Washington Prime Group Inc.
Q2 2015 Earnings Call Transcript

Published: 4 Aug 2015

[Operator:]

Good day, ladies and gentlemen, and welcome to the WP Glimcher Second Quarter 2015 Earnings Conference Call. At this time, all participants are in listen-only mode. Later, we'll conduct a question-answer session and instructions will be given at that time. [Operator Instructions]. As a reminder this conference is being recorded. I would now like to turn the conference over to Lisa Indest, Senior Vice President of Finance.

[Lisa Indest:]

Good morning, and welcome to WP Glimcher's second quarter 2015 earnings call. Yesterday, we issued our Q2 release and supplemental information packet which are available on the Investor Relations section of our website at wpglimcher.com. Before we begin a reminder that certain statements made during this conference call may be deemed forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. For a more detailed description of the risks and uncertainties that may cause future events to differ from the results discussed in the forward-looking statements, please refer to our earnings release and various SEC filings. Management may also discuss certain non-GAAP financial measures. Reconciliation of each non-GAAP financial measure to the comparable GAAP measure are included in our release and the financial reports we file with the SEC. Members of management with us today are Mark Ordan, Chairman; Michael Glimcher, CEO; Butch Knerr, COO and Mark Yale, CFO. And now, I’d like to turn the call over to Mark Ordan.

[Mark Ordan:]

Thank you and good morning everyone. As you know I now serve as Executive Chair and I have announced my transition to Non-Executive Chair effective January 1. I’ll continue my active leadership role working closely with Michael and the team to set strategy and obviously capital allocation and capital markets activities. Michael will lead today’s call and will provide an overview of our second quarter operating performance and an update on our growth initiatives. Butch will then provide an overview of our leasing accomplishments and redevelopment activities. Finally, Mark Yale will review our financials and outlook for the balance of the year. Michael?

[Michael Glimcher:]

Thank you, Mark and thank you everyone for joining us this morning on today’s call. While pleased with what we have accomplished so far this year from a capital mortgage and integration standpoint, we clearly understand that we have significant work ahead of us. We have a new team, an unproven portfolio and are building our platform. Based upon these factors, it’s clear that our near-term focus should reside within our four walls. This focus is currently centered on rolling out an integrated property management platform and driving growth across our existing portfolio all while maintaining our investment grade balance sheet. Our integration remains on schedule to be completed by May of 2016. Our goal is to adopt proven practices from Simon, add new technology where necessary and leverage our GRT legacy systems and processes, allowing us to take the best from both companies. The ability to learn from a world class organization like Simon presents a unique opportunity for our organization to create a best-in-class operating platform. From a human capital standpoint, we continue to add resources in both our Columbus headquarters and Indianapolis offices as we prepare for the transition from the Simon service agreement. Combined with our WPG and Glimcher legacy talent we have an incredibly experienced team, working hard to execute on our key initiatives. As you know, we’ve had the opportunity to add proven leadership and talent from Simon since its spin, including Butch a 26 year Simon veteran. Some of you have met Butch at Investor Meetings earlier this year and I know he is looking forward to increased engagement with our shareholders. With respect to our focus on driving growth across our portfolio, we will accomplish this in three key areas. First, we continue to address lost occupancy. Mall occupancy declines in the first half for the year we primarily due to anticipated bankruptcies which resulted an approximately 0.5 billion square feet of lost space. While mostly permanent and some strategic temporary tenants, we’ve been able to replace and have commitments on 90% of the space lost. The rent for all this activity replaces nearly 70% of what we lost due to bankruptcies. We are confident in our ability to close most of the remaining gap in the coming months. When looking at our leasing activity in the second quarter we opened 63 stores for a total of 245,000 square feet across our core malls and community centers. Some key tenants that opened during the quarter include Altar'd State at Clay Terrace, Oar [ph] House at Town Center Plaza, H&M at Southern Park Mall, Hobby Lobby at Northtown Mall, Vince at Scottsdale Quarter and three Francesca stores now opened at Lima, Mesa and Entre Park [ph] malls. We’re excited to have these great retailers open stores at our shopping centers. In addition we opened or executed 26 food deals in the quarter. We’re thrilled to have these restaurants at our centers including Besito at WestShore Plaza, 4 BJs Brewhouse locations, now at Cottonwood Mall, [indiscernible] mall, Melbourne Square and [indiscernible] for Commons; Five Guys at Rockaway Town Center, High Fi Foods at Wolf Ranch, Sourcia 1 [ph] in Scottsdale and Zovi’s Kitchen at Triangle at Classen Curve and Palms Crossing. At the end of the second quarter, we had approximately 500,000 square feet of leases signed but not opened for non-anchor spaces. This includes approximately 357,000 square feet of space permanently vacant or 120 basis points of occupancy and 96,000 square feet of new GLA, representing about $15 million in annual revenue that will come online in the future. Second, we continue to focus on proactively reducing exposure to underperforming retailers and anchors as well as leveraging our unique and diverse portfolio mix. As I’ve visited our WPG legacy properties and as part of our ongoing discussions with retailers we see increased opportunities to lease across our community centers, malls and lifestyle centers. In fact all of our top 15 NOI tenants are already in multiple formats and we continue to see national retailers interested in growth across all of our asset types. While we are pleased with recent leasing accomplishments in both addressing lost occupancy and cross-leasing we believe our year-to-date metrics did not reflect the long term value creation that we know we are building. We have yet to receive the benefits of most of our leasing efforts since a sizable percentage of the square footage will open late this year and in the first half of 2016. And third, we’re focused on value creation through our redevelopment efforts. We now have about $265 million of approved projects and we continue to build out a robust pipeline for the next several years. Butch will provide you with more detail on our redevelopment efforts in just a moment. We believe these combined initiatives addressing lost occupancy leveraging our portfolio and executing on redevelopment projects will provide the opportunity for annual NOI growth of 3% or higher in 2017 and beyond. While we know that it will take time following this year’s short term drag on growth due primarily to the volume of bankruptcies I'm pleased with the progress we’ve made on our near term objectives. We also remain focused on maintaining our investment grade balance sheet. While our leverage has increased since the spin we’ve now executed our plan resulting in reduced overall debt levels and the bridge loan being fully paid. Understanding that we still have work to do on this front we have developed a clear path to drive further improvement. Mark Yale will provide more detail on the balance sheet later on in the call. In terms of our results, adjusted FFO was $0.48 per share in the second quarter compared to $0.43 a year ago, exceeding the top end of our quarterly guidance range. While operating results were better than our forecast going into the quarter we did feel the full burden of the anticipated year end bankruptcies in terms of our flat quarterly NOI growth and pressure on occupancy down to 80 basis points from the prior year. Finally, investors and analysts have asked us for further disclosure and we’ve heard you. I'm pleased to announce that we’ve enhanced our disclosure once again this quarter, including sales per square foot in our malls. We’re providing leasing volumes and expanded joint venture disclosures. Our goal is that the improved transparency will help you understand the quality of the underlying portfolio. Sales for our core malls increased 4.7% in the quarter to $358 per square foot compared to a year ago. Retail demand across our portfolio was good and we continue to focus on upgrading underperforming retailers and improving spreads. Now with all that said, I’d like to turn the call over to Butch.

[Butch Knerr:]

Thanks Michael. Before I provide some redevelopment highlights for the quarter I want to spend a few minutes sharing a bit about my approach and my observations when looking back at the first half of the year. As Michael said I spent the last 26 years of my career at Simon where I worked side by side with some of the best and brightest in the retail REIT world. During that time I worked on a wide variety of properties, including new developments, redevelopments, some of Simon’s premier centers and a majority of the centers that were spun from Simon’s create WPG. I joined the company late last year because I was convinced of the opportunity to drive growth at our centers. Since the merger with Glimcher I have been working closely with the team to develop our strategy to create long term value across our portfolio while also ensuring that we have the right team in place to execute our plan and continue to enhance our properties. In terms of my approach I bring to WP Glimcher an in depth knowledge of the Simon process and pace. An important of all the integration is to adopt proven practices that we can apply to our operating model. The way we are operating today is a combination of best practices gleaned from my years at Simon as well as from the time I spent working here with the WPG and Glimcher legacy teams and we’re seeing success from this approach. For instance, at Westminster Mall in Southern California we have leased over 70,000 square feet of small shop space since the spin. We will be adding new restaurants, multiple entertainment options and new in line tenants with several small scale projects to be completed in late 2015 and into 2016. At Longview Mall and Longview Texas BJ’s Brewhouse is under construction for a November opening. In addition a new Payles Super Store [ph] opened this month. And we now have a commitment from a national sporting goods retailer to occupy 46,000 square feet and open late next year. We have numerous examples like these across our core portfolio and we will continue to find more ways to operate these malls better. Our community center portfolio continues to produce strong NOI growth as we see increased retailer demand which averaged 96% occupancy at the end of the second quarter. We are pleased with the operating metrics for these assets and have plans in motion to future enhanced performance at these centers. Now let's talk about redevelopment. Redevelopment is a key growth driver for us in 2016 and beyond. We expect redevelopment projects to contribute approximately 150 basis points to annual NOI growth with high single-digit and low double-digit yields beginning in 2016. So far in 2015 we have invested over a $50 million in strategic and cosmetic redevelopment projects across our malls and community centers. And we continue to build a robust pipeline for the years ahead. Earlier this year we completed a redevelopment project at Melbourne Square - Melbourne Florida where we opened LA fitness, H&M, BJ’s Brewhouse, Outback Steakhouse and [indiscernible] Grill and later this month Red Robin will open. We've seen double-digit NOI growth for the first half of 2015. We've completed a handful of additional projects through the first half of the year, most of them small scale projects where we have invested less $5 million individually to drive increase traffic, enhance leasing momentum and grow NOI. We currently have eight large scale projects underway, those where we are investing more than $5 million. One of the three large scale projects on track to be completed later this year is Polaris Fashion Place where Field & Stream and Dick Sporting Goods will open in October, replacing a former department store. We continue to upgrade the in line leasing with the additions of Madewell, Altar'd State and an expanded Disney store. Scottsdale Quarter, one of our three largest large scale projects to be completed in 2016 remains on track with several tenants scheduled to open this fall. America Girl will open its first Arizona location later this month and Designs Within Reach plan to be opened before the holidays. Office leasing at Scottsdale Quarter is underway and demand has been extremely strong. I'm pleased to announce that we have executed 83,000 square feet of space and therefore 89% of the office building is now addressed. And we have two large scale projects that we expect to complete in 2017, including Jefferson Valley, a 556,000 square feet mall in Yorktown Heights, New York. We will start construction later this year to add two new junior anchors including a National sporting goods store and a national beauty retailer. With the addition of these new retailers the existing H&M will relocate and open its latest prototype in the center. We will also add new in line tenants, complete the renovation of the exterior entrances and make interior cosmetic upgrades, including new flooring and lighting with expected completion in 2017. In addition to these large scale projects we have several small scale projects underway. Redevelopment across our portfolio is an important part of our plan to deliver growth over the next several years. Our fully integrated leasing and development teams are aligned in what needs to be done within our four walls to manage growth and create long-term value. With that I'll turn the call over to Mark Yale.

[Mark Yale:]

Thanks, Butch. As previously mentioned, we took advantage of available balance sheet capacity to move forward with our strategic merger with Glimcher. While our leverage has increased, we now have executed on our plan that resulted in reduced overall debt levels and the Bridge loan being fully repaid. Such plans included completing our inaugural $250 million bond offering in March, redemption of our 8 and an 8% series G preferred shares in April, the refinancing of the existing mortgage debt on Pearlridge and Scottsdale Quarter in May, the closing of the O'Conner JV resulting in $430 million of net proceeds and approximately $800 million in overall debt reduction early June. And finally we closed on a new five year $500 million term loan with the majority of the proceeds being used to fully repay the bridge loan on June 4. With the closing of all these transactions including merger synergies that we expect to realize in 2016, our estimated pro forma net debt-to-EBITDA ratio will drop to high six times moving us closer to our long term project of 6 to 6.5 times. We expect to migrate even closer towards this range over next several years through future EBITDA growth and opportunistic asset sales. We also have previously mentioned our willingness to issue common equity but current pricing is far from levels that make sense for the company to consider. With the bridge loan now fully repaid and leverage levels reduced post the O’Connor JV our balance sheet attention has shifted in the near term towards addressing the significant concentrations of debt maturities in fiscal years 2019 and 2020. Accordingly we are very focused on raising longer tenured debt capital and we like to execute on such plans within the next 12 months. In terms of our remaining 2015 mortgage debt maturities we paid off the mortgages on Clay Terrace and Bloomingdale Court subsequent to the end of the second quarter, and plan to exercise the first of two one year extension options available on Westshore Plaza. With respect to the September maturity of Merritt Square Mall we are currently engaged in discussions with the special servicer regarding the impending maturity. With an assumed dividend of a $1 per share and an estimated $65 million of recurring capital expenditures in tenant allowances to be incurred during the year we expect to generate over a $100 million of free cash flow in 2015. Additionally we’re still forecasting to invest approximately a $185 million in redevelopment this year. With respect to our quarterly results, our adjusted FFO per share for the second quarter of $0.48 was ahead of our expectations. Solid capital market execution along with positive variances and comp NOI drove the upside to our original guidance. Adjusted FFO per share excludes the impact of $11.2 million of Glimcher merger costs and upfront bridge loan fee amortization. Included in the $11.2 million are severance charges of approximately $4.2 million incurred in connection with the recently announced management transition. As previously mentioned while operating results were better than our forecast going into the quarter we did feel the full burden of bankruptcies in terms of our flat quarterly core NOI growth. These bankruptcies negatively impacted total portfolio comp NOI growth by approximately 200 basis points during the second quarter. The other factor meeting [ph] the growth during the quarter and full year 2015 is the minimal positive impact from redevelopment as the majority of the current pipeline won’t start coming online until late this year or into the next. The good news is that these factors position us nicely for comp NOI growth in 2016. Based upon our strong second quarter financial results we have raised our guidance range to a $1.80 to $1.86 per share for adjusted FFO, a two penny increase at the midpoint from previously issued guidance. All key operating related assumptions remain generally the same as previous guidance. This assumes no dispositions, acquisitions or issuance of common equity during the remainder of 2015. We also provided adjusted FFO guidance for the third quarter of 2015 in the range of $0.40 to $0.42 per share. In terms of NOI growth we’re expecting zero to 1% comp NOI growth for the quarter. With that I’ll now turn the call back to Michael.

[Michael Glimcher:]

Thank you Mark. Before we open the line for questions I’d like to thank all of our associates for their hard work and dedication as we continue to make progress on the integration and execute on our key initiatives. We have a lot of work to get done and our team remains focused on delivering on our objectives. We believe WP Glimcher offers a unique investment opportunity due to several factors, including our talented team, our best in class management platform, significant NOI upside from our redevelopment pipeline, our investment grade balance sheet and ample free cash flow to cover our dividend. We are focused on managing our existing portfolio, taking good assets and making them stronger and we remain confident that this approach will create significant long term value for our shareholders. Now with that said, we would like to open up our call for any questions you may have.

[Operator:]

Thank you. [Operator Instructions]. Our first question comes from Ki Bin Kim from SunTrust Robinson Humphrey.

[Ki Bin Kim:]

Thank you maybe a question for Butch first. So you’ve been on the negotiating table in terms of leasing, both with the Simon business card and with WPG, now just curious what surprised you, anything different from being an employee technically of two different entities and I guess from the outside looking in, I guess I see a little bit risk that that without Simon’s size and leverage maybe leasing gets a little bit tougher for retailers on the margin. Maybe you can help us understand that risk a little better.

[Butch Knerr:]

Sure. Well what I would say is that the biggest thing that I've seen is that team here in Columbus is very strong, the leasing team. And they've been open to all the ideas that I brought over from Simon and I would tell you that I think from a leasing standpoint and negotiating standpoint, when we sit down with these retailers the quality of the projects and the relationship that we have with these tenants goes a long way in making the deals. But I would tell you that we are going to be more focused on our assets and we are going to be dedicated to leasing these things, we're focused on them. I think that we're going to have good results.

[Ki Bin Kim:]

Okay. And maybe sticking with that point, any risk from additional store closures like we saw last year, maybe rolling into - and maybe some new slate of retailers that are maybe leaving your portfolio towards the end of this year, like for example like GAP and maybe not necessarily bankruptcy related but just downsizing from some of your key tenants.

[Michael Glimcher:]

Ki Bin, it's Michael. Good morning. Our watch list has become a lot shorter than it was and we certainly anticipated the bankruptcies that we've been dealing with throughout this year. Our exposure to GAAP is very minimal. They had really focused on doing more, [indiscernible] which were performing well at our malls when you look at the sales per square foot. So we only have exposure to a couple of stores with them, and we've really reduced our exposure within that whole junior category which was the weakest if you look at most junior retailers they're at covering at 1 or less than 1% exposure to us, and generally in fully profitable stores. So there is always going to be some amount but we think the pace significantly slows from what we saw over the last year.

[Ki Bin Kim:]

Okay. And I think last quarter you said 70% of the bankruptcy related space was re-leased or you expected that to be re-leased by the end of the year. If you heard you correctly did you say that’s 90% now, this quarter?

[Michael Glimcher:]

Yeah so we said we've addressed about 90% of the revenue, of the space but not all open, that it will be some are open, some will open up even into next year.

[Ki Bin Kim:]

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

[Operator:]

Thank you. Our next question comes from the line of Andrew Rosivach from Goldman Sachs.

[Caitlin Burrows:]

Hi, this is Caitlin Burrows. Thanks for increased disclosure on the sales per square foot. I was wondering if you guys could just maybe talk about - how if you were to think about just kind of incorporate the facts that some of your higher productivity centers are in the joint venture now. How that number might be different if you were NOI weighted, and also how that impacts the year-over-year growth?

[Michael Glimcher:]

Caitlin, it's Michael. We just look at our mall portfolio as our mall portfolio and we haven’t segmented it. We have a mall portfolio and we have a community center portfolio. And that's really how we're going to analyze it and how we're going to disclose it. So I really don't know that we have much more to say on that.

[Caitlin Burrows:]

Okay. And then also when you think about - I know in the earnings release you guys mentioned the growth prospects going forward and growth in 2016. And on the call just now you've mentioned annual NOI growth of 3% or higher in 2017 and beyond. So I just wondering if you can talk about when really you expect that growth to start? Is it 2016 or '17 and with the run-rate FFO growth or just FFO of the company seemed to be higher in 2016 than '15 or do they kind of have to go down because of the joint ventures first.

[Michael Glimcher:]

No, we clearly see a ramp up in '16. We're not going to go from 0% to 3% without a ramp up. And I'll tell you, you look at our two portfolios, you see obviously more growth in the community center side. We inherited a highly functioning team that came out of Simon, that was hitting on all cylinders and we have a much higher occupancy portfolio on that side. The mall portfolio is ramping up. We talked about the about all the new leasing activity that we're doing. We've talked about the pipeline. So it's a little bit behind. We now have a cohesive team that we’ve put together. We have a very full pipeline we put together. So you're going to see a significant ramp up in '16 and then we'll build on into '17.

[Mark Yale:]

Yeah, that's on the NOI growth which is important but certainly from an FFO perspective it will be a bit tempered in '16 as we have certainly been leveraging the bridge for a good portion at the beginning of this year, obviously coming through as you mentioned the O-Connor JV, the term loan, all that’s a bit dilutive to where the cost of the bridge was. So that will temper the growth in 2016 but I’d say from the mid-point of our current guides or 2015, we certainly would not expect to go backwards from an FFO per share perspective next year.

[Caitlin Burrows:]

Got it. Okay, thanks.

[Operator:]

Thank you. And our next question comes from the line of D.J. Busch from Green Street Advisors.

[Daniel Busch:]

Thank you. Just I want to start with a couple on the re-leasing spreads. The community center portfolio looks like it accelerated quite dramatically from the first quarter to second quarter as far as the spread going from about from 5% to 11%. I know there is a lot of moving pieces when you’re removing a quarter and adding one but it seems like that’s a pretty dramatic move. Is there anything, any particular deals that were signed or anything that you can provide that would have helped accelerate that re-leasing spread in the community center portfolio?

[Butch Knerr:]

DJ, this is Butch. No, there really wasn’t anything that jumps out as I would tell you it was really just, it was strong leasing across the portfolio.

[Daniel Busch:]

And then for the same for the malls, it seemed like again I know there is a lot of moving pieces but the rents fell on a trailing 12 months basis from about $39 to $33. That again seems like a pretty dramatic move. Is there anything to be learned there?

[Michael Glimcher:]

DJ, it’s Michael. I’ve seen this move here before, I’ve been here before and know how it works. And on the community center side we have higher occupancy and we’re pushing rents more aggressively. On the mall side the short-term play is for occupancy, the longer-term play is for rent growth. But I know that you and maybe others have made a comment are you buying tenants, we absolutely are not. If you look at TIs there are below one and half years what the rent and many of our peers are as highest as some two years rent in Tis, so that’s not the case. But as we get occupancy up then we’ll push rents. I think the very short-term focus is to raise occupancy, change the supply and demand equation and then we’ll be pushing rents more aggressively in the malls.

[Daniel Busch:]

Okay. That’s helpful. Like when you think about your TIs like on a normalized basis is that one and half to two years rent, is that about average or is that kind of where you aim to be?

[Michael Glimcher:]

Look, we aim to be a lot lower obviously as low we’ve cost we can’t but that has been where it has been running for the recent past.

[Daniel Busch:]

Okay. And then Michael, before the merger, the Glimcher portfolio and I know it’s all part of that one mall portfolio now but the Glimcher portfolio you guys had worked for several years to position that portfolio for about 3% to 4% NOI growth for the next several years. If I see what the mall portfolio is delivering growth now, is based on kind of the amount or the concentration they’re getting from the Glimcher assets or the amount of NOI, is the bifurcation between the legacy Glimcher assets and the legacy Washington Prime assets that wide or is it not as wide as that 3% to 4% that we were expecting from the Glimcher assets would suggest?

[Michael Glimcher:]

Today I think of it all as one portfolio whether it’s legacy Glimcher malls or legacy Simon malls or community centers, and isn’t wide. It’s really an asset by asset exploration and we’re not really disclosing at that level. But I think what we’ve talked about is this combined portfolio has the ability to deliver north of 3% with the work that we’re going to do and our job is to make them more valuable, our job is to deliver more growth with this portfolio and in some years it’s going to more like this year from the community center side. As the mall portfolio ramps up we will probably more coming out of it. And we also believe very strongly, in our redevelopment pipeline, increasing the quality of the portfolio and giving these assets an opportunity to grow. It just takes to time to get there and many of these assets which I’m ,visiting some for the first time and some revisiting after not having been to for a while because they weren’t necessary in our portfolio, you have to lay out a plan and you have to implement the plan. So I think the thing if you can hear the excitement of all of our voices, is the pipeline is building and we see what’s coming and it just takes time. And if you think of us like a new company as we are it takes time to build from the ground up but it’s very exciting what’s happening here.

[Daniel Busch:]

Okay. And then I want to acknowledge to the continued improvement in disclosure, it’s very helpful particularly on the sales productivity side. Michael Glimcher I think correct me if I am wrong, was the first company or REIT to kind of tear the assets and going a little bit of extra light on productivity at different levels and percentage of NOI being driven by parts of the portfolio. Now many of your peers have adopted what you started. Is that an avenue that you would consider getting back into it going forward?

[Michael Glimcher:]

We've broken out community centers and malls which I think is really helpful as people want to compare our community centers, which we look at that portfolio, it's probably bigger than a half of dozen or so publicly traded REITs and it's a high quality portfolio. We've a very strong mall portfolio that we're going to make better and we're going to break it out into those two buckets. We think that gives a lot of visibility into our portfolio and we're very happy with the enhanced disclosure that we've put in place and we're comfortable with that for now.

[Daniel Busch:]

Okay, thank you very much.

[Operator:]

Thank you. And our next question is a follow-up from the line of Ki Bin Kim from SunTrust.

[Ki Bin Kim:]

Thank you. So what is your accounting methodology for reporting mall tenant sales per square foot?

[Mark Yale:]

When you said reporting methodology, I mean it's 10,000 square feet for those tenants who are reported in the respective trailing 12 months, maybe you're alluding to joint ventures. We do not pick-up our proportionate share. We take 100% of impact of those properties. The only metric where we pick up a proportionate share from JVs is on NOI growth.

[Ki Bin Kim:]

Okay. And I was curious if you lost 210 basis points of occupancy in your mall portfolio, just trying to triangulate how your sales per square foot goes up when that happens.

[Mark Yale:]

I mean sales per square foot is going to be basically for those tenants who are in the shopping center, in the mall and are reporting in their square footage. So the vacancy doesn't factor into that sales per square foot.

[Ki Bin Kim:]

Okay. I guess, thanks guys, just making sure. And on the 500,000 square feet signed but not opened how much of - and you said you have $30 [ph] million of annual revenue that's on the comp. How much of that is redevelopment or development revenue on the comp versus I guess more organic or core revenue on the comp on that expected increase?

[Butch Knerr:]

Ki Bin it’s Butch. That going to be a blend, I would say probably the majority of it is just organic and it’s probably dealing with the replacements of the bankruptcy but certainly there is going to be an element of some of those tying into our redevelopments. But we don't have that breakout.

[Ki Bin Kim:]

Okay. And you guys provided a little brief guidance for the third quarter of 0% to 1% growth in same-store NOI. As you re-lease some of your bankruptcy related space later on the year, what should we expect for like fourth quarter?

[Butch Knerr:]

A step up from the third. So we're basically flat right now. We expect to be up 0 to 1%. And we're kind of 0% to 1% in the third quarter and we expect probably modest improvement in the fourth quarter still staying within that overall 0% to 1% range.

[Ki Bin Kim:]

Okay, and if you can just - I mean is there any changes to the synergies forecast for next year. I was wondering if you could just recap that for us?

[Michael Glimcher:]

We're still talking about the same range of that $12 million to $16 million. I think we're going to be within that range. I think it's how we are timing some of it will occur beginning of the year, but in terms of that being in the full run-rate it's really going to be the third quarter of '16 where you'll see the full benefit of those synergies.

[Ki Bin Kim:]

And then I guess like about $4.5 million is G&A and the rest is operating margin improvement?

[Michael Glimcher:]

That’s correct.

[Ki Bin Kim:]

Okay thank you.

[Operator:]

Thank you. And our next question is a follow up from the line of Caitlin Burrows from Goldman Sachs.

[Caitlin Burrows:]

Hi, just I had a question on the non-cash adjustments to FFO. So if we look at the fair value of debt adjustment the straight line rents, and the mark-to-market of leases that increased in the second quarter but we're wondering if as a result of the O'Conner JV if that will decline and assuming it does what is a good kind a run-rate for those announced?

[Michael Glimcher:]

Yeah about run rate I'm not sure but it absolutely does declined that's one of the reasons and a big part of the reason of the drop from the $0.40 of FFO for the second quarter to a range of $0.40 to $0.42 range, deals with the fact that we're going to be laying off $0.49 of those positive adjustments. The other piece has to do with the Refis on Pearlridge and Scottsdale, since those will refi there is no longer any fair market value adjustments and they were positive on those two loans. So that's positive, so won't continue. That's all reflected in our guidance for the fourth quarter we'll have to get back to you in terms of how we maybe help you look at that on a go forward basis.

[Caitlin Burrows:]

Okay thanks.

[Operator:]

Thank you. And that concludes our question-and-answer session for today. I would like to turn the conference back to Lisa Indest for any closing comments.

[Lisa Indest:]

Thank you. Before we end the call I want to quickly highlight a few upcoming events from our IR team. We will be attending the Bank of America Merrill Lynch Global Real Estate Conference in New York in September and REITWORLD in Las Vegas in November. In addition we plan to hold our investors - Investor Day late this year or in early 2016. In earlier conversations with some of you, we had mentioned the possibility of holding a meeting on October. However we've made the decision to push back the date so we can provide more detailed guidance for 2015. You may contact us directly with any additional questions. Thank you everyone for joining us today.

[Operator:]

Thank you. Ladies and gentlemen thank you for your participation in today's conference. This does conclude the program and you may now disconnect. Everyone have a good day.