're also moving the food court to center court as we will work with local operators to provide interesting offerings including craft brewers, artisanal sandwich makers and the like. Muncie and Orange Park malls are the first two locations and should be up and running in a quarter or so. In addition our eCommerce platform, tangible which is as patent pending and candy store, Shelby's Sugar Shop are in their final planning stages. Tangible just as a reminder as our concept, which curates Internet purveyors on a rotational basis allowing for a treasure hunt experience. And with respect to Shelby’s, we teamed up with a national operator to roll it out, which combines bulk candy with regional favorites in a creative common area space. We're also going to kind of make it a little bit mobile to the extent that depending upon shopper traffic and kind of think about it as heat mapping will take that old fashion three wheeled bike and just pedal right on over there and sell candy. But I'm saying this for a couple of reasons, one we need to focus on the kinetic versus static. We need to be proactive versus reactive and we just need to create more dynamism within our asset. Last thing I talked about, which I actually love and I’m going to give a shout out, as we say in the west side of Chicago for one of our my colleague. So as you know we install 50 Amazon lockers at 50 of our assets. We think it’s the largest installation within our peer group. We took it one step further by installing digital screens of the electronic couponing and promotional capabilities there's a pretty cool. And when I considered to be the ultimate arbitrage, Kurt Palmer, our Head of Specialty Leasing and Sponsorship realize we could actually sell advertising slates on the lockers themselves and cut a deal with Coca Cola. So it’s on our website, I had every rights and our folks put it on our website today because I think it is evidence of lots of different things whether it would be the symbiotic relationship between e-commerce and physical space, whether it would be that there is not one dead, there should not be any unproductive dead areas within our assets. And we will think about that I don't know if we're going to look like NASCAR, but to the extent that we have sponsorship and promotional capabilities. We are going to exploit them all for you guys. We are in the business of providing experiences that can't be replicated online and you'll see a heck of a lot more of this going forward. Rest assured we’re in sitting still, we expect a couple of busy days at ICSC next month and in the meantime we'll be continuing to grind it out. Butch, you're up.

[Butch Knerr:]

Thanks Lou. Listen business is tough right now, but we are making great progress because we have the entire organization working together to accomplish our goals. We are managing the risk, aggressively leasing space, and reinvesting in our portfolio to provide the differentiated experience at our centers. Let me share with you some of our accomplishments. First, our leasing volume which includes executed deals and store openings totaled over 1.5 million square feet for the quarter. Our new deal activity increased 53% from the same period a year ago with 148 new deals totaling approximately 450,000 square feet. At the end of the first quarter, we had 700,000 square feet of leases executed and not yet open with a total future income of approximately $21 million coming online in the next 12 months. In addition, our new deal pipeline which includes deals currently opt for signature, but not yet executed is up 62% versus this time last year. Releasing spreads for all new deals were up 15.6% driven by an 18.2% increase in our enclosed portfolio and 8.5% in our Open Air centers. Our overall spreads for the entire portfolio grew by 2.1% in the first quarter. As of March 31, occupancy for the total portfolio was 92.7 flat when compared to the same period a year ago. In the enclosed portfolio, we've increased occupancy in the first quarter by 50 basis points to 90.7%. This is extremely noteworthy given the closure of almost 200,000 square feet due to bankruptcies. These results demonstrate our ability to replace underperforming tenants and illustrate the demand for space within our portfolio. For example, over the last eight months, we have successfully addressed approximately 70% of the limited Aeropostale, PacSun, Wet Seal store closures. As it relates to traditional department stores there were approximately 350 closures announced earlier this year with only four of those residing in our portfolio. We view these as an opportunity to redefine and reenergize our properties as the town centers within our markets. For example, at three of the four impacted locations, we already have redevelopment plans in place that will make our centers more relevant, expand our catchment area and keep our shoppers in the centers longer. In fact over the last 24 months, we have started or completed redevelopment activity at 13 former department stores that include uses such as specially grocers, entertainment, big-box tenants, junior anchors, fitness centers, theatres, casual and sit down restaurants, off price retailers office and medical and residential. As we previously stated, redevelopment within our portfolio is the best return on investment in order to continue to unlock value. In the first quarter we approved $50 million for additional investment into our assets as part of our continued plan to spend between $125 million and $150 million a year on redevelopment. Let me provide a few examples of the projects underway. At Classen Curve, Oklahoma City, we're under construction with two multi-tenant buildings adding 30,000 square foot of new retailer to this already vibrant center. The expansion will open in two phases starting in the fourth quarter of this year. We are adding first to market retailers such as Athleta, Soft Surroundings and Arhaus Furniture along with Francesco’s, Cos Bar and Board Room for Men. At Palms Crossing in McAllen, Texas, we have started construction on a 16,000 square foot expansion which is scheduled to open early next year. At West Town Corners in Altamonte Springs Florida, we are under construction with T.J. Maxx, Famous Footwear and Five Below to replace the former Sports Authority box that vacated last year. And at the outlet collection in Seattle, Washington, we started construction on a 43,000 square foot Dave & Buster’s which will open in 2018 further demonstrating with a diverse offerings we continue to add to our centers. And finally, before I turn it over to Mark, I want to thank our associates for all their hardware. Thanks Mark.

[Mark Yale:]

Thanks, Butch. Let's now move on to review of our balance sheet, where we continue to take steps to reduce leverage and enhanced our overall liquidity. As previously discussed, we're excited about the upcoming closing of our second O'Connor joint venture involving seven of our retail properties. Primarily through this transaction along with plan, property, give-backs so I'll discuss in a moment, we will say solid reduction in overall debt levels allowing us to drive down our net debt to EBITDA to approximately 6.3 times on a pro forma basis. We have locked in a blended rate just about 4% on approximately $225 million of financing on three of our unencumbered properties to be contributed to the new O’Connor JV. We're expecting to close on the joint venture next month. Discussions continue regarding the ownership transition to the loan servicer for Southern Hills. During the quarter, we also commenced discussions with the special servicer on Valley Vista Mall. We expect the transition to occur for Southern Hills during the third quarter and close through year end for Valley Vista. As Lou mentioned, earlier this week, we were able to execute on a discounted loan payoff for Mesa Mall. The $63 million payoff of the $87 million note was funded with availability on our credit facility the asset is now unencumbered. Beyond these loans, we only have one other 2017 mortgage debt maturity remaining which is WestShore Plaza. Our current plan is to unencumber the asset with proceeds from the new O'Connor JV. In terms of liquidity, we finished the quarter with over $100 million of cash on hand and we have approximately $607 million of available capacity on our revolving credit facility giving us just over $700 million of assessable liquidity at quarter end. Accordingly, and even when considering the recent Mesa investment, we will have nearly $900 million of total liquidity availability post closing of the second O'Conner JV. This is a solid position for the Company as it allows us to fully commit to our redevelopment pipeline for being patience on the bond execution front. As we previously discussed, we are interested in issuing a longer tenure bonds within the next nine to 12 months to extend the debt maturity profile of the Company. But bond markets continue to be constructive the negative narrative around retail, specialty malls does not provide a good window for execution. We'll continue to keep a close eye on market conditions. Now let me turn to our quarterly financial results. Our FFO for the first quarter was $0.42 per diluted share ahead of our guidance range going into the period. NOI contributions from our portfolio were generally ahead of our expectations for the quarter with a positive growth rate of 2.9% from an Open Air portfolio. This was offset by a 1.8% decline from our enclosed portfolio for growth was muted by a one-time tax appeal savings recognized during the first quarter of 2016 along with the impact from last year's tax on Arrow and Sports Authority bankruptcies. We're neutralizing for the tax appeal savings. We've seen total portfolio growth slightly positive for the quarter including approximately 1.5% growth from our Tier-1 Enclosed portfolio. In yesterday's earnings release, we did raise our FFO guidance for fiscal year 2017 to range of $1.64 to $1.70 per diluted share primarily attributable to the recently executed discounted loan payoff at Mesa Mall. Our first quarter comp NOI was ahead of expectations. We are maintaining our full-year guidance range of flat to 1.5% growth as recent 2017 bankruptcies such as Vanity, Payless and H.H. Gregg will pressure overall growth for the remainder of this year. There were no other major changes to our key guidance assumptions. Finally, we are introducing FFO guidance for the second quarter 2017 in the range of $0.40 to $0.42 per diluted share. We expect comp NOI in the second quarter to be essentially flat compared to the year prior. We will now take your questions.

[Operator:]

Thank you. [Operator Instructions] Our first question comes from the line of Caitlin Burrows with Goldman Sachs. Your line is open.

[Caitlin Burrows:]

Hi, good afternoon, everyone. I was just wondering in terms of the same-store NOI guidance for 2017 being flat to up 1.5%, over the past few quarters the Tier-2 have been negative. So I was wondering, what does it take to get the portfolio above that kind of low single-digit range and/or kind of low single-digit range and/or kind of what does it take to get the Tier-2 to get a positive territory?

[Louis Conforti:]

Well, hey Caitlin, it’s Lou. Let me just Tier-2 for a second because we cast an especially wide berth when we characterize assets as Tier-2 and it's manifested at a top of list two quarters. Since I've been here as well as this quarter and Lisa maybe you can give the exact number, but our comp NOI growth in Tier-2 ranged from I believe a negative 22 to positive 18. And I want to provide one snippet to that in a second, but the reality there is something situational about all of those assets. Now Indian Mound, last quarter I believe was that a negative 18 and this quarter it was Lisa – now is that positive 18. So these are assets where quite frankly we had the – if we wanted to be cute, which we would have a pretty cogent argument to raise to move those into Tier-1. So they're transitional and they're transitional because they might have been neglected because Butch was smart enough to move a crummy theater operator, replacing with a new one. So it's not kind of a one stop answer for Tier-2. But let me tell you a Mesa is a great example of an asset, which was Tier-2 fundamentally because it was encumbered, it was just over leveraged and with a little bit of our blood, sweat and tears and a little hugs and kisses, that is a sensibly we do these year-end very rigorous and reviews sensibly that’s the type of asset they can go to Tier-1. Did I answer your question?

[Caitlin Burrows:]

Yes, so it sounds like these properties a lot of then can have somewhat large swings, they might have been neglected in the past. But you guys are working on them and we should be able to see that in the future.

[Louis Conforti:]

Absolutely unwilling and then Butch wants to say, I mean this is very, very important to us, well yes, Butch go on.

[Butch Knerr:]

The one thing that I was going to ask or answer Caitlin or add to the comment is that when you think about first quarter results, we actually grew occupancy in those – in our Tier-2 by 70 basis points. So that's really how we're going to fix. This is our leasing team, which is very good has got to fill those spaces and that's I think we're starting to evidence that by the increase in the first quarter.

[Lisa Indest:]

Some of these are smaller assets, which would lend themselves, so more of a percentage change when you look at variability in that range.

[Caitlin Burrows:]

Got it, okay. And then I guess next for Mark, you did mention on the plans for a bond offering, that it sounds like now the time range you’re thinking of is in the next maybe nine to 12 months, so that sounds like it's no longer a 2017 and then maybe I think 2018, is that right?

[Mark Yale:]

No, I think we've been consistent that sometimes this year or in the beginning of next year, we would like to execute. It’s still in our guidance. So it’s factored in midway through the year and we're optimistic that once some rationality comes back to the market as it relates to retail and the fact that our business is going to continue that there's going to be a window and once again let's not forget. We are investment grade. We've got a stable outlook. We've got significant liquidity. We've got a great unencumbered pool over $300 million of our EBITDA comes from unencumbered properties. So we're very comfortable and certainly optimistic that there will be a window for us and notwithstanding that when close on the O'Connor JV, we're going to have ample liquidity that gives us the ability to be patient to find the right window for us.

[Louis Conforti:]

Driving down net debt-to-EBITDA over the last year, by over return, so at some point, we have to realize that there are things that are it is in critic specific does and we've worked our behinds off to – listen we continued evidence that in [the settles] me that we trade at this multiples and as I hit - but there are some things that are beyond our control. And so as soon as we see a little bit of light at the end of the tunnel, we will indeed – will act accordingly, but we are in great financial shape as evidenced by Mark’s comments.

[Caitlin Burrows:]

Okay, thanks. I'll get back in the queue.

[Louis Conforti:]

Thank you.

[Operator:]

And our next question comes from the line of DJ Busch with Green Street Advisors. Your line is open.

[Louis Conforti:]

Hey, DJ.

[Daniel Busch:]

Hey, thanks guys. Lou just wanted to follow-up on Mesa Mall. Was that an idea that you approached the lender with how did that come about?

[Louis Conforti:]

Yes. Well, we view as a collective and we are always looking, as we have said previously those encumbered assets have a difficult put option to them, but upon let’s just call it a right size of leverage, we connect quicker than anybody else from the special services perspective. And this is an asset we want to own. In my bad that it was – it was way too levered, but it's now at a position where we'll be able to do pretty [indiscernible] this is a Cabela anchored center, it has a couple other anchor, but we can talk more about metrics in a second if you wanted too.

[Daniel Busch:]

Yes. My follow-up would be just is the sales productivity of that center is similar to Southern Hills and Valley Vista and then to your point if it is, what are the characteristics that make you want to invest further in Mesa Mall down the road versus the plan versus Southern Hills?

[Butch Knerr:]

Yes. I think that the first thing that you got to realize DJ. This is Butch by the way. On Mesa, first it does over $200 million in total sales coming out of the center. It's the only gain in town in fact the next closest mall is almost 250 miles away either going towards Denver or going to Salt Lake City. So from our standpoint, buying it at a 13 and no income on the Sports Authority space, there's huge upside in this asset for us.

[Louis Conforti:]

Very different – Butch roughly…

[Butch Knerr:]

94% right now, but different than the other assets that we've – some of the other assets that we've given back to the lender, but now there's great upside here, big line coming out of the center, strong department stores, but most importantly we think that there's a lot of upside here. And just I emphasize the reason why it was Tier-2 was because of the leverage. We reevaluate those classifications once a year, we'll do that in concert with year-end and we fully expect that Mesa will move up to Tier-1 and it's a great asset that fits our narrative and an asset that we wanted to own under the right circumstances and we were able to achieve that.

[Daniel Busch:]

And Mark to that point, can you remind us is that tiers purely subjective or is there some quantitative metric?

[Mark Yale:]

It's not subjective at all, it's multivariate, it's based up catchment sales per square foot, it's multivariate.

[Butch Knerr:]

And leverage is one of the factors that could have to quantify in the analysis.

[Daniel Busch:]

Okay. And then my last question is just going back to what Ki Bin was touching on, the Tier-2, Butch you mentioned that that was up 70 basis points as far as lease occupancy. Just based on what the cost ratio did, it doesn't look like rents still on that much. What was the driver of the negative 6%. I know there is unique to the assets, but in aggregate was there anything – if occupancy was up and rents were down that much, what was the driver of the decline?

[Butch Knerr:]

It's really the bankruptcies DJ. Our guys are out there filling the spaces as quick as possible, but it's going to take some time for it to get those tenants open and paying rent, but really it's the impact of the bankruptcies.

[Daniel Busch:]

So the economic occupancy fell with the least occupancy held or actually increased? Is that right?

[Butch Knerr:]

Yes. That’s correct.

[Daniel Busch:]

Okay. Thanks guys.

[Mark Yale:]

Thanks DJ.

[Operator:]

Thank you. And our next question is from Floris van Dijkum with Boenning. Your line is open.

[Floris van Dijkum:]

Hey, guys. Question on for you guys in terms of capital allocation with these Tier-2 malls and I think most investors would probably placed a very high cap rate on them, which also means that theoretically your required return on capital at those centers also must go up, for example these are 15 caps…

[Louis Conforti:]

And that’s absolutely correct. The risk, marginally unit of capital is higher and capital is higher in Tier-2 then it is Tier-1, absolutely right.

[Floris van Dijkum:]

And so does that mean that some of the leasing that you might do rather put in capital or put into TI’s you might give additional free rent or how are you thinking about your leasing program for these assets if you think they might be keepers down the road?

[Butch Knerr:]

Floris, this is Butch. Listen I think we look at these assets in regards to the day-to-day leasing with the majority of the small shop tenants we're going to make the same deals that we make with them across the portfolio. I think what we're talking about is when we're going to do a major redevelopment and spent significant capital at the asset that's where it has to – that's what we take into account the risk adjusted return.

[Floris van Dijkum:]

Okay. So you separate of the leasing economics potentially from the redevelopment economics?

[Butch Knerr:]

Correct.

[Floris van Dijkum:]

Got it. Got it. And let me just a follow-up question on the question that was asked previously by D.J., which is I thought there was also some rent modifications that you did with Arrow and with some of the other bankrupt tenants that led for the drop and doesn’t show up and leasing spread because you took those last quarter…?

[Louis Conforti:]

Yes, that's correct and that's why you saw negative releasing spreads in the Mall portfolio or enclosed portfolio over the last couple quarters of last year and now there's are coming through. So that is certainly an impact when we talk about bankruptcies not only loss base, but you're right impacts on an Arrow there was a significant amount of rent relief, we felt like we made the right decision keeping those tenants. But we are feeling the impact here in the first quarter.

[Floris van Dijkum:]

Great. Thanks.

[Louis Conforti:]

Thanks, Floris.

[Operator:]

[Operator Instructions] Our next question is from Ki Bin Kim with SunTrust. Your line is open.

[Ki Bin Kim:]

Hi, everyone. So can you talk about the pace of you saw you released about 78% of some of the public tenets that you mentioned earlier in the call? Is that in the numbers now or is that to be on the common 3Q, 4Q?

[Mark Yale:]

Yes, I think you're going to see the Mall for the bulk of that come in subsequent quarters. So that talks about when we talk about address those are lease not necessarily open.

[Ki Bin Kim:]

Okay. And how the rent profile versus what it was before?

[Louis Conforti:]

It's a mix, I will tell you that some of the deals that we’re replacing a number of the Arrow's we're bringing in better tenants like Lizard's Thicket and some other tenants, but it's a mix. I would tell you that we're not getting the exact rent that we had before. But in most cases, we're bringing in better tenants that are going to be more successful.

[Ki Bin Kim:]

Okay. And as your tenant watch list, it changed in size at all in the past like quarter or so?

[Louis Conforti:]

No, I mean it's actually decrease from a quarter two probably more relevant is where we were last year at this point and we are slightly improved in terms of just the total dollars and there might be actual more tenets on there, but smaller percentage. But it's certainly something we're keeping eye on, there's ample tenants that certainly would be impactful and we're at the wait and see how that plays out. But it actually is last as a percentage of our total minimum rents where we’re last year at this time on the watch list.

[Ki Bin Kim:]

Okay. And on Mesa Mall, walk me through some of the negotiations, like why and I’m sure you've done this, but to push for a bigger mortgage loan relief, what stuff to the bank from taking 50% haircuts? Is it because as a buyer behind them or behind you guys…?

[Louis Conforti:]

Yes, just think about it as an RFP, is in RFP process, an auction process when they figure out who the best buyer, certainly a combination of price, but we can practically have a no contingency, no contingent close because we certainly know that asset. So is your question why couldn't we have gotten my better deal, because Ki Bin, if they – we’re going to get 13 new cap, a 13% yield on an asset that is a dominant secondary asset.

[Mark Yale:]

Yes, I mean just say I mean we made the asset was actually marketed there were other offers I think that allowed us to understand where the market was it allow the special servicer and that's how we arrived at that valuation if there had been better days and the price was higher maybe would have asked. But we felt under these circumstances that type of pricing. It was a very easy decision for us in terms of allocating that capital.

[Ki Bin Kim:]

Yes, I mean that’s what I was alluding to if – it seems like there were other bidders at a worse tax rate?

[Mark Yale:]

No, I mean it was all that was right around that pricing, literally and yes…

[Ki Bin Kim:]

Okay. Thank you. I will go back in the queue.

[Louis Conforti:]

Thank you.

[Operator:]

Thank you. We do have a follow-up with Caitlin Burrows with Goldman Sachs. Your line is open.

[Caitlin Burrows:]

So again, I was wondering if you guys could talk about the Pearlridge Uptown II acquisition, I think the release mentioned that that property or portion of the property is 92% occupied and the anchors are already Ross and T.J. Maxx. So just wondering kind of what that future plans are there or is it just to kind of own more in the same area and if there's anything you could say about that cap rate?

[Louis Conforti:]

Caitlin, this is one of the assets that’s owned in tandem with our joint venture partner. And to the extent that, one, we think that Pearlridge in general just has a lot of very interesting kind of upside characteristics – to our benefit tone more and quite frankly – I don’t know what’s the right term. Our third-party not owning something that here that was holistic just didn't make sense. So now we own everything and we can think about this tremendous asset from a redevelopment standpoint in a holistic – from holistic standpoint.

[Butch Knerr:]

And I don't think if we want to get into cap rate for while we’ll tell you is that this has been an opportunity that’s been in front of us not just something that happens a couple months ago. So we certainly arrived at a price that we were very comfortable with and made sense and it's certainly strategic. And as we think about future redevelopment and a broader redevelopment having control of the whole site makes absolute sense and will be very helpful for us. We have the window to get it done and we got it done on terms of that we've felt made real sense for us and our partners.

[Caitlin Burrows:]

Got it. Okay. And then I know you guys talked about a few of your in process redevelopments before. I don't think you mentioned the Pearlridge, sorry not Pearlridge, Fairfield Town Center. So just wondering if you could give an update there in terms of what’s opened already and the timing of what's to come still?

[Butch Knerr:]

So I think we mentioned in the last quarter that Fairfield Town Center is 95% leased. We're very excited. The response from the retailers has been that their sales are far exceeding what their plans were. We’re already in process to look at Phase 2 in the next phase and probably in our investment committee approved something in the next probably 30 to 60 days to go to the expansion – the next phase of the expansion of the center. It has been very well received and our team has done a fantastic job on the leasing development and construction side and results are very good.

[Caitlin Burrows:]

Okay, great. Thanks.

[Louis Conforti:]

Thanks Caitlin. End of Q&A

[Operator:]

[Operator Instructions] All right. I'm not showing any further questions. So this does conclude the program. Ladies and gentlemen, you may disconnect. Everyone else have a great day.

[Louis Conforti:]

Thank you, everybody.