Armada Hoffler Properties Inc (AHH) 2017 Q2 法說會逐字稿

Welcome to the Armada Hoffler's Second Quarter 2017 Earnings Conference Call. (Operator Instructions) As a reminder, this conference call is being recorded today, Tuesday, August 1, 2017.

I will now turn the conference call over to Michael O'Hara, Chief Financial Officer at Armada Hoffler. Please go ahead.

Good morning, and thank you for joining Armada Hoffler's Second Quarter 2017 Earnings Conference Call and Webcast.

On the call this morning, in addition to myself, are Louis Haddad, CEO; and Eric Smith, our Chief Investment Officer, who'll be available for questions.

The press release announcing our second quarter earnings, along with our quarterly supplemental package were distributed this morning. A replay of this call will be available shortly after the conclusion of the call through September 1, 2017. The numbers to access the replay are provided in the earnings press release. For those who listen to this rebroadcast of this presentation, remind you that remarks made herein are as of today, August 1, 2017, and will not be updated subsequent to this initial earnings call.

During this call, we'll make forward-looking statements including statements related to the future performance of our portfolio, our development pipeline, impact of acquisitions and dispositions, our construction business, our portfolio performance in financing activities as well as comments on our outlook. Listeners are cautioned that these statements are subject to certain risks and uncertainties, many of which are difficult to predict and generally beyond our control. These risks and uncertainties can cause actual results to differ materially from our current expectations, and we advise listeners to review the risk factors discussed in our press release this morning and in documents we've filed with or furnished to the SEC.

We'll also discuss certain non-GAAP financial measures, including but not limited to, FFO and normalized FFO. Definitions of these non-GAAP measures, as well as reconciliations to the most comparable GAAP measures, are included in the quarterly supplemental package, which is available on our website, armadahoffler.com.

I'm now turning the call over to our Chief Executive Officer, Louis Haddad. Lou?

Thanks, Mike. Good morning, everyone, and thank you for joining us today. This morning, we reported second quarter results of $0.25 of normalized FFO per share, which was in line with our expectations. After successfully raising over $85 million in an overnight public offering in May, we have updated our first-year guidance for the remainder of 2017.

Before Mike takes us through the quarterly results, capital markets activity and updated 2017 guidance in detail, I'll comment on our retail portfolio and the many exciting offers, multifamily and student housing projects in our development pipeline.

As a diversified REIT, we invest in, develop and build several different product types: office, multifamily, student housing, mixed use and retail. And we also generate additional revenue through our operating divisions.

Due to our operating -- opportunistic rather than formulaic approach to development, over the course of our company's history, the segment mix in our portfolio has fluctuated and will continue to do so. For example, just 3 years ago, office assets generated nearly half of our portfolio NOI and retail assets made up less than 40%.

Through constant, proactive and strategic portfolio management, the retail portion of our portfolio today stands at over 60% of NOI, yet significantly less when combined with other income from our operating divisions. But it is important to point out, against the current backdrop of excessively broad concern regarding the retail segment, their current mix is merely a snapshot in time. In fact, this is the highest volume of retail we've had as a publicly traded company. Upon stabilization of the multifamily, student housing and office projects in our development pipeline, we expect that retail will represent less than half of our portfolio NOI, and even less as a percentage of our NOI and operating division income.

Irrespective of these metrics, we remain confident and bullish about the retail assets in our portfolio. These properties continue to perform with year-to-date same-store NOI up over last year. As you know, we don't own malls, we don't own department stores and we shy away from big-box centers. We own 3 types of retail properties: one, mixed-use destination assets; two, grocery-anchored centers; and three, power centers anchored by best-in-class retailers. The best example of our mixed-use destination retail is at our signature Town Center project in Virginia Beach. Town center is home to 800,000 square feet of office space, 800 residential units, 2 hotels and a performing arts center.

Within the district, we own 460,000 square feet of mixed-use retail, comprised of 25 restaurants and cafés, professional services, higher-education facilities and boutiques that support and drive the live-work-play atmosphere. Mixed-use destination retail currently makes up about a quarter of our retail NOI.

When it comes to grocery-anchored centers, we invest in superior locations in our geographical footprint with high-quality anchors, which we believe will continue to perform well in an increasingly competitive landscape. Roughly half our retail NOI comes from grocery-anchored assets. The remaining 25% is in our power centers, which are led by best-in-class retailers that are discount clothiers, pet-supply stores, home goods and service providers, along with typical out-parcel users.

In summary, our philosophy and approach to retail is simple. We develop and invest in places where people want and need to shop. So despite the current perceptions facing the retail sector, we will continue to apply our methodical approach that has worked for almost 40 years. While we remain upbeat about our retail assets, as is the case with our other product types, we continue to actively manage our portfolio to divest or expand when and where it makes sense.

Along those lines, we may sell or repurpose a couple of our smaller retail centers in the coming quarters. With regard to active portfolio management, we recently closed on the sale of our 2 build-to-suit state office buildings at a nearly 40% profit margin over our development costs, which once again exceeds our target wholesale-to-retail spread, and demonstrates the value creation from our development platform. We used these proceeds to partially fund the acquisition of the out-parcel space at Wendover Village in Greensboro, North Carolina, for $14.3 million. This acquisition complements the primary phase of Wendover Village that we acquired a little over a year ago as part of our 11-property-portfolio purchase.

Moving on to the rest of the portfolio, as I previously mentioned, we anticipated that our 3-year streak of positive same-store NOI growth would come to an end this quarter and it has. The construction of Phase 6 of Town Center has impacted multifamily occupancy and The Cosmopolitan next door. And with a number of office tenant relocations within Town Center, we expect these impacts to continue until the end of the year. At the same time, we are confident about our ability to return Town Center occupancy to its historical levels and contribute to future growth in same-store NOI.

I'll now spend a few minutes on our projects currently under development and construction. By the end of the summer, we expect to begin construction on 2 student housing projects on a historic Charleston Peninsula, located within 1 mile of the College of Charleston, and in close proximity to 5 other schools in the area. We continue to evaluate and explore opportunities to grow our footprint in this market. Design progress on our new build-to-suit office building for Huntington Ingalls at Brooks Crossing is on track for an early 2018 construction start and 2019 delivery. This state-of-the-art facility is expected to house nearly 600 employees, and serve as a catalyst for further development in this public-private partnership with the city of Newport News.

Our Harding Place project in downtown Charlotte is well underway, and we are very pleased with the rent growth and absorption that this submarket continues to display.

The construction of Phase 6 of the Town Center at Virginia Beach is now in the vertical stage and is tracking for a delivery next summer. This infield block will have a variety of entertainment options as well as exciting new retailers and loft-style apartments. The initial units at Annapolis Junction will be delivered next month, and Point Street is on track to begin delivery in early next year. Given their prime locations and compelling market dynamics, we are excited about these projects and fully expect to exercise our at-cost purchase options.

Last quarter, we entered into an LOI for a significant block of the remaining office space at One City Center in downtown Durham. Lease negotiations continue in earnest and assuming lease execution, the office component will be 90% preleased in advance of our expected summer 2018 delivery. We've begun preliminary discussions with our joint-venture partner and Duke University about the next phase of this project. With almost $440 million of development in our current pipeline, and our target wholesale-to-retail spreads of around 20%, we expect that these projects alone will add well over $1 per share of NAV.

We continue to explore a number of exciting development opportunities in our target markets. For the growing stable of trusted and like-minded development partners, we have been able to increase our development run rate without compromising our core underwriting criteria, premier locations, high-quality anchor tenants, accretive returns and healthy wholesale-to-retail spreads. As a result, we continue to be highly selective and decline the vast majority of opportunities presented to us. The standards we use to evaluate whether to deploy our precious capital on a new project will continue to be exceedingly rigorous .

All of these decisions are considered in light of management's position as far and away the largest equity holder in the company. The sheer volume of opportunities allow us to select only the most attractive projects for evaluation. After which only a small fraction of those opportunities are pursued in earnest. As an example, this quarter we entered into an agreement with SJ Collins, a seasoned developer of high-quality grocery-anchored retail centers, to deliver a Whole Foods center in Decatur, Georgia. We are hopeful that this relationship will lead to more opportunities with both this developer and exclusive retailer.

Lastly, our construction company continues to exceed expectations and is on track for one of its best years ever. This quarter, we substantially completed work on 3 new Leedle stores in Southeastern Virginia, and look to expand this new relationship as their rapid mid-Atlantic expansion continues.

Our successful execution across all areas of our business: investment, development, construction and asset management, and our rapid growth in both profits and market cap has led to our addition to the S&P SmallCap 600 Index. This will likely expose our company to an expanded institutional investor base and continue to solidify our identity and brand recognition.

At this time, I'll turn the call over to Mike to discuss our second quarter results and updated 2017 guidance in detail. Mike?

Thanks, Lou. Today, I want to cover the highlights of the quarter, thoughts on our balance sheet and additional details on our 2017 guidance. This morning, we reported FFO of $0.24 per share and normalized FFO of $0.25 per share, which met our expectations. Our same-store NOI growth, which has been positive for 11 consecutive quarters came to an end this quarter as expected.

Same-store NOI was negative 3.6% and negative 2.4% on a cash basis as compared to the second quarter of 2016. These results were expected because of the ongoing Town Center tenant changes and construction activity. Multifamily was negative this quarter due to the Cosmopolitan apartments. Occupancy dropped to a low of 84% this quarter as a result of the construction of the Town Center Phase 6 across the street. Office was negative primarily due to the relocating of a Town Center tenant to 4525 Main Street, which is not in our same-store NOI calculation combined with the lease execution, extension and downsizing of a law firm. Due to these disruptions, we expect this temporary impact to continue through the remainder of the year.

At the end of the quarter, our core operating portfolio occupancy was unchanged at 94%, with office at 90%, retail at 97% and multifamily at 92%.

On the construction front, we reported a segment gross profit in the second quarter of $2.7 million on revenue of $57 million. This is another strong quarter for this segment of our business. At the end of the second quarter, the company had a third-party construction backlog of $117 million.

Now turning to our balance sheet. We continue to take actions to enhance flexibility and strengthen our balance sheet, including a large equity raise in the second quarter. Maintaining a strong balance sheet as a private company was instrumental in being successful for 34 years prior to going public in 2013. With the management team being the largest shareholder at 17%, this approach has not changed. The company is managed and positioned for the long term and not quarter-to-quarter. That said, in May, we completed an equity offering to raise $85 million to fund our $440 million development pipeline. With this equity need and the market uncertainty for REIT, we thought it was the right time to raise equity and take market-risk off the table. Alternately, we could have raised this equity to our ATM program over the next 12-plus months, but that would have left little capacity for additional development projects.

With this equity raise, we now have the capacity to complete and bring the current development projects on balance sheet. While this equity raise is diluted to earnings and NAV in the short term, we believe it will be accretive in the long term. We'll only move forward with development projects that are accretive to both earnings and NAV, inclusive of our cost of capital.

Return on cost and the value creation of the projects must be higher than our cost of capital, including any equity requirements, which is the case with the current projects. As Lou said, we believe these development projects once stabilized will add in excess of $1 of NAV per share.

At the end of the quarter, we had total outstanding debt of $470 million, including $28 million outstanding under our $150 million revolving credit facility.

We continue to evaluate our exposure to higher interest rates and look for opportune times to hedge our interest-rate exposure. At quarter end, 100% of our debt was either fixed or hedged.

During the quarter, we purchased a 2-year $50 million interest rate cap at 1.5%. Subsequent to quarter end, we continue with asset recycling. We sold the 2 Commonwealth Virginia single-tenant office buildings at a 6.8% cap rate with a gain of 38% over our development costs. The proceeds from this sale were used in the 1031 tax re-exchange to purchase the outparcels at our Wendover center.

Now for an update on our full year 2017 guidance that we issued this morning. We expect 2017 normalized FFO in the range of $0.97 to $0.99 per share. This guidance is lower and the one we issued initially due to the capital raise in May. As we previously noted, 2017 is the year of execution and positioning the balance sheet to the development pipeline and future growth.

Now the details of our 2017 guidance. This updated guidance is predicated on the following assumptions: disposition of the Commonwealth of Virginia office buildings with proceeds being used to acquire the Wendover outparcels during the third quarter, no additional capital market activities including under the ATM program, interest expense calculated on the Forward LIBOR Curve.

2017 guidance of $0.97 to $0.99 per share is also predicated on the following: total NOI in a $72.8 million to $73.3 million range, third-party construction company gross profits in a $6.9 million to $7.4 million range, general administrative expenses in $10.8 million to $11 million range, interest income for our mezzanine financing program in a $6.7 million to $6.9 million range. At the end of the quarter, the aggregate balance of these mezzanine loans was $73 million, interest expense in the $16.9 million to $17.4 million range and $60.3 million weighted-average shares outstanding.

Now I'll turn the call back to Lou.

Thank you, Mike, and thank you for your time this morning, and your interest in Armada Hoffler.

Operator, we would like to begin the question-and-answer session.

(Operator Instructions) Our first question comes from the line of Dave Rodgers with Robert W. Baird.

Lou, in the spirit of retail and obviously, it remains in focus for your portfolio here in the near term, can you talk about any potential watch list you might have or pressure that you are seeing on lease economics as tenants might talk up kind of this retail environment and any additional color or any challenges that you may or may not be having?

Great question, Dave. We're really not seeing any pressure in our centers. We're seeing re-leasing, we're seeing options taken, we're seeing sales remain steady or growing. We've got several centers where there are significant leases coming up in '18, '19 and '20. And right now, we don't foresee anybody doing anything other than renewing their options. As you've seen we're sitting somewhere around 97% full in the retail and we expect that to continue.

We really don't have exposure to the types of retail that are -- seem to be under pressure. We've got one tenant you see on our top-10 list, Bed Bath & Beyond, which I think has come under pressure, but we're look -- monitoring the sales in those units that we only own 4 of them. The one here at Town Center is amongst their best stores in the nation, and the other 3 are in line or a little above average. So we're really not seeing that pressure there and that's probably the biggest thing on our watch list.

We do expect, when we bought the 11-property portfolio 1.5 year ago with primarily the Kroger, the last piece of that, the smallest center by far is in -- is a center in Western Virginia, where there is a 30-some-thousand-foot Kroger that we expect to repurpose probably in a next 18 months or so because I doubt they would stay in a footprint that small.

And then maybe bigger picture, Mike, you had talked about issuing the equity to kind of free up some development capacity as opposed to using the ATM, which I think makes sense, but Lou, maybe you can provide a little additional commentary. You talked about some work down in Durham that maybe you're working on another phase with Duke. But can you handicap kind of the odds of the development portfolio being substantially larger as you move into 2018 and consistently seeing this high level of activity going forward? Talk a little bit more about that if you could, Lou.

Sure. Again, as Mike said, we have got this tremendous pipeline marching its way through the company, and we're really excited about those properties coming online, beginning in a -- actually beginning next month and working all the way through 2018.

We wanted to make sure that we had the equity set aside to fully absorb those properties. We believe they're top quality and are going to add substantially to both NAV and earnings. Taking that off the table gives us the opportunity to focus on potential equity needs for the next-generation pipeline. As you know, development is a slow game. So when we talk about our shadow pipeline, being in essence, probably about the same size as the current pipeline, that's a very slow bill. What we're working on now, be it the next phase in Durham, the next phase in Town Center, the next phase at the Inner Harbor in Baltimore, or Charlotte, or Charleston, all of these properties -- all of these projects you're looking at a fairly decent time frame for entitlement and design before there is any equity needs whatsoever.

So I don't think we're going to be in the market anytime soon, either as Mike said, with the ATM or obviously, an equity raise, but we do believe that, that shadow pipeline is developing very quickly, again, at the rate of development as it proceeds.

Our next question comes from the line of Rob Stevenson with Janney Montgomery Scott.

Lou, just sticking with the retail side of things, when you take a look at the strip-center portfolio, I mean, where you think value is? Because obviously, I mean, one of the overhangs on the stock is that you bought this thing 20 months or so ago roughly at 7% cap rate, and there are people out there that believe that today if you had to sell it, it's worth closer to an 8% cap rate and that there's been significant value diminishing here.

When you take a look at that portfolio today and where things have been trading in the market -- in those various submarkets, et cetera, I mean, where do you think value is today?

Our first take towards the question, Rob, it's -- we try not to pay a whole lot of attention to fluctuations in cap rates and what's in and out of vogue. In the not-too-distant past, people were talking about the types of centers that we had being able to fetch a low 6% cap rate. Today, people were talking about high 7s, low 8s. Lord knows what's going to happen in the fall.

What we do pay attention to is increasing sales, increasing rents and increasing occupancy. As long as we stay focused on that, and it really doesn't matter a whole lot. And that's so -- that's what's happening in our portfolio as you can see by the results. As I said, as you guys know, we're not afraid to recycle this portfolio, we do it fairly regularly. And we do have a couple of smaller centers, I mentioned the one that might be repurposed.

We've got a couple of small grocery-anchored centers that we believe are at or near peak value, so you might see in the next 18 months that we trim the portfolio in that direction. But remember, we've been doing this, I've been in this chair for 33 years, our Chairman for nearly 40. We've seen a lot of these fluctuations in the past and it's real easy to get distracted over what matters. And what matters in real estate is location, credit, sales and escalating rents. And as long as you stay focused on those real estate principles, you really can't get yourself in trouble.

Okay. And then in terms of the Wendover outparcel, what's the plans there? And then, can you also talk a little bit about what drove the increasing guidance on the construction segment gross profit guidance? Is that more projects? Is that more profitability on certain projects, et cetera?

Okay. Okay, take those out of order, Rob, and I'll mention -- I'll talk about construction and I'm going to let Eric Smith talk a little about the Wendover outparcel. On construction, as you can see, this is a banner year for us and it's a confluence of several events.

We had a very large project that ended earlier in the year and delivered significant savings beyond our fee, nearly 7 figures of savings. We also have picked up a couple of clients along the way intra-year, one being this legal relationship that added substantially to our backlog, and those projects are starting and finishing essentially in the same year. So it may well be, based on our guidance, that this -- the construction company has a $7 million year. I do want to say that, as you guys have heard us say before, we're not looking to expand the construction company. It does high-quality work for people who want to negotiate projects with us. And as such, that stays fairly stable at the $200 million, $250 million range, and that typically yields profits. Where we started guidance in that $4.5 million to $6 million range I expect that, that construction will return to its norm next year and the years that follow.

Eric, can you take the question about the Wendover outparcel?

Sure. Happy to. Thanks, Lou, and good morning. As you'll recall, the primary portion of the Wendover Village asset was purchased when we did purchase that 11-property portfolio, and we purchased the entire portfolio in the 7.25% cap rate range on a cash basis and that has only increased over time as our asset management team has applied increased detention to that asset, both on a quality and leasing perspective maybe than it had prior to our ownership. And so we've enjoyed some nice bumps there.

Within those 11 assets, the Wendover Village asset was one of the premier assets, as you may know, it's located on the Southwest side of Greensboro, right off of 85 and 40 anchored -- shadow anchored by a Costco right at exit 214, and really good demographics around that retail center.

And so we felt very good about the primary center. The outparcels that we just purchased, that 7-7 cap rate, little bit of color commentary of why we were interested in buying retail in the backdrop of the -- that Lou mentioned about the retail segment that we currently face. We had the opportunity to buy these outparcels immediately after we acquired the 11-asset portfolio, and we turned them down based on the cap rate that the seller was asking for. It came back across our desk about a year later, and we said, no, again, based on the cap rate that was being asked for just because we didn't need the acquisition, we were interested in it given the health of the center, but we didn't need it.

And a little color commentary, the seller came to us when they had another buyer under contract that wanted some REA changes that we were not willing to do, and so that deal fell apart, and we became really the only viable buyer given that it didn't make sense to another buyer to buy without the REA changes they were asking for, where they didn't -- obviously, you don't need the core center, not a concern for us, and so we put a very aggressive offer on the table that was accepted, so we think we're acquiring it at a nice cap rate relative to its value, especially when you consider that now we have the entire center without the whole of the outparcels. So we feel really good about that acquisition.

And what do you plan to build on the outparcel?

The outparcels are all developed and 100% occupied.

Okay. So it's not a develop play, it's just an income play. Okay.

All right, 30, 30 -- almost 36,000 square feet anchored by Panera and a number of other credit quality tenants.

Our next question comes up from the line of John Guinee with Stifel.

Oh great, okay. I had just a whole bunch of little questions. First, explain what you're doing in Decatur? How much are you investing? What kind of return are you expecting? How long would you have that investment in place?

Sure. John, once again, that's a Whole Foods center, and that was the first step in the relationship that we're working on with SJ Collins as well as a Whole Foods. And I -- the specifics -- Mike, I am staring at Mike, I believe it's a $10 million investment.

Yes, $10,750,000 mezz loan on that project. The -- our return on that is 15%. And the loan is the same maturity as the construction loan, I think it's 3 years.

This is the -- John, this is the largest developer of Whole Foods in the country and they have a pipeline of these things. When they came to us, this one was ripe. They have been -- they're predominantly a merchant builder, and they have been raising this kind of equity with these kinds of returns from third parties. So in order to initiate the relationship, we said we'll step into those shoes with an eye towards the rest of the pipeline.

Okay. So -- and you -- they just are paying you the mezz out of the -- essentially the borrowing capacity -- 15%. Will you be able to record that currently? And how long do you expect to be in that loan?

Yes, we are recording it currently -- the center is 80% leased, and I know that [Tolbooth] Leasing because of demand, they think they can push the rates, so I suspect, I think it's a 1.5 year construction phase, I assume. Shortly after completion, they will be looking to take us out.

Okay, so just a 2-year $11 million loan. Second, student housing, the math here looks like $537,000 a unit, there's got to be more to it than that. Can you kind of talk about investing $100 million in this kind of product? What the appropriate unit costs are and what kind of yield you expect on this?

Yes, John, the -- I'll give you the statistics, it's -- we've got $100 million invested on 2 properties representing 600...

600 beds.

600 beds. So we're looking at $150,000 or so a bed. We are programming this around a 7% return on costs, and properties, as you know, of this ilk, particularly in that location, are selling right around a 5% cap. But our intent is not to sell it, but to hold it long term as it's in an A position. I'm not sure where your math...

Oh I'm just looking at your spreadsheet here and it says 188 units...

I got you. Okay.

Okay. And then Point Street apartments in Baltimore, Annapolis Junction purchase options, when would you exercise those purchase options and as of today, what sort of yield on costs or yield on purchase options should they generate?

So Annapolis Junction starts to deliver next month, and effectively, really, we think probably in -- starting in September. We're anticipating, and we always anticipate along these lines, of somewhere around an 18-month lease-up. Our option will be good through 2018, and so depending on how that lease-up proceeds, we expect to exercise during 2018, it's hard to say right now, how early in the year that would be. John, as you know, we advertise that we work off at least a 20% spread. We've monetized several of these assets, and I think 20% was probably the least that -- of any that we've monetized. I would say were we to monetize either of these assets, it'd be substantially higher than that based on the kind of cap rates people are paying at the Inner Harbor and Baltimore and in Fort Meade, but that's not our expectation. I mean, we're hoping to own these things for a long time.

But the question is on both of them, you're going to shift from earning an 8% and a 10% interest on mezz loans to essentially having those mezz loans repaid and then you'll exercise a $92 million and $102 million purchase option and then hold those. Are you going to be buying them at a 4 yield on cost or a 9 yield on cost?

Our expectation is that those are going to be in the high 6s, low 7s based on pro forma rents, and we expect that the transaction -- transition from mezzanine to wholly owned, it's going to be an accretive one, both on NAV as well as on earnings basis.

Our next question comes from the line of Craig Kucera with FBR Capital Markets.

You had a meaningful decline in your development occupancy and a rent cut at the Johns Hopkins Village. Can you give us some color on how lease-up is trending, going into the school year and maybe what the supply situation is there?

Sure. I am going to let Mike talk to you about that decline. But I also again tell you that we are 100% leased starting next month with, I believe, one potential bay left in the retail. Mike?

Yes, Craig, what we've had is come May the students started moving out. We had 10-months leases at that property, so we dropped from 79% occupied to 50% occupied here during the summer. Like Lou said, we'll be at 100% leased on the beds come the end of next month. I mean the end of this month.

Right. And just another question, this may be difficult to answer, but can you estimate what the impact of same store was from some of the movement going on at Town Center related to multifamily and the construction and your retail client moving to 4525?

We've got a couple of different pieces there. If you think about it at our -- at The Cosmopolitan you had occupancy go from the 90s to the mid- to low- 80s, and that represents in and of itself a couple hundred thousand dollars. On the office side, basically, we took a 14,000-foot tenant and moved him out of the pool. There are back-bill leases that are coming in place but are not producing yet. When you take those 2 factors as well as the down serve -- the downsizing of essentially the last law firm that cycled through a Town Center, I think it accounts for the entirety of the change.

Our next question comes from the line of Bill Crow with Raymond James.

Two questions. The first one on the multifamily at Town Center. Is it going to get worse as you look at the upcoming lease rollover trends?

Bill, thanks for the question. Well, I told them somebody would ask that because the Cosmopolitan is as of today over 90% leased, so it's -- we saw the bottom, and as we've said last quarter, our expectation with that -- would be that it would return to normalcy around the end of the year. So we're on track for that.

Okay, great. Second question, going back to retail. You talked about the sizable lease expirations in '18, '19 and '20, and that you were confident you could release the space or renew the tenants, I should say. Are you confident in the outlook for the rental rates as well? Are we going to see positive increases in rents or how do you feel about that part of it?

We feel really good about that. I don't see anything other than people renewing at their option rate.

There are no further questions at this time. I would like to turn the call back over to Mr. Haddad for closing remarks.

Thanks, everybody. We appreciate your interest in our company and we look forward to updating you on our activities and results over the course of the year. Have a good day.

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.