Washington Prime Group Inc.
Q2 2017 Earnings Call Transcript

Published: 27 Jul 2017

[Operator:]

Good day, ladies and gentlemen and welcome to the Washington Prime Group Second Quarter 2017 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, there will be a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the conference over to Lisa Indest, Senior Vice President and Chief Accounting Officer. Ma’am, you may begin.

[Lisa Indest:]

Good morning and welcome to WPG’s second quarter 2017 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’ll turn the call over to Lou.

[Lou Conforti:]

Thanks, Lisa. Good morning, everybody. As usual, I'll provide operational, financial and strategic highlights; with Butch and Mark filling in the details. Whether it be our comprehensive supplemental, and thanks to Lisa, or one of the earliest retail REIT reports – reporters, it illustrates our resolve to become a leader within our space and be characterized by visibility and timeliness. Now, let's get down to business. I’ll start with operational. The previous quarter can best be characterized by continued stability as it relates to tier 1 assets and as anticipated, more desperate results with respect to tier-1. I'm pretty damn proud of our leasing professionals as year-to-date leasing volume, including executed leases and store openings, totaled 2.6 million square feet. Let me put this into perspective. In our enclosed assets, bankruptcies which we really believe have reached an apex, accounted for 260,000 square feet or 1.7% occupancy loss. In spite of this setback, we ended the quarter with a negligible 10 basis point decline in occupancy, not to mention positive re-leasing spreads. Leasing not only backfilled the space, they approached the shuttering of fair to middling retailers as an opportunity to diversify tenancy. As I've discussed previously, we regard tenant mix akin to portfolio construction whereby we are actively reducing exposure within certain retail categories and seeking out additional names and categories where we're lacking. Let me start with the entire portfolio and run through a couple of highlights. Total portfolio occupancy was 92.3% at the end of the second quarter. Of that 2.6 million square feet, 40% and let me repeat this, 2.6 million total, 40% for lifestyle tenancy, including food and beverage, entertainment, fitness and wellness, tier-1 Enclosed ended the quarter 92.6% leased, which increased -- it was an increase of about 30 basis points over the previous quarter. Comp NOI growth for tier 1 was flat and our stalwart open air delivered comparable NOI growth of 2.8, good work Paul and team. As a reminder and listen up, tier 1 and open air currently consists of 88 properties and represents 80% of total NOI. Assuming two assets, Mesa and Cottonwood malls meet the criteria to move up to tier 1 status, these assets will contribute 84% at year and. Let's turn our attention quickly to tier 1. We anticipate having nine encumbered assets in tier 2 by year end. These represent only 8% of our total NOI and remember we consider these assets as political and as illustrated by Mesa mall and our subsequent repurchase from the special servicer, Rob Demchak did a great job with that, we will evaluate these assets in an opportunistic fashion. The remaining eight or so percent, they're primarily small -- and tier 2 are primarily smaller assets, which tend to be the only game and quite frankly in several towns. A couple of other operational comments. As lines between retail formats continue to blur, our hybrid model, which again incorporates both enclosed and open air provides us with a distinct advantage. As a matter of fact, 70% of our enclosed assets now fall into this hybrid category and our future major redevelopments will incorporate this hybrid approach. Also and this is one of Mark's favorite, that and it’s unencumbered assets. This is one of his favorite stat. 34% of our total NOI is now attributable to assets without a department store anchor. Last, redevelopment is less with respect to these bullet points, redevelopment is job one as we transform assets into town centers with a dynamic lifestyle component. WPG currently has 54 projects underway, ranging from 1 million to 60 million bucks with an average return on invested capital of 9.5%. Successful innovation can manifest itself in a bunch a wave. Within our space, it boils down to whether or not we are improving the delivery of goods and services as well as enhancing the experience of our guests. Whether it be the launch of tangible or e-commerce platform, locating local craft brewers and center court, introducing outside the box physical space alternatives or rolling out our Shelby sugar shop candy stores, it's imperative that we practice art, science and a heck of a lot of common sense. For instance, we’d like Shinola and every one of our assets. But first, we need to substantiate the aspirant characteristics of our demographic constituencies or in plain English, prove their hankering for cool stuff. We’re accomplishing this by allowing exciting retailers like Shinola and several, a bunch of others the ability to beta test as they evaluate permanent space. This in effect, think about it, this is to create an event for our guests, which is important. I can go on and on about what we're doing to differentiate ourselves and we work our behinds off, thinking outside the box. Our continued and growing association with Amazon, our canvas project which has painters producing artwork in common area, ongoing discussions with a major entertainment company to bring up and coming musical ads acts to our venue's just to name a few. All of this quite frankly, the motivation is straightforward, increase shopper traffic and grow rental and sponsorship revenue. Nothing more, nothing less. Take a look at our website under the innovation section where we've provided a composite of such initiatives. I'd also like to announce [indiscernible] joining our team as head of marketing. I mentioning Jennifer who has spent 11 years with Victoria's Secret within the context of innovation as she is a quintessential interdisciplinary thinker who is integral in spreading the gospel of one of the world's most recognized brands. I’ll spend just a minute or so with respect to financial metrics as Mark as usual will provide the detail. Bottom line, within less than a year, we've materially improved our investment grade balance sheet as we are now positioned as one of the best within the sector from a financial metrics standpoint and net debt to EBITDA, 6.5, anticipated at 6.3 by the end of the year. We have nearly $1 billion of liquidity and AFFO payout ratio of under 75% and free cash flow of 80 million. We have the capital and financial flexibility to execute our business plan. Okay. I can't resist. With the upcoming Mayweather and McGregor bout next month and I think a bunch of you know, the son of a former boxer, I couldn't resist ending with the pugilistic analogy. Well the purist in me initially thought mixed martial arts was kind of little more than street fighting. I really come to appreciate the sport as its fighters are interdisciplinary. A left hook followed [indiscernible] It is this no holds barred approach, which defines WPG. We’re as tough as nails. Everyone is dedicated to their specific responsibility and all are incented to lease space and propose profit making ideas. Whether it's Jan Bobot who heads up our internal audit effort with the utmost professionalism or Lauren Kelly who I will tell you will lease any space anytime, anywhere, I'm really lucky to have them as colleagues and I mean that in my heart of hearts. Just to prove our dedication and how tough we really are, I'm actually offering Butch up to take on the winner of the Mayweather fight with all the proceeds going towards the renovation of Westminster Mall. Last, we're halfway through the year. Now that we’re halfway through the year, we’re in a better position to reaffirm AFFO guidance. This updated guidance reflects our stable cash flow for the year. For naysayers and short sellers alike who obtusely value was as a defacto liquidating trust, watch out. We will continue to prove you wrong with operational ingressiveness and financial prudency. As usual, grind it out and Butch, you’re up.

[Butch Knerr:]

Thanks. As Lou mentioned, we continue to have strong demand for our space. Our leasing volume for the first half of the year, which includes executed deals and store openings totaled 2.6 million square feet. Re-leasing spreads for new deals were up 10.2%, driven by a 9.3% increase in the enclosed portfolio and a 12.6% increase in the open air centers. Year-to-date, we have executed 153 new deals, totaling 400,000 square feet, which is 21% increase from a year ago. In addition, our new deal pipeline, which includes leases currently out for signature, but not yet executed, is up 44% versus this time a year ago. And at the end of the second quarter, we had over 750,000 square feet of leases, executed and not yet open with a total future income of just under $21 million that will come online in the next 12 months. These results are encouraging, given the current retail environment. I recently read that 5300 store closures have been announced this year, largely due to bankruptcy filings. When you look at WPG's exposure, we had just 63 stores closed due to bankruptcies. Let me say that again, 63 stores out of 5300 announced. So the perception is that WPG will bear the brunt of all these store closures, when the reality is that the impact has been manageable, further evidencing the quality and stability of our portfolio. As it relates to department stores, Macy's, J.C. Penney and Sears earlier this year announced closures of approximately 350 stores. In our portfolio, we've had only five stores which were part of these announcements. And let me break that down a little bit. Two of those five were natural lease expirations that we anticipated getting back. So we already had redevelopment plans in place. As it relates to the remaining three, we recently purchased the Macy's box at cottonwood mall and will announce our redevelopment plan shortly. Sears at Great Lakes is Seritage and discussions continue regarding that future redevelopment and Macy's space at Southern Park mall was purchased by a third party developer. It's important to remember that we own approximately 200 acre spaces in our portfolio and that over the last two years; we have started or completed redevelopment activity at 15 former department stores. Replacing underperforming retailers gives us an excellent opportunity to diversify and improve our tenant mix and give our customers more options such as food and beverage, entertainment, fitness and groceries. In fact, 40% of our new leasing activity in the second quarter was from these lifestyle uses. And this aligns perfectly with our well documented strategy. Through redevelopment, we're able to provide our shoppers with new offerings that are more suited to the current demand in these markets. In the first six months, we have approved $71 million as part of our continued plan to spend approximately 125 million this year, reinvesting in our assets. For example in the quarter, we announced three new redevelopments. At Markland Mall, we announced a $17 million redevelopment of the Sears building. This open air lifestyle addition will add 10 new tenants, including big box retail, grocery, entertainment and restaurants. As the only regionally enclosed center within 40 miles, Markland is a great example of a [indiscernible] in the secondary market. This project is also representative of our successful efforts to renovate traditional enclosed retail centers into hybrid town centers, which incorporated both enclosed and open air formats. We recently purchased the Dillard's Men's Store at Great Lakes Mall and announced a $15 million redevelopment, adding entertainment and restaurants. This addition will be anchored by Round 1, a fast growing family entertainment concept, which offers bowling, dining, karaoke, billiards and arcades. The 50,000 square foot Round 1 will be the first location in Ohio and the second in WPG's portfolio. In addition, we are adding two sit down restaurants, which will complement the newly opened BJ's brewhouse. As part of this redevelopment, Dillard’s will renovate their consolidated store. And finally at Classen Curve, we are under construction with an $11.5 million, 30,000 square feet expansion, which will include Evereve, Soft Surroundings, Athleta, Costbar, and Franchescus. Before I turn the call over to Mark, I want to thank our associates for their continued hard work. Mark?

[Mark Yale:]

Thanks, Butch. Let’s now move on to a review of our balance sheet where we made meaningful progress during the quarter in reducing leverage and enhancing our overall liquidity. First and foremost, we completed the second O’Connor joint venture, involving seven of our retail properties. Through the transaction, we generated approximately $350 million of net proceeds, which included placing new mortgage debt on three of the JV properties. With these proceeds, we’re able to fully paydown our $900 million credit facility, leaving us with nearly $1 billion of liquidity, when also considering approximately $90 million of cash currently on hand. In addition, the overall reduction in debt levels has allowed us to drive down our net debt to EBITDA to approximately 6.5 times as of quarter end. Discussions continue regarding the ownership transition to the loan servicer for Southern Hills and Valle Vista Mall. We now expect the transition of Valle Vista to occur during the third quarter and close to the year end for Southern Hills. When factoring in the upcoming reduction of approximately $140 million in mortgage debt associated with these transitions, we will see our net debt to EBITDA drop to approximately 6.3 times. This is great progress from where leverage levels were at the end of the first quarter 2015 post Glimcher and we cannot think of a better way for us to demonstrate our commitment to an investment grade balance sheet than this. Beyond the referenced dispositions, we have only one other 2017 mortgage debt maturity remaining, which is WestShore Plaza, a tier 1 enclosed asset. Our current plan is to unencumber the property with a portion of the proceeds from the new O'Connor JV. If we assume the payoff of this mortgage will add $315 million of NOI being generated from our unencumbered properties or 57% of our total property NOI. Additionally, over 80% of the unencumbered NOI is from community centers and tier 1 enclosed properties. With the leverage levels now within our long-term targeted range, our balance sheet focus has shifted towards addressing the concentrations of unsecured debt maturities in fiscal years 2019 and 2020. As previously mentioned, we are looking to recast our credit facility and related term loans, which should allow us to push out the maturity dates on such day. We're also keeping an eye on the unsecured debt markets, looking for the right window for execution. Success on both fronts will allow us to enhance the overall debt maturity profile of the company. Now, let me turn to our quarterly financial results. Our adjusted FFO for the second quarter was $0.40 per diluted share, within our guidance range going into the period. NOI contributions from our portfolio during the second quarter were impacted by the announced bankruptcies of Payless, rue 21 and Gymboree. During the most recent quarter, we fully reserved nearly $1 million of outstanding receivables from these tenants. This along with the impact from last year's Paxon, Arrow and Sports Authority bankruptcies were the big drivers in the flat contribution from our tier 1 portfolio and declines of 11.5% from our tier 2 assets. However, offsetting the negative quarterly growth from the enclosed portfolio was solid performance from our open air properties, which has generated positive growth of 2.8% for the quarter. In yesterday's earnings release, we did reaffirm our FFO guidance for fiscal year 2017 in the range of $1.64 to $1.70 per diluted share. Primarily due to bankruptcy activity that occurred during the second quarter of 2017, the company is now focused on the low end of its original guidance range for comparable NOI, expecting full year performance to be essentially flat year-over-year. This implies 3.5% to 4% growth from the open air portfolio, flat growth from our tier 1 properties and around a 5% decline from the tier 2 assets. Other than adjusting the timing of an unsecured debt issuance, there were no other major changes to key guidance assumptions for 2017. Finally, we are introducing FFO guidance for the third quarter 2017 in the range of $0.39 to $0.41 per diluted share. We expect comp NOI growth in the third quarter to be up around 1% compared the year prior. We will now take your questions.

[Operator:]

[Operator Instructions] Our first question comes from Ki Bin Kim with SunTrust. You may begin.

[Ki Bin Kim:]

Lou, thanks for that interesting preamble to the call. So when you look at your lease expiration pipeline going into 2018, could you help me understand how those discussions are evolving and how you categorize what is at risk, not at risk and things like that?

[Butch Knerr:]

Hey, Ki Bin. It’s Butch. Yes. So I would tell you that we are in line with where we expected to be. Our leasing team, as Lou mentioned, we’re leasing a heck of a lot of space. Included in that is a bunch of renewals for 2018. So I would tell you that I don't recall the percentage drop off the top of my head, I can get that number for you, but the discussions have been good. I mean, retailers are renewing space and I think you can tell by our spreads that when it comes to renewals that our renewals are in line with where we expected them to be.

[Ki Bin Kim:]

And do you see any noteful trend in CapEx, buyers for new leases or even renewals going forward?

[Butch Knerr:]

Yeah. I think if you look at our supplemental, what you’ll see is that actually compared to a year ago, our return allowance for both new deals and renewals is down significantly. I think on the new deals, it’s down 15% versus where it was a year ago. So, I think the thing to take from this quarterly report is the fact that we’re leasing a lot of space, we’re not buying tenants. Our TAs are actually less than where they were a year ago, and we’ve got, when you think about 400,000 square foot of new leases, that’s a big number in a very difficult time. And we're not buying that counts, we're not overspending on the TA, I think in the spreads.

[Lou Conforti:]

[indiscernible] to further to kind encapsulate the just discussing tendency, I would think I would end that tend to be a little less eloquent than Butch. Shitty tenants are going away and that is very, very important to think about it as it gives us the opportunity to diversify and optimize.

[Butch Knerr:]

I think you know Lou mentioned just in his note, when you look at the impact of bankruptcies in the enclosed portfolio, it was about 170 basis points, yet our occupancy at the end of the quarter was only down 10 basis points in the enclosed portfolio. So I thing that's a real statement to the leasing that we're doing in our portfolio, I mean that's a lot of impact.

[Mark Yale:]

And it is a term that I think what’s also very important, is as Lou and Butch mentioned, 40% of that is what we're calling lifestyle type tenants. As we get the opportunity as we're moving through and working through some of these disruption, especially on the apparel we are diversifying our tenancy and diversifying variance for our depths and that's going to be critical as we move forward.

[Lou Conforti:]

Ki Bin, as you can tell, we can speak to tenants with leasing all day long and the bottom line and it will move to the next question is that our - we've treated - this industry has treated our demographic constituencies let just say crappy for a long, long time and they are hankering for diversification for interesting stuff. And you know what by constitute lifestyle and from a definitional standpoint and we're given it to them.

[Ki Bin Kim:]

Can you comment on the 11% drop in tier-2 mall [indiscernible] NOI. I know there are some movement with bankruptcies, but - and more importantly how that's going to trend in the next few quarters?

[Lou Conforti:]

As I mentioned and we always do this and I promise I'm not going to spend time on tier-2. So let do it regardless. I appreciate you asking me the question. So there's two things - we have a multivariate model. That multivariate model has - and it's our rank score model, we coefficient weight and the standard operating metrics pursuant to our asset. We also use just because I think it's the right thing to do and it’s kind of erring on the side of conservatism, leverage and the size of the asset. And of that we have I think a 17% or 18% of our total NOI, 18% is attributable to tier-2. Half of their roughly, I think 9%, it might be off by 50 bps or so, is portable i.e. it's encumbered. The other half a small asset where they tend to be the only game and not only a town but the only game in a lot of towns, big catchment areas albeit there's the numerator denominator effect. So [indiscernible] for example, Butch kicked out a cinema operator last year same store NOI was down 25%, 30%. This year he got in - but as a testament to leasing and quite frankly the market characteristics, we put in an A&C this year hence same store NOI is up 30%. So there's a lot of variability, there's a lot of variability in those smaller assets. And rest assured and I don't think we've proven is better than anybody if an asset doesn't warrant a marginal unit of capital and we don't believe if it is indicative of our portfolio, we'll get rid of it. So that’s it.

[Butch Knerr:]

I was going to say just to the other part of the question, we do expect to see some stabilization in the tier-2 in the second half, certainly bankruptcies and occupancy declines were a big part of what impacted the second quarter. But as I in prepared remarks we’re expecting tier-2 to be negative by about 5% overall for the year. Not going to necessary see growth from the tier-2 in the second half but we are expecting stabilization.

[Ki Bin Kim:]

And what chance do you think Connor has in the fight.

[Lou Conforti:]

I think is out in - I don't think McGregor has ever seen hand speed like he's going to see with Floyd. And unless he tries to thrown him or get him on the ground, which I don't think is allowable in boxing, I think he's out in four to five rounds.

[Operator:]

Thank you. Our next question comes from Caitlin Burrows with Goldman Sachs, you maybe begin.

[Caitlin Burrows:]

I was just wondering you mentioned in the release and in the prepared remarks about the keeping an eye on the unsecured market. So it sounds like perhaps now obviously you're keeping an eye, but is that something that is no longer included or assumed in the 2017 guidance?

[Mark Yale:]

No, no, it is in our guidance, so we absorb - our guidance assumes benchmark type size deal at really any time in the second half of the year. So that’s something we still are focused on. I mean last time we spoke in connection with first quarter earnings, we talked about the fixed income markets being constructive, they continue to be constructive. But we have seen some nice stabilization as relates to retail names. So it has certainly improved in terms of the backdrop for the retail sector. So we're cautiously optimistic and once again we’ll keep an eye on the market and once the right time we'll be ready to move forward in terms of execution. But we can absorb a benchmark type size deal and that is factored into guidance for full year 2017.

[Caitlin Burrows:]

And then just on the same store NOI side, same at the first half for the portfolio is down 1.3. I think you did mention that you're targeting 1% positive for the third quarter. But could you just comment on the amount of visibility you have into the second half based on the leases that have already been signed and kind of what you already can tell is happening to reach that flat overall?

[Butch Knerr:]

I mean we do have pretty good visibility to the second half the year. I think a big part of the uncertainty as we work through the second quarter. We have three major bankruptcies really trying to understand how they were going to play out. And then from there, it's just getting lot of leasing already in place, we just need to get the stores open.

[Mark Yale:]

Yes, I think that’s the key point and that's something that we're laser focused on here is, we talk a lot about how much space we've leased, we leased a lot. Now the next piece of the puzzle is to get those tenants open as soon as possible and so there's a huge focus from our tenant coordination and construction team to do that. So, again we've least a lot of space, our legal and construction team are focused on getting these leases executed and getting these guys opened as soon as possible.

[Caitlin Burrows:]

And then on the occupancy cost just looking at tier-1 and tier-2 properties, it looks like actually the tier-2 occupancy cost is higher. So I was wondering if you think it's fair to just say going forward and kind of back to Ki Bin’s question of the future outlook for the same-store trajectory at tier-2 that there could be kind of sustained weakness there since occupancy cost is relatively higher and sales didn't seem to be robust at this point.

[Lou Conforti:]

Hi Caitlin, Lou. So I want to just make certain of your ask. Just given obviously marginally higher occupancy cost, quite frankly these tenants can bear, you're talking what was the delta, there looking up in difference between tier-1…

[Butch Knerr:]

Actually the occupancy cost for tier-2 got better, but you are right it is higher than our tier-1 and the sales are lower. So that certainly implies a lower growth rate than certainly we see in the tier-1.

[Lou Conforti:]

And albeit, if it were 12.2% I'm looking, I'm sorry, 12.3%, and for tier-1 and 13.7. I mean it's kind of right on top of each other and listen, we're very cognizant of kind of it was essential health ratio. But I would you know it's pretty you know on a relative basis, I'd like to see what our peer group is and if you know what I would think - we're right on top of it.

[Caitlin Burrows:]

And then last one is on the redevelopment page looks like and you guys talked about Great Lakes and Markland where new ads and the new use is going forward, so multiple uses in each one. And you guys also mentioned that restaurants and movie theaters have been a focus of yours and fitness but each of them also have new retail as part of these. So just wondering if you could comment on specific lead the retail demand you've seen in filling some of those available spaces?

[Butch Knerr:]

Yes Caitlin, this is Bush. Listen, we've you know it's interesting when we're talking about you know redeveloping these boxes into more lifestyle town center more relevant for the marketplace it's actually been extremely well received from the big box people. They want to be they want to be part of these redevelopment they want to be close to the theater. The restaurants want to be close to the theater. I would say that there's if these are - these are not just going to be big box uses, this is going to be a grouping of great retail restaurant entertainment in every one of these projects. I'm not even sure that we have one that's just going to be a box redevelopment.

[Lou Conforti:]

So quite frankly, I'm sorry Butch, but you know, kind of, when is the last time we replaced a department store with a department store. It’s been a long time, certainly before my time. These are midsized boxes, I don't want they, you know, the square footage, you know we’ve done some work. But this is the whole optimization monitor or objective that we are hyper focused. Everybody you know listen, everybody wants to come to our town centers and to our assets. And as evidenced by the occupancy that we've enabled to maintain with not offering quite frankly interesting stuff. Think about when we start diversifying with some interesting clean beverage with some entertainment you know with the round ones of the world as well as some real interesting local folks and some of the stuff we're doing pursuant to commentary utilization.

[Butch Knerr:]

I think the consumer has told us that they don't want the shopping center to be filled with apparel, they want…

[Lou Conforti:]

They want junior fashion and accessories. Butch is spot on.

[Butch Knerr:]

So our focus has been for the last couple of years, and you're starting to see some of the results is to bring in the more restaurants. I mean you think about what we did in the Dayton Ohio we replaced a box with four or five different restaurants. I mean that's exactly what wants…

[Lou Conforti:]

People eating daily.

[Caitlin Burrows:]

I guess my point is kind of like on the - it seems like a positive that obviously you're doing the restaurants and movie theaters. But it seems like to the extent that you want to add retail there is demand from that side too and because maybe you have the food and entertainment now that you're confident that even the retail will be…

[Lou Conforti:]

You’ve hit the nail – you’ve hit the nail on the head, what is that calling, self perpetuating is that called. Yes, it feeds upon each other. Absolutely right, that's right.

[Operator:]

Thank you. Our next question comes from Floris van Dijkum with Boenning, you may begin.

[Floris van Dijkum:]

Quick question, do you have statistics on what the restaurant and entertainment as a percentage of your overall GLOs today and how it was at the time of the spin and could you share that with us maybe?

[Lou Conforti:]

We just looked at it.

[Butch Knerr:]

Today, Floris, it's about it's less than 15% percent today.

[Lou Conforti:]

13 or 14, beverages not entertainment.

[Butch Knerr:]

And going back to spin, honestly we don't - I'm not sure that we have that number, but I can tell you again getting back to over the last couple of quarters and the deals that we've made and I think when you talk about, you know, the 40% of the deals this quarter were really food, beverage, entertainment. So it's growing significantly, it's growing fast and there's a huge appetite, pun intended, to add more restaurants to our centers.

[Lou Conforti:]

No, it's a great question, it was kind of you know it a prudent question and we should look at it with entertainment included [indiscernible].

[Butch Knerr:]

And I think that you know I think when we look at our portfolio for us what's important and where we think we need to be is probably closer to that 20% to 25%. That's probably a relevant number for us.

[Floris van Dijkum:]

The other question I had for you, I know that, you said, Lou, in your opening remarks, you don't want to be viewed as a liquidating trust, but when investors generally look at your tier-2 or C mall exposure, where NOI is falling by 13.5% for the quarter, probably 5% for the year. Where you probably shouldn't be spending any more capital on those property, depending on your outlook but you'll be very scrutinized probably very closely if you do spend capital on those properties. About half of that 18% of that part of your portfolio has no debt on it. Are you looking to sell those assets and if so do you have any in the market today or is there you know what are your plans for those unencumbered assets?

[Lou Conforti:]

Three things one, you are being extraordinarily judicious with, as I kind of refer to it as a marginal unit of capital for tier-2, it requires a higher ROIC threshold. As it should and this is you know kind of our arithmetic. So I can get you total, but very little has been spent CapEx tier-2 relative. I mean that's actually a good figure - a number to get. So they tend to be volatile just by virtue, again of their smaller size and when something slips to the extent that we don't think it's a wonderful, we are a seller. And again no one in this short of period of time has done what we did with kind of given everybody a reality check in getting rid of assets. I have two remark, go on.

[Butch Knerr:]

I was just going to say, I think we’re being as smart as possible as the assets we own. They deliver cash flow, but we are to lose point being very careful in terms to allocate capital. And for example we did sell one of the anchors in the [indiscernible] mall to a retailer, we're not ready to announce it but it’s…

[Lou Conforti:]

Perfect example.

[Butch Knerr:]

We’ll really bring some to the table and we're arbitraging their capital.

[Lou Conforti:]

So I got to say one more thing. And I get so upset one that we trade where we trade and you want us to be fighters and we'll continue to do what we're doing. So take off at 9% of NOI. Pretend it isn't there and we should probably trade five, six turns higher. It's absurd, it's absurd, everyone has this, there's this - there's tend to be this inflection point on and I can't stand the mall where it is you know but A and B, we have proven it with as much leasing as you know relative as anybody with positive relapse spreads. And again I'm doing it again, we're spending much more time on kind of a sub share of our tier-2 smaller assets where we don't like trust me, if nothing is not for us right we'll get rid of them.

[Floris van Dijkum:]

I guess maybe last but not least, Mark you talked about the billion of liquidity. So the credit facility that you paid down is fully utilized if you want to draw up on it, right, the additional 900 million that you just paid down with mostly with the proceeds from your O'Connor JV.

[Mark Yale:]

Correct, it's a revolving credit facility. So that capacity is available to us.

[Operator:]

[Operator Instructions] Our next question is a follow up from Ki Bin Kim with SunTrust, you may begin.

[Ki Bin Kim:]

Just a quick one. What is the percentage leased in your development pipeline right now?

[Lisa Indest:]

Ki Bin, we report occupancy leased, so it’s signed, it’s in…

[Ki Bin Kim:]

[indiscernible] all pre-leased or like how much more work do to?

[Butch Knerr:]

Good question Ki Bin. I will tell you that we don't you know we're really good stewards of our capital, we're not going to start a redevelopment unless we are probably 50% to 70% committed. We're building things on spec, we're going to be very thoughtful in what we do and be good stewards of our capital. So we're not taking on redevelopment projects without being very confident that we're going to complete them.

[Ki Bin Kim:]

I noticed your outlined a specific replacement tenant, I wasn’t sure what percentage that encompassed, but alright thank you.

[Operator:]

Thank you. I'm showing no further questions at this time. Ladies and gentlemen, this concludes today's call. Thank you for your participation and have a great day.

[Butch Knerr:]

Thanks everybody.