American Assets Trust Inc (AAT) 2018 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Third Quarter 2018 American Assets Trust, Inc. Earnings Conference Call. (Operator Instructions)

As a reminder, this conference call may be recorded.

I would now like to turn the conference over to Adam Wyll, Senior Vice President and General Counsel. You may begin.

Good morning. I'd like to thank everyone for joining us today for American Assets Trust 2018 Third Quarter Earnings Conference Call. Joining me on the call are Ernest Rady and Bob Barton. These and other members of our management team are available to take your questions at the conclusion of our prepared remarks.

Our 2018 third quarter supplemental disclosure package provides a significant amount of valuable information with respect to the company's operating and financial performance. The document is currently available on our website. Certain matters discussed on this call may be deemed to be forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

Forward-looking statements include any annualized or projected information as well as statements referring to expected or anticipated events or results. Although we believe the expectations reflected in such forward-looking statements are based on reasonable assumptions, our future operations and our actual performance may differ materially from the information contained in our forward-looking statements, and we can give no assurance that these expectations will be attained. Risks inherent in these assumptions include, but are not limited to, future economic conditions, including interest rates, real estate conditions and the risks and costs of construction. The earnings release and supplemental reporting package that we issued yesterday and our annual report filed on Form 10-K and our other financial disclosure documents provide a more in-depth discussion of risk factors that may affect our financial conditions and results of operations.

Additionally, this call will contain non-GAAP financial information, including funds from operations, or FFO; earnings before interest, taxes, depreciation and amortization, or EBITDA; and net operating income, or NOI. American Assets is providing this information as a supplement to information prepared in accordance with generally accepted accounting principles. Explanations of such non-GAAP items and reconciliations to net income are contained in the company's supplemental operating and financial data for the third quarter of 2018 furnished to the Securities and Exchange Commission, and this information is available on the company's website at www.americanassetstrust.com.

I'll now turn the call over to our Chairman, President and CEO, Ernest Rady, to begin our discussion of third quarter results. Ernest?

Thanks, Adam, and good morning, everyone, and welcome. Thank you for joining American Assets Trust Third Quarter 2018 Earnings Call. We continue to make good progress on all fronts as we continue to focus our efforts on earnings growth combined with growth in net asset value for our stockholders. The company's Board of Directors has declared a dividend on its common stock of $0.28 per share for the quarterly period ended December 31, 2018, which is approximately a 4% increase over the prior quarterly dividend. The dividend will be paid on December 27, 2018, to stockholders of record December 13, 2018.

I'm going to keep my introductory comments short since Bob is going to introduce our 2019 guidance, which will focus on the resilient strength of our very high-quality coastal West Coast, high-barrier-to-entry portfolio. Again, on behalf of all of us in American Assets Trust, we thank you for your confidence in allowing us to manage your company, and we look forward to your continued support.

I'll now turn it over to Bob Barton, our Executive Vice President and CFO. Bob, take it away, please.

Good morning, and thank you, Ernest. Last night, we reported third quarter 2018 FFO of $0.53 per share and net income attributable to common stockholders of $0.22 per share for the third quarter.

Third quarter results are primarily comprised of 5 highlights, which are as follows: Number one, FFO exceeded consensus by approximately $0.03 in Q3, primarily from; a, approximately $0.01 from retail; b, approximately $0.01 from office; and c, approximately $0.01 from multifamily.

Number two, our cash basis re-leasing spreads for retail were approximately 18% in Q3 and 10% for the trailing 4 quarters. For office, cash basis re-leasing spreads were approximately 11% in Q3 and 12% for the trailing 4 quarters. Straight-line basis re-leasing spreads are even higher.

Number three, we increased the 2018 guidance by $0.02 at the midpoint as a result of Q3 results and our expectations for Q4.

Number four, as Ernest mentioned, we've increased the quarterly dividend by $0.01 per share beginning on December 27, 2018, to stockholders of record as of December 13, 2018, approximately a 4% increase.

And number five, 2019 guidance range midpoint of $2.16 is approximately a 3% increase over the revised 2018 guidance midpoint. However, excluding 2018 nonrecurring termination fees of approximately $3.9 million in the second quarter, the 2019 guidance midpoint would be approximately a 6% increase over 2018 at the revised midpoint.

Let's take a deeper dive into the details behind these highlights. Our retail portfolio ended the quarter at 98.5% leased, combined with the highest annualized base rents amongst our peers. On a year-over-year basis, our retail occupancy was up approximately 154 basis points from the third quarter of 2017, leaving approximately 44,600 square feet vacant in our 3 million-plus square foot retail portfolio.

Our office portfolio ended the quarter at approximately 91.4% lease, an increase of approximately 145 basis points on a year-over-year basis, primarily due to the reclassification of Oregon Square into construction in progress as of January 1, 2018, combined with an increase in occupancy at the newly constructed Torrey Point in San Diego and our Torrey Reserve Campus in San Diego, leaving a vacancy of approximately 8.6% or 229,000 square feet of our 2.6 million square foot office portfolio.

Let's talk about same-store NOI for a moment. Same-store retail cash NOI increased in the third quarter to 5.2%. The increase primarily relates to increased rents at our Loma Santa Fe Plaza, Solana Beach Towne Centre and Alamo Quarry Shopping Centers, combined with the incremental NOI from the acquisition of the Forever 21 building in Q3 '17 at our Del Monte Center on the Monterey Peninsula. We own the land and acquired the building at Del Monte Center that we didn't own in Q3 '17. The incremental NOI from the Forever 21 building is approximately 109 basis points. Absent the Forever 21 building, the same-store NOI is still a healthy 4.1%.

Same-store office cash NOI decreased 3% in the third quarter, primarily due to the following: Number one, at City Center Bellevue, cash NOI is lower on a year-over-year basis as a result of rent abatements associated with the 5 floors that were re-leased in Q1 2018. CCB, or City Center Bellevue, is approximately 97% leased today, and we expect to see the increased cash NOI beginning in late Q4 '18.

Number two, at Lloyd District, cash NOI is lower in Q3, primarily due to the termination of the FamilyCare lease, for which we received a termination fee in Q2. However, concurrent with the FamilyCare termination, a new lease agreement was entered into with Genentech for the space previously occupied by FamilyCare at higher rents. Tenant improvements are currently underway and are expected to be completed in late 1Q '19. The lease will commence upon completion of TIs when Genentech takes possession of the space. The decrease in office cash NOI described above are partially offset by base rent increases at both Landmark and One Beach.

Same-store multifamily cash NOI increased 9.3%, primarily due to improved operating results at Pacific Ridge, which was originally acquired in Q2 2017 and is included for the first time in same-store results for Q3 '18. Rental expenses at Pacific Ridge decreased by approximately 23%, which can be mainly attributed to improved operations, including significantly lower bad debt expense combined with increased efficiency of staff by doing more with less headcount and elimination of third-party management fees. In addition, Pacific Ridge's total revenue increased approximately 5%, primarily due to increased base rent. The remainder of our multi-[family] portfolio performed well with an increase of cash NOI of approximately 3%, primarily attributable to the renovation of the 21 units at Loma Palisades that came back online in the beginning of 2018.

Waikiki Beach Walk, our mixed-use property, consisting of the Embassy Suites hotel in Waikiki Beach Walk Retail reported a combined decrease on same-store cash NOI of 4.3% for the third quarter. Broken down further, this represents the Embassy Suites hotel down approximately 4.9% and Waikiki Beach Walk Retail down about 3.5%. Embassy Suites was impacted primarily from a lower ADR year-over-year combined with significant increase in real estate taxes. At our Waikiki Beach Walk Retail property, the decrease in same-store cash NOI was primarily due to a reduction in percentage rent as well as a reduction in parking revenues. Nevertheless, tenant sales remained high at $1,107 per square foot for the rolling 12 months as our tenants continue to benefit from the excellent location and good economy.

Turning to our third quarter results. FFO decreased approximately $0.05 to $0.53 per FFO share compared to the second quarter. The third quarter results include the following activity: Number one, we had onetime termination fees recorded in 2Q '18, decreased -- which decreased FFO by approximately $0.05 per FFO share; number two, at our Waikele property, the Kmart lease terminated at the end of 2Q '18, contributing to a decrease in FFO from the Waikele property of approximately $0.02 per FFO share; and third, our Embassy Suites seasonality and operations increased third quarter FFO by approximately $0.01; and number four, straight line rents revenues increased third quarter FFO by approximately $0.01, primarily due to new leases signed at Torrey Reserve, Torrey Point and City Center Bellevue.

Now as we look at our balance sheet and liquidity at the end of the third quarter, we had approximately $384 million in liquidity, comprised of $56 million of cash and cash equivalents and $328 million of availability on our line of credit. Our leverage, which we measure in terms of net debt to EBITDA, was 6.5x, although our continued focus is to get our net debt to EBITDA back down to 5.5x or below. Our interest coverage and fixed charge coverage ratio ended the quarter at 3.7x.

Let's move on and discuss our updated 2018 guidance. We are revising our guidance for our full year 2018 FFO per share to a range of $2.09 to $2.11 per FFO share with a revised midpoint of $2.10 per share from our guidance of $2.05 to $2.10 per FFO share that had a prior midpoint of $2.08. The increase in our midpoint of approximately $0.02 is primarily attributable to the improved NOI performance from all 3 sectors of retail, office and multifamily.

Let's begin our talk about our 2019 guidance. We are introducing our 2019 FFO per share guidance range of $2.12 to $2.20 per share with a midpoint of $2.16 per share, which is approximately a 3% increase in FFO over the revised 2018 midpoint or an increase of approximately 6% excluding nonrecurring termination fees received in 2Q '18 that totaled approximately $3.9 million or $0.06 of FFO per share.

Let me walk you through what makes up our 2019 guidance. Same-store guidance includes the following: Number one, same-store retail cash NOI is expected to remain relatively flat for 2019; number two, same-store office cash NOI is expected to decrease approximately 1.6% or approximately $0.02 of FFO. This is primarily due to Genentech at Lloyd District not commencing paying cash rents until late in Q4 2019 after the burn off of rent abatements, though we expect to begin recognizing revenue in the second quarter of 2019; number three, same-store multifamily is expected to increase approximately 2.5% or $0.01 per FFO share.

Our non-same-store guidance includes the following 4 properties; 4 -- number 4 would be Waikele Center in Hawaii, which we have already demolished the former Kmart building during Q3 and are working with prospective tenants as we rebuild that building. The loss of rent in 2019 compared to 2018 at Waikele is expected to reduce FFO by approximately $0.05 per FFO share. Redevelopment is not expected to be finished until late Q4 2020.

Number five, our mixed-use property consisting of the Embassy Suites combined with Waikiki Beach Walk Retail will be taken out of same-store metrics in 2019 due to the exterior painting and spalling repair that is expected to take all of 2019, combined with the room refresh that we do approximately every 5 to 7 years to maintain the high-level customer experience that keeps the Embassy Suites as the #1 performing Embassy Suites in the world. Spalling is something that is common and done every 20 years or so. It refers to the cracking below the concrete surface of balconies that could cause slabs of material to spall off. The moisture from the ocean air can also impact the spalling. We expect this will reduce FFO approximately $0.05 per FFO share.

Six is Oregon Square, which will continue to be out of same-store metrics in 2019. We are currently in the process of renovating one of the existing concrete buildings on the site into creative office space that we hope to get leased up in 2019. Oregon Square will have no impact on 2019 FFO.

Number seven, Torrey Point in San Diego is expected to increase FFO by approximately $0.01 of FFO per share with the ongoing lease up of that property. The property is currently approximately 32% leased. And for guidance purposes, we have expected approximately 1/2 of the remaining 62,000 square feet to be leased in 2019.

Number eight, G&A is expected to increase to approximately $22.8 million, which will decrease FFO by approximately $0.01 per FFO share.

Number nine, interest expense is expected to increase by approximately $1.3 million and reduce FFO by approximately $0.02 per FFO share due to; a, refinancing our existing $100 million term loan that matures at the beginning of 2019 at a higher rate; b, additional usage on our existing line of credit in 2019; c, reduction of interest being capitalized; d, reduction in interest expense related to mortgage debt that was or will be repaid in 2018 and those expected to be repaid in 2019.

Number 10, 2019 straight-line revenue adjustments in the office portfolio are expected to increase FFO by approximately $12.2 million or $0.19 per FFO share as follows: a, at our Landmark at One Market Street building, we are cautiously optimistic with existing and prospective leasing activity, and we believe that it is more likely than not that such activity at Landmark will ultimately increase FFO by approximately $0.08 per FFO share in 2019; b, our City Center Bellevue building in Bellevue, Washington is expected to increase at straight-line revenue in 2019 that will increase FFO by approximately $0.05 per FFO share; c, our Lloyd Center Tower in the Lloyd District of Portland, Oregon is expected to increase its straight-line revenue that will increase FFO by approximately $0.04 per FFO share; and d, our Torrey Reserve Campus in San Diego is expected to increase straight-line revenue that will increase FFO by approximately $0.02 per FFO share.

These adjustments should approximately reconcile our revised mid-'18 -- our revised 2018 midpoint guidance of $2.10 with our 2019 midpoint guidance of $2.16.

Retail same-store occupancy is expected to end 2019 at 97.2%. Office same-store occupancy is expected to end 2019 at 96.4%. Operational capital expenditures are expected to increase from our typical $30 million to $40 million a year to approximately $80 million to $85 million in 2019, with at least half of that related to tenant improvements and leasing commissions related to our speculative leasing assumptions.

As always, our guidance excludes any impact from future acquisitions, dispositions, equity issuances or repurchases, future debt refinancings or repayments other than what we've already discussed. We will continue our best to be as transparent as possible and share with you our analysis and interpretations of our quarterly numbers.

Operator, I'll now turn the call over to you for questions.

(Operator Instructions) Our first question comes from the line of Craig Schmidt of Bank of America.

What are some of the bigger challenges for leasing up Torrey Point. I saw that you plan to make some progress in '19. But just wondering what are the challenges?

First of all, the area itself has one of the highest vacancy rates in San Diego County for office spaces. Second of all, that's probably the best building -- or I believe the best building with the best location, the best views in that market. So it's been a little slow -- it's been slower than we'd like. The building is still well received and is becoming a very visible landmark from the freeway. And it's just taken longer than we thought because, frankly, we're asking rents that are probably close to the top of the market, but it's a special building and we want special rents. And by the way, while I've got you, I want to compliment Bob on his transparency and the way he -- what he present. This is why Forbes Magazine recognize us as one of the most trusted institutions. So Bob, thank you. Good job.

Craig, anything else?

I just -- when will be the Kmart repurposing Waikele start to hit your summary of development? And do you have a rough sense of what the total cost of that repurposing is?

We don't have an estimate of the total cost, and it is an ongoing jigsaw puzzle to put it together. And Chris is doing a great job handling it. Do you want to add something to that, Chris?

Yes. Craig, we're actively working with numerous retailers, kind of what as I refer to as the usual suspects on trying to land them all on their seats out there. So it's taking a little bit more time than we thought. As we all know, the retail environment is a little more choppy than it was several years ago. But on the timing, I couldn't really give you a solid sense of timing. And I think we're looking probably 2020. I think it's what we've estimated and get it done.

Yes. Craig, in our guidance, what we've -- what our assumption is that this will be -- the redevelopment -- subject to the leasing that Chris is working on, we should expect to be finished late in the fourth quarter of 2020.

Everything just seems to take longer than you'd like, and particularly in Hawaii. So it's something we have to deal with, but it's still half a mile upfront on H1 and 43 acres. It's a great piece of property.

And also to the point, we are under construction with the Safeway TI out there to backfill the Sports Authority space.

Our next question comes from the line of Todd Thomas of KeyBanc Capital Markets.

This is Drew on for Todd. Bob, it's Drew. Just wanted to see -- Bob, could you run through what's going on at Landmark with Salesforce? And what exactly is in your guidance and what your expectations are for new rents there and the arrangement that you might have with Salesforce? Just a little more granular detail there would be great.

Drew, let me handle that. It's Ernest. We're not in a position to comment on that. It's a great building. We love the building. We hate to see Salesforce go. We think there's a lot of interest. It's more likely than not that we will be able to be successful in re-leasing it, but we're not in a position to make any more detailed comment. But I do appreciate the question.

Okay. Understood. And then it sounds like from your prepared remarks that things are going well at Pacific Ridge. Is there any way that you could talk about what you think is left to be done? And what -- if you could quantify that in any way, that would be great.

Pacific Ridge is a great property, but it's really 3 properties. It's view properties overlooking the ocean. It's a great property for the adjoining students at USD and then there is the part of the property that is available to the community as a whole. It's now stabilized and it's in -- we have improved the operations dramatically and now we're going to explore how successful we can be in maximizing the revenue from that. So we're happy with where we are, and we're looking forward to where we're going.

Our next question comes from the line of Rich Hill of Morgan Stanley.

Wanted to drill down into guidance, both full year 2018 and then maybe 2019 a little bit more. I was a little bit surprised to see your guidance increase, maybe not a little bit higher. And I think back to the last quarter when you had a fair amount of lease termination income and then you -- obviously, you handedly beat your own guide this quarter. So where is that money going and how should we think about the fourth quarter? Because it seems like, if I'm doing my math right, we're maybe implying $0.47 or $0.48 a share of FFO in 4Q. Is that right?

Yes. That's the difference that gets you to $2.10, I believe, and that's where we should be coming. That's our expectation, the $2.10 midpoint, we feel comfortable on that for a midpoint for guidance. I mean, if you think about -- we did guide on last -- on the last earning call to -- I think it was $0.50. And if you remember, we were at $0.58 in Q2. The termination fees we deducted, which was $0.05. Kmart was another $0.02 we deducted and we had other items and got you down to $0.50. That's where we believe we would end up in Q3. And we were happy to see that we gained on -- through our operations of retail office and multifamily, we increased $0.01 in each of those sectors. So we ended up with $0.53. And as a result, we've increased our guidance to $2.10.

Okay. All right. Well, I look forward to another beat next quarter then. Ernest, I wanted to come back and talk about Salesforce and maybe ask the question, maybe a little bit differently. If I heard you correctly in your prepared remarks, you did increase your guidance for Salesforce. And if I go back and look at your prior presentations, it looks like maybe you're assuming $75 to $80 a square foot for re-leasing of Salesforce. So I'm not asking for any leasing updates, but I want to make sure those numbers are correct, number one. And then number two, if I'm thinking about this correctly, is it fair to think that there's some upside from that $75 to $80 a square foot of leasing? That seems sort of conservative relative to market rates.

We hope we are conservative, we certainly work at it, because we want to underpromise and overdeliver. And I think Bob did put something in his guidance for that. And perhaps you can explain, Bob, how you arrived at that number?

Yes. We have -- we mentioned that we've included in our straight line -- well, let me back up, in our 2019 guidance, we included, I believe, I said $0.19 of straight-line rents coming in, in 2019. And of that $0.19, approximately 8% relates to the Landmark. We know that the in-place rents are probably 57 to 60. And you can make your own assumption in terms of where the rents are. We've picked up some of that based on the natural expiration on June 30, I believe, of salesforce.com, our existing tenant. So we've captured some upside in those numbers for 2019.

Just to round out the discussion. As soon as we know exactly where we're going, we are going to let everybody know because it's important to us and important to our investors. But any comment at the moment would be more speculative than we would like to be in our presentation, but I do appreciate your interest.

Our next question comes from the line of Haendel St. Juste of Mizuho.

Just one or two for me here then. I see you just had 1 Sears box in your portfolio, I think the Carmel Mountain Plaza. I'm curious what your thinking there is. I understand, I think, you're on the dirt -- Sears rents the box. But just how you're thinking about that space and maybe timing or plans to get hold of what you're thinking?

Haendel, Chris can handle this. But the person who -- the company who owns the improvements exercised their option -- to renew, so we're not quite sure where we're going or where they're going. You want to add some to that, Chris?

Yes. Haendel, so -- as you know, Lexington owns or is the tenant on that ground lease there. So Sears' lease burns off at the end of this year and they'll start having to make those rental payments. They've -- we'll see what happens. I think that there's probably a day when we could potentially acquire that building at a reasonable price, but we just got to have to wait it out.

Haendel, let me add something to that. If you recall, back in 2010, 2011, we acquired the Mervyn's building in that same shopping center and -- when it went bankrupt. And what we did is we divided that -- demised that into 2 separate buildings, which we leased to Saks Off Fifth and Nordstrom Rack. We also increased the parking field by adding Jared's Jewelers and a Verizon building. So that market is a special market and the demographics are strong. We would love to get the building back, and we just got to kind of play that out.

Okay. So for now, what, I guess, is assumed in your guidance is just a continuation of some rent from someone?

Right. And just to reconfirm, we have no contractual relationship with Sears or Kmart in any of our properties.

Understood. Understood. Okay. And then, I guess, more broadly question on labor inflation, availability of labor, any impact on your redev projects. I know we've talked about it in the past. Just curious if any more pressure on yields or what's in your current pipeline, any color on that would be appreciated.

I could answer that question, but you would accuse me of being too negative and a complainer. So I don't want to be that, so I'll let Jerry, who can give you the real goods.

Yes. Haendel...

This is Jerry Gammieri, who heads our Construction.

Yes. Haendel, we are still experiencing strain in the construction market for labor and materials, but we're allotting adequate time for our build-outs and everything else to make it happen. And we're leveraging our relationships with different builders and suppliers, but it is a challenging time right now.

Jerry does a great job. And he is the only person who gets to office ahead of me, and he's got so much to do. I got here second this time because I got my car washed.

Our next question comes from the line of Mitch Germain of JMP Securities.

I want to ask that question about some of the Landmark and some of the other leases that, Bob, you pointed out. I think it was around $0.20 of straight-line revenues. I guess, I'm curious, how much of that $0.20 is basically locked in place as of today?

I would say a good portion of that. I'd say probably 70% of it.

And the one -- and the portion that's not is really the Landmark. Is that the way to think about it?

Yes. Yes. I mean at City Center Bellevue, it's -- the remaining straight-line rent from the leases that we've done up there. I mean, we're 97% leased. So that'll tail off. Lloyd Center, you have the straight-line rent related to Genentech that's replacing FamilyCare. And so you have probably 8 -- you got a good portion of 2019 that's abated, even though the FFO will start earlier in the year.

Understood. That's very helpful. I think there were some term fees this quarter, I noticed in the same-store. I don't think it was a real needle mover, but was there anything that we should be pointing out?

No. It's nothing significant. I mean, we picked up $200,000 or less of term fees from Aaron Brothers, but that's it. I mean, we only had 2 Aaron Brothers in our portfolio.

Got you. And then last question. I know that the long-term strategy that you take is basically shave at least a turn from debt to EBITDA. In your mind, Bob, what's the -- kind of what's the strategy to get there? Is it really just a commencement of these leases and increase in rents in i.e. EBITDA or is there a plan to also take leverage down a bit?

Well, we're looking on all fronts. I mean, that's an ongoing discussion Ernest and I have and Adam and our board, and our focus -- we understand it and we get it that you need -- as a public company, you need to keep your leverage low and you get paid for the low leverage in the form of a multiple. But at the same time, we just think from a risk standpoint, it's important to keep your leverage down. Having said that, what's the quickest way to get that down. You could take a slug of equity, which makes no sense whatsoever in today's marketplace. You can increase your EBITDA. And we think that Landmark, regardless of which tenant is interested in leasing the Salesforce space down the road, during their natural expiration, we think we can have at least a 10% increase in our EBITDA over time. So we think there's ways to do that. And we think the growth of some of these leases -- I mean, you look at City Center Bellevue that starts coming online after the abatements during 2018. Every one of those leases were at higher rents. The market has strengthened up there. So if you look around our portfolio, we think that EBITDA over time is going to increase. And so that'll be another way to get it down.

Bob is a very strong advocate for getting that ratio in line, I can tell you.

Understood. And I actually had one more question. Who else is in the Landmark asset other than Salesforce?

Well, we have both Autodesk and Salesforce as the 2 primary tenants in that building.

Our next question comes from the line of Michael Carroll of RBC Capital Markets.

I just wanted to touch on the base of what you're including from Landmark in guidance. And I think, Bob, you kind of referenced about $0.08 of accretion. Now does that really to just the tranche from Salesforce that's expiring this year? Or is it related to all 3 tranches?

This is me speaking on behalf of Bob. I'm his attorney. We're just reluctant to discuss it, if you want to know. There's too much going on, but we also understand our responsibility that when that information becomes available, we make it available to everybody as promptly as possible. But at the moment, we just assume not discuss it in any more detail than we've already discussed it.

Okay. Great. That's fair enough. And then related to the multifamily portfolio, I know there was a little bit of a drop in occupancy in the third quarter related to some deployments in San Diego. How quickly does that usually come back online? Can you talk a little bit about that recovery in occupancy?

Well, Abigail is responsible and she's sitting here. And she hasn't had to say anything up till now. So let's see if she earns a cup of coffee this morning. Abigail, how do you think that will be reoccupied?

So those occupancies have picked up here in the latter part of September and moving into October. So we usually look at about a 30-day recovery from deployment.

Ships go out and ships come in, but there's always ships. And that's a portion of the occupancy of those properties.

Abigail, has the occupancy increased since September 30?

It has. So portfolio wise, we are sitting just at about 95.5% occupied and the lease percentage is just slightly higher, so...

She did a good job answering that. From here on in, we're going to have to ask her more questions.

And as there are no other questions I'm showing at this time, I'd hand the call back over to Ernest Rady for any closing remarks.

Okay. Well, Jerry brought up the fact that inflation is such a factor in construction that I think this bodes well for the portfolio in the long run because the replacement costs of all these properties is higher and they are irreplaceable in terms of the location. The most frustrating part of our business is the price of the stock. It just never seems to reflect the value of the portfolio and the excellent performance that we're able to produce. But given that, we are grateful for our stockholders, we're grateful for all your interest and we're very grateful for the great portfolio we have. And we hope to continue to perform on all our behalf, and thank you for your interest.

Ladies and gentlemen, thank you for participating in today's conference. That does conclude today's program. You may all disconnect. Everyone, have a great day.