Pennsylvania Real Estate Investment Trust (PEI) 2018 Q3 法說會逐字稿

Good morning. My name is Heidi, and I will be your conference operator today. At this time, I would like to welcome everyone to the PREIT Third Quarter 2018 Earnings Conference Call. (Operator Instructions)

Heather Crowell, Senior Vice President, Strategy and Communications, you may begin your conference.

Thank you. Good morning, and thank you all for joining us on PREIT's Third Quarter 2018 Earnings Call. During this call, we will make certain forward-looking statements within the meaning of federal securities laws. These statements relate to expectations, beliefs, projections, trends and other matters that are not historical facts and are subject to risks and uncertainties that might affect future events or results. Descriptions of these risks are set forth in the company's SEC filings. Statements that PREIT makes today might be accurate only as of today, October 31, 2018 and PREIT makes no undertaking to update any such statement. Also certain non-GAAP measures will be discussed. PREIT has included reconciliations of such measures to the comparable GAAP measures in its earnings release and other documents filed with the SEC. Members of management on the call today are Joe Coradino, PREIT's Chairman and CEO; and Bob McCadden, our CFO.

I'll now turn the call over to Joe Coradino.

Thanks, Heather and good morning, and happy Halloween everyone. We find ourselves again reaping the benefits of making difficult decisions when they were sometimes unpopular. Our bold moves allow us to be well ahead of the curve in this rapidly changing retail environment. Early on, we made a decision to sell lower productivity assets at cap rates that were frequently questioned and resulted in dilution of our earnings. Today, these 17 low productivity malls that we sold have experienced over 3 dozen anchor closings, many of which sit vacant.

In contrast, all of our planned anchor replacements are spoken for, which is testimony to the quality of the portfolio we've created. And once all of our projects are completed, we will have almost the same level of NOI as we did before we started our disposition program and with a solid ramp in same-store NOI beginning in the second half of 2019.

We also made the decision to proactively pursue replacement tenants for struggling anchors, understanding that this would result in short-term disruption. We did this so we could proudly sit here today and report that we have only 4 Sears stores to eventually address at a time when there are reports of well over 500 department store and big-box spaces available in the country. We are relatively unaffected and are generally excited about these opportunities.

Clearly, the results of our completed projects indicated that our optimism is warranted. Today, we're replacing 10 underperforming department stores with a roster of 27 diverse users with substantially better credit, doing 3x the sales of the department stores and paying us notably more rent, driving our NAV and the quality of our earnings stream.

Putting it in terms you can appreciate, we've substantially reduced the downside risk associated with our portfolio and in so doing improved our growth profile. But it's not just about anchor space. We continue to take bold action as the industry evolves and incorporate uses that are outside of the traditional mall paradigm.

As of September 30, we have nearly 200,000 square feet of unique and differentiated mall uses signed for future openings. That includes 1776, our retail incubator at Cherry Hill Mall, digitally native brands Peloton, e.l.f. Cosmetics and Balsam Hill, Love Culture pop-ups, expansion of our fast fashion offerings with 4 Forever 21s and 6 restaurants, 3 of which are new to the portfolio.

In just a few years, we have boldly gone where our peers have only talked about going. Let's not forget the ancillary benefits of tackling these issues head on. In a rising construction cost environment, our costs are generally locked in. We have secured tenants before the supply, demand equilibrium was turned on its head.

Our portfolio is attractive to new tenants. As evidenced by executing leases for double, that's right, 2x the amount of space we did last year in the third quarter, we're driving increased rents on renewals with average renewal spreads of 7% year-to-date, a 370 basis point improvement over the prior year. Our shopping centers are appealing to consumers with sales reaching record highs of nearly $510 per square foot, driven by organic growth. And most notably, same-store NOI at our wholly-owned malls, excluding the 6 properties undergoing anchor repositioning, was up 4.3% for the quarter and 5.2% year-to-date.

Looking at the past year, we've opened the following anchor replacements: Dick’s Sporting Goods/Field & Stream and HomeGoods at Viewmont Mall, Dick’s Sporting Goods, PA Fine Wine and Spirits at Capital City Mall, Burlington, HomeGoods and Five Below at Magnolia Mall, Whole Foods at Exton, Tilt and Belk at Valley Mall and HomeSense and Five Below at Moorestown Mall.

If we look to the future, we see a bright 2019. We have anchor repurposing projects coming to fruition at Woodland Mall, Plymouth Meeting Mall, Willow Grove Park and the balance of Moorestown Mall. It's worth noting that in replacing just 20% of the space previously occupied by Macy's at Moorestown Mall, we have replaced approximately 80% of the traffic. We also have our marquee project, Fashion District, set to open in just over 10 months, as we near completion of core and shell with tenants commencing construction, we are over 85% committed and on schedule to open on 9/19/19. As further testimony to the quality of our portfolio and as another step toward anchor improvement, we were pleased to have 2 of our 17 stores on Macy's Growth 50 List, Cherry Hill and Springfield Town Center. These stores were recognized by the retailer as high potential and will receive continued upgrades in merchandise and overall shopping experience.

In addition to the obvious benefit of anchors coming online at 8x the average rent we were receiving, we will recognize significant growth as a result of satisfying co-tenancy requirements along with embedded occupancy growth from the executed lease backlog. We expect that the traffic improvement that we referenced at Moorestown and have experienced at Viewmont and Capital City Malls puts us in a position to eclipse $550 in sales along with the ramp-up in occupancy and NOI in the second half of 2019.

We have successfully addressed improving the quality of the portfolio through disposition and remerchandise. We continue to have several assets that are being evaluated based on the appropriateness of investing additional capital in accordance with our careful capital allocation strategy. We do not plan to invest additional capital in Wyoming Valley, which has been transferred to the special servicer. That process is ongoing. Similarly, with 3 vacant anchors at Valley View Mall in LaCrosse, Wisconsin, we're not anxious to invest additional capital in this asset either. We have a nonrecourse mortgage coming due in 2020, and we continue to pursue options that don't require capital commitments, but maintain our optionality on this investment.

For all intents and purposes, we have 4 Sears remaining. They're well located in primary markets with a robust list of prospects. Sears' rent to us is immaterial or less than 0.5% of our annual gross rent, as is the worst case co-tenancy impact in a liquidation scenario. And like we noted, we view these as tremendous opportunities to keep doing what we've already proven to be good at. We estimate the cost to redevelopment -- to redevelop these to be approximately $60 million. And considering these capital requirements, we've carefully reviewed our capital forecast and identified opportunities to fund future investment. Through densification of potential asset sales, we've identified prospects to raise over $200 million.

As a result of having a portfolio concentrated in the Philly and D.C. markets, we have significant opportunities to densify these properties with multifamily and hotels. And we're currently actively pursuing these opportunities and anticipate closing on our first multifamily deal in early November, and are in advance discussions at 2 additional properties for between 300 and 400 multifamily units each. We're also engaged in negotiations for several hotels and anticipate moving to purchase and sale agreements in the near term.

Now before I turn it over to Bob, I want to reiterate that we're really excited about where we're going and how quickly we've moved. We've repurposed anchor boxes with better credit tenants that have our customer -- and offer our customer unique products, we have a confident consumer, we have great properties that offer densification opportunities and we have our beacon here with Fashion District Philadelphia getting closer to opening when it will change the pattern of retailing in Philadelphia. It hasn't been easy, and victories haven't been obvious. But we have a great team in place, and they are the most resilient and resourceful our shareholders could ask for.

With that, I'll turn it over to Bob to talk about our quarterly results and outlook.

Thanks, Joe. We're reaching the inflection point of our portfolio transformation. We've made significant progress on backfilling departments through vacancies, resulting from proactive recaptures and store closings, and we're starting to see the benefit of those actions reflected in our operating results. Residual impact of prior period bankruptcies and lower co-tenancy rents from department store replacements were a drag on our performance for the quarter, but our third quarter results reflect the benefits of an improved operating platform.

Our fundamental business metrics reflect the long-term improvements that have been made in our portfolio, resulting in record portfolio sales and strengthening leasing spreads along with a robust pipeline of executed leases for future occupancy.

Before I review our operating results and provide an update on our capital spending plans, let me start with our earnings guidance. We're maintaining the midpoint of our previously issued guidance, while narrowing the range of FFO and FFO as adjusted and revising our estimate of GAAP earnings to give effect to operating results for the first 9 months of 2018 and expectations for the fourth quarter.

For the full year, FFO as adjusted is expected to be between $1.53 and $1.58. FFO is expected to be between $1.52 and $1.57, while net loss attributable to common shareholders is expected to be between $0.66 and $0.61 per diluted share. Our full year guidance assumes termination fees to the lower end, including termination fees is assumed towards the lower end of our previously issued guidance range of 1.25% and 2.25%. Our guidance also includes approximately $0.10 per share from the previously announced sale of a land parcel at Exton Square Mall to a multifamily developer as part of our densification initiatives. This gain was included in our guidance last quarter and helped to offset some of the diminution in rent experienced as a result of additional unanticipated closings as the year progressed. As there were entitlement and due diligence contingencies associated with this transaction, it wasn't fully incorporated into guidance until the transaction matured. We expect to close in that transaction in early November.

As you know, this is a highly fluid sector, and we evaluate the moving pieces that define the high and low end of the guidance range and call them out as they materialize.

Before I get into our operating results, I wanted to bring to your attention some additional disclosures we made to the financial tables, included with our press release. With our portfolio in transition, we thought it would be helpful to investors and analysts if we set forth key drivers in our FFO performance from period to period. We trust that you will find these additional disclosures useful to your understanding of our business transformation.

Now let's review the numbers. We reported FFO as adjusted of $0.35 a share compared to $0.40 a share in the prior period after accounting for assets sold. Same-store NOI growth was down 2%, reflecting the impact of several factors. The most significant factor impacting our comparative performance was a $1.8 million benefit of a multiyear tax appeal that was settled in last year's third quarter.

If you normalize for that item, same-store NOI growth was up 1%. More importantly, if you look at our same-store NOI performance in our wholly-owned properties and exclude the NOI drag from the 6 malls currently undergoing anchor repositioning, our performance is up 4.3% for the quarter and 5.2% for the year. While our wholly-owned properties continue to outperform our joint venture properties, we're beginning to see indications that the joint venture properties will show improvement in their operating results as stores left vacant from bankruptcies are leased and occupancy improves through the balance of this year into 2019.

Total occupancy at our core malls was up sequentially by 80 basis points to 93.8%, and non-anchor occupancy was up 30 basis points to 91.3%. When factoring in executed leases, we would add an additional 140 basis points to our total occupancy and 200 basis points to our non-anchor occupancy. We have over 770,000 square feet of executed leases in our pipeline for future openings in the same-store portfolio. 185,000 square feet opened in October, and we have an additional 100,000 square feet slated to open later this quarter, which together will add $5.4 million of annualized revenues.

The balance of the space will open in 2019 and will contribute an additional $8.9 million of annualized revenues. Sales per square foot at our core malls increased 3.1% to $494 per square foot and NOI-weighted sales are a record $509 per square foot. Our leasing team continues to deliver with new transaction volume doubling over last year's third quarter. Average renewal spreads in our wholly-owned portfolio during the quarter for small shop spaces was strong at 11.5% and 8.7% for large format tenant renewals.

In the third quarter, we recognized $800,000 of historic tax credit income, down $1 million from the third quarter of 2017. The income is being recognized over a 5-year period from the date the credits were first generated. 2018 is the final year of amortization of these credits. Interest expense for the quarter increased by $1 million, including our share of JV interest expense. The increase was due to an increase in weighted average borrowings, a 15 basis point increase in average rates, which were offset by higher amounts of capitalized interest. The increase was partially offset by lower preferred share dividends of $700,000 as a result of redeeming our Series A preferred shares in October of 2017.

Now I'll wrap up with some comments from our capital plan. We anticipate spending an additional $45 million on our redevelopment and department store replacement program over the balance of 2018. The recast of our $400 million unsecured credit facility and $300 million unsecured term loan that was completed earlier this year has extended the maturities of these obligations until 2023 when considering available extension options. The $27 million nonrecourse mortgage loan on Valley View Mall matures in July 2020. Beyond that, our next debt maturity doesn't occur until 2021.

Our bank leverage ratio at the end of September was 52.5%, and our net debt-to-EBITDA was approximately 8.7x in line with our expectations, and we had $232 million of available liquidity. With over 90% of our debt either fixed or swapped, we continue to be well positioned to manage through a period of rising interest rates. On a rolling 12-month basis, our FFO with adjusted payout ratio was 55% and our FAD payout ratio was 96%. At the end of -- last week, we announced our 167th consecutive dividend maintained at $0.21 per share for the fourth quarter payable in December.

And with that, we'll open it up for questions.

(Operator Instructions) And your first question comes from the line of Christine McElroy with Citi.

Just following up, Joe, on your comment about the $200 million of capital you expect to raise. What's the time frame for that? And is that all from selling the rights to the multifamily and hotel developers? Or was there more to that?

Well, it's actually -- the time frame is going to begin in the next few weeks, but the capital raising comes from a number of sources. We think that there are some land parcels which are nonincome producing that are under agreement today that will bring in part of those dollars. Certainly, the some outparcel sales as well as the multifamily and hotel properties are pretty much the order in which we will be doing it. And again, much of it is ongoing.

Okay. And then just following back upon the multifamily and hotel developers, I know that you've been talking about mixed used for several months now. Maybe just provide an update on how you're thinking about these partnerships and whether or not you expect to retain any ownership in any of these deals?

In the initial transactions, we're envisioning them to be primarily sales. We'll close on a sale, as I said, in early November, and we're looking at a second deal, where we actually have a bidding war going on at one of our properties and that will be a cash deal as well. As we begin to feel more comfortable and shore up our balance sheet, we'll probably move more in the direction of putting our land into the deal as a possibility and using that to maintain interest in the development, but in all cases, by the way, we would use others to develop it.

Okay. And then Bob, just looking at the new disclosure on Page 15 of the press release, which we do appreciate, and the changes sort of to the components of same-store. If you remove the tax appeal headwind, it looks like there would have been a $0.01 positive impact that's consistent with your comments in the opening remarks about there being excluding the tax appeal to 1% same-store growth. Maybe just -- can you help us sort of bridge the gap? I think your full year guidance is assuming that fourth quarter same-store growth is closer to flat. Why is it not closer to the 1%, excluding the tax appeal?

We're going to have continued impact from department store closings. We had closings of 2 department stores in the quarter at Valley View Mall in LaCrosse, though both Herberger’s and Sears closed during the quarter. So we will have additional co-tenancy drag in the fourth quarter from that. And also as -- the co-tenancy is still expected to ramp up a little bit in the fourth quarter compared to the run rate in the earlier quarters as this is a situation where when anchors close, typically have a secure period. And once secure period expires, then you have a ramp-up in co-tenancy rents.

Your next question comes from the line of Ki Bin Kim with SunTrust.

Just want to clarify that previous question. Are you saying that the $200 million of capital that you're looking to raise, a majority of that is coming from the land sales? I know you said that's the order you wanted to focus on, but I wasn't sure if that actually contributed to the dollar volume?

Coming from what? Ki Bin, I didn't get that.

Land sales or outparcel sales, the $200 million?

No. I think it's -- well, let me be a bit more specific. There are some land parcels of property that we have in Gainesville, Florida, and a property we have in Chester County, Pennsylvania that are part of that, but when we speak of land sales, we're also speaking about sale of land to multifamily or hotel developers. So it's really 2 different kinds of land sales, so to speak. The other pieces, outparcels as well, where we would take in and monetize our interest in a number of our outparcels.

Are you saying all those things combined, you think you can raise $200 million from basically non-income producing asset sales? Is that correct?

No. I didn't say -- well, the bulk of it will be non-income producing, some of it will be income-producing. The outparcel sales will be income-producing. But again as we look at the situation, we think the worst case of getting the Sears boxes back, we are close to $60 million, but in reality you're really not going to make that investment in those boxes for 18 months or 2 years by the time you get them back, find a tenant, go through entitlements, et cetera. It's going to take a while. So while that's going on, we're opening up department stores, we're opening up Fashion District. So we don't see any kind of a crisis on our hands, so to speak. We think we have ample flexibility and time to execute. Having said that, we have been working on the residential and hotels and a lot of those deals are maturing pretty quickly right now.

Okay. And I am looking at Page 12, you show your payout ratio from FAD at 95%. Under your definition, your FAD for the 9 months this year was $0.59, but your dividend is $0.63, 9 months year-to-date. Just curious why is that $0.95 not higher -- not about 100%?

There's a footnote on the page that says it's a rolling 12-month period, because you typically obviously have a big spike in the fourth quarter. So it would be inappropriate to look at it just for the first 3 quarters of the year. So it's really picking up the fourth quarter of 2017 and adding it to the first 3 quarters of 2018, and we've done that consistently.

Okay. So that does bring me to my larger question, though, is that you guys have been doing a great job on selling assets, proactively working through Sears boxes and you guys posted some strong leasing volume this quarter. But if you start looking forward, I mean, you're not really covering your dividends from cash flow. I know you have other levers that will improve that situation, but it doesn't give you the ability to retain a lot of cash flow even if those things do occur. Just -- isn't the right thing to do in terms of cash flow and leverage is rightsizing the dividend for the asset sales that you've made, or saving for a rainy day or whatever it is? But it isn't the right thing to do just to retain more cash flow?

Ki Bin, this is Bob. I think we talked to our investors over the last 1 year, 1.5 year -- that is, we think we're pretty secure in our expectations for the income that's being contributed from the anchor replacements. I think in many investor presentations we showed the ramp up in incremental NOI, I think Joe mentioned, in the second half of '19, seeing the benefit of the anchor replacements, the balance will be coming on stream and Fashion District coming on stream. But to some extent, we see the increase in the payout ratio is something temporary in nature. And we feel pretty confident about the income coming on later in 2019. So we'll work through the current state and be back to a more normative level of payout ratio going forward.

But I guess I was saying if one other kind of major -- couple of major tenants run into some trouble in 2019, it does kind of makes that even harder. So I guess that's why I was asking that question?

I would just add to that, Ki Bin, that in the event that were to happen, remember you're rolling in a lot of anchors that are taking occupancy and beginning to pay rent. So we think we have the situation under control.

Your next question comes from the line of Caitlin Burrows with Goldman Sachs.

I was just wondering if you could talk a little more about the same-store NOI growth outlook for 2019. I know you mentioned an expected ramp in the second half. So I was wondering kind of what would be driving it? Is it the redevelopments or an improvement in in-line occupancy or something else?

Caitlin, this is Bob. I think we expect a large part of the growth in '19 to come from the anchor replacements and also the, I'll just call it incidental pickup will start to burn off the co-tenancy over time as well as -- and we've seen this in some of the places where we actually had completed the redevelopment, you see a lot more activity in terms of the in-line space, increase in sales for parts of the malls that had previously been affected by dark anchors. So it's -- the catalyst would largely be the anchor replacement, but it's more than just the rent from the anchors. It's really the synergistic benefit of reactivating that wing of the mall or that part of the mall.

Got it. Okay. And then you mentioned on the co-tenancy side, so maybe I know the answer to this. But -- so is it right that you think that the co-tenancy kind of drag that's impacting the portfolio as of 3Q should get less as we go into 4Q and then into 2019?

4Q is going to be up a little bit, as I mentioned earlier. And it should start to mitigate over the next 12 to 18 months.

Okay. Got it. And then maybe just -- I know Wyoming Valley Mall is definitely not a focus now, but could you go through some of -- with it being with the special servicer what this means in terms of your current state of recognizing NOI, paying interest expense and any expected timing for the essential disposition?

So we obviously classified Wyoming Valley Mall in our 9 core assets, so it shows up in our non-same-store metrics. Kind of big picture, it's -- for the full year 2018 it will contribute roughly $6.8 million of NOI and that's obviously -- will start to decline significantly in the fourth quarter into '19, and has about $4.4 million of interest on that loan. So kind of a net contribution of roughly $2.4 million. As we look forward to 2019, we see that $6.8 million dropping to the mid-5s because of lost revenue from the anchor closings as well as the co-tenancy impact. So right now we're covering a debt serviced at $1 million, $1.2 million, but that will quickly fall to $1.1 million or perhaps below that.

Your next question comes from the line of Spenser Allaway with Green Street Advisors.

In the earnings release, you guys breakout the NOI decline from the 6 anchor replacement properties. Can you provide some more color on just how much of that was directly related to the lost revenue and the co-tenancy causes versus kind of some other secondary affect such as lower overall footfall from the centers?

I don't know if we have that information in detail, but I think it's safe to say that most of the decrease in those fixed assets relates either to the lost rent from closed anchors and/or the impact of co-tenancy.

Your next question comes from the line of Michael Mueller with JPMorgan.

Few questions here. Real quick. Going back to the asset sales or raising the $200 million. Is any part of that going to be or contemplated to be existing like a normal mall sale, like we saw over the last several years?

That is certainly a possibility, but it's pretty far down on our list of priorities. As I was saying, step 1, sort of sell off the non-income-producing land parcels in Florida and Chester County. Step 2, residential and hotel deals. Step 3 or step 4 would be the individual outparcels, et cetera. And JVs or asset sales come pretty far down the list.

Okay. That's helpful. And then switching gears for a second, on co-tenancy that popped up a bit, have you disclosed what that annualized amount is in Q3? So if we look at the Q3 number, what's the annualized amount of co-tenancy that's currently baked in? And then what should happen over the next couple of quarters to that?

So we disclosed in our reconciliation, in the press release, it's really the change in co-tenancy from year-to-year. So the absolute number for the quarter in the same-store portfolio is about $800,000.

Okay. Got it. And then one another question. In the release, you talked about the same-store NOI for the 6 malls that were undergoing repositioning, was down 4.1% I think, with those numbers. And is that impact -- is that all co-tenancy? Or can you just kind of walk us through some of the drivers of -- because I know the anchors typically aren't really contributing much money. So what's driving that 4% down draft?

Mike, just to kind of recapping what I had said previously. I think, I don't know that we can bifurcate the entire 4.1% to individual buckets. But to a large part, there is a contribution from the anchors' lost rent and the impact of a co-tenancy would account for the vast majority of that decrease.

Your next question comes from the line of Karin Ford with MUFG Securities.

Just wanted to go back to the co-tenancy topic again. Recognizing that we're still unsure about what's going to happen on your remaining Sears stores, have you quantified what the potential co-tenancy impact could be if those stores went into -- were closed as part of the bankruptcy?

Yes. So Karin, let me talk about that. We don't think it's overly material, we're thinking maybe $2 million to $3 million in worst-case scenario. I think to some extent, as we replaced many anchors in the portfolio, we think we're in a pretty good position to kind of mitigate that if that became the worst case.

Yes. Makes sense. Can you just talk about how does the leasing pipeline and how does tenant demand look right now to you versus where it was at this time last year?

Well, I think what it speaks to that best is we've at least doubled the amount of space in Q3 than we did -- in Q3 '18 than we did in Q3 '17. And listen, this is really a quality business. If you have well located assets that are performing, there is significant interest. When we look at those, as a for instance, those 4 Sears stores that we talked about, we're oversubscribed for them, right. We have fairly robust interest. So there is no question, again well located, Philly, D.C., better demographic markets, there is significant tenant interest. And I would say that's both to fill anchor boxes as well as in-line.

Thanks for that color. And my last question is just on leverage. It picked up, you said that was in line with your expectations this quarter. When do you expect debt-to-EBITDA to peak? And where do you think it will be at year-end '19?

We expect to peak towards the end of next year, third, fourth quarter. And I guess we are probably in the high 9s.

And your next question comes from the line of Linda Tsai with Barclays.

The renewal lease for unconsolidated properties was negative 8.1%. I understand it was due to deals being finalized with bankrupt or troubled tenants. But do you expect this to improve in 4Q and in 2019?

Yes. I think we're largely through the bankruptcy workouts with some of the tenants. Yes, we would anticipate improvement in the fourth quarter and into '19.

Would it become positive in '19? Or flat?

No, we certainly think it will be trending towards positive.

Okay. And then what's your outlook on lease term fees for '19? I know the max in '18, you're targeting around $9 million?

Yes. This was an unusual year because of a confluence of circumstances. I think, typically we're looking at somewhere in the kind of $1 million to $3 million range. So we would expect that to be returning back to more normative levels.

And then can you -- finally, can you just give us an update on Fashion District in Philadelphia?

Sure. The leasing status we reported, I guess, last quarter 80% committed. We're at about 85% at this point. The core and shell of the sort of landlord's work, if you will, is reaching conclusion. Tenants have begun construction. It's actually a pretty exciting project to walk through at this point, it's taking shape. The artwork is installed in many cases, we did over $1 million in original art. And so we're pretty excited about the opening of Fashion District in September of next year.

There are no further questions in the queue. I turn the call back over to the presenters.

Well, thank you all for being on the call. We look forward to seeing many of you in San Francisco at NAREIT next week. And we'll continue to make progress. Again, thanks again.

This concludes today's conference call. You may now disconnect.