Retail Opportunity Investments Corp (ROIC) 2015 Q3 法說會逐字稿

Good day, ladies and gentlemen, and thank you for standing by. Welcome to Retail Opportunity Investments 2015 Third Quarter Conference Call. (Operator Instructions.) Please note that certain matters discussed in this call today constitute forward-looking statements within the meaning of Federal Securities laws. Although the Company believes that the expectations reflected in such forward-looking statements are based upon reasonable assumptions, the Company can give no assurance that these expectations will be achieved. Such forward-looking statements involve known and unknown risks, uncertainties, and other factors which may cause actual results to differ materially from future results expressed or implied by such forward-looking statements and expectations. Information regarding such risks and factors is described in the Company's filing with the Securities and Exchange Commission, including its most recent annual report on Form 10-K. Participants are encouraged to refer to the Company's filings with the SEC regarding such risks and factors as well as for more information regarding the Company's financial and operational results. The Company's filings can be found on its website. Now, I would like to introduce Stuart Tanz, the Company's chief executive officer.

Thank you. Here with me today is Michael Haines, our chief financial officer, and Rich Schoebel, our chief operating officer. We are pleased to report that the Company had another very strong and very active quarter. In terms of acquisitions, we continue to capitalize on our longstanding relationships and market knowledge to acquire exceptional shopping centers. Specifically, during the third quarter we acquired four grocery-anchored shopping centers totaling $114 million, bringing our total for the year so far to $236 million. Additionally, we have another two grocery-anchored shopping centers currently under contract totaling $74 million, which we expect to close between now and year-end, which will increase our total for the year to $310 million, achieving our original stated goal for 2015.

With respect to the four properties acquired in the third quarter and the two properties currently under contract, three are located in the San Francisco market and three are located in the Portland market. All six properties are well situated, well established grocery-anchored shopping centers in each of their submarkets, and collectively offer numerous opportunities to enhance the underlying value through re-leasing below-market space, reconfiguring spaces and strengthening the tenant mix over time. Additionally, given our established presence in each of the submarkets, these new acquisitions will serve to enhance our ability to make the most of the increasing demand from key retailers seeking to either enter these markets or expand their presence.

Both San Francisco and Portland continue to be among the best retail markets in the nation. As we are steadily growing our portfolio, we continue to proactively manage our strong financial position by raising capital through a balance of sources to fund our growth. Specifically, during the third quarter we successfully raised upwards of $400 million of equity and debt capital. As such, we remain well positioned to continue capitalizing on the opportunities across our markets. In addition to our acquisitions, we continue to enhance the underlying value of our portfolio through a variety of initiatives. We continue to achieve very strong numbers on the leasing front. In fact, we continue to maintain our high occupancy with our portfolio over 97% leased, and we continue to achieve strong same-center NOI growth driven in large part by record leasing activity and strong increases in our same-space re-leasing spreads.

Additionally, as Rich will discuss, we are having good success with our initiative to capture below-market space. We are not only adding value through our leasing efforts; we are also capitalizing on unique opportunities within our portfolio to enhance long-term intrinsic value. A perfect example of this would be at our Crossroads shopping center, where we just executed the contract for the Senior Living development. For those of you not familiar, our Crossroads shopping center has four outparcels that are fully entitled for an additional 200,000 square feet of mixed-use development. Importantly, our strategy is not to take on any development risks or costs, but rather to simply ground lease the parcels to the best developers in phases over time. The contract we just signed represents the first phase and is with one of Seattle's leading developers of upscale senior living communities. The developer will be breaking ground in 2016, and once completed, the ground rent will commence. Additionally, as part of the development, there will be about 2,000 square feet of retail shop space that we will own and lease.

Looking ahead, as the outparcels are developed over time, not only will they generate additional long-term stable revenue in terms of the ground rent, but equally important is how the new mixed use developments that our property will enhance the long-term intrinsic value and appeal of Crossroads.

To give you another good example of how we are enhancing intrinsic value, at one of our San Francisco Bay area shopping centers, where we have additional land at the property, a leading residential developer in the market has approached us about buying the additional land to develop a master planned community of high-end townhomes. When we acquired the property three years ago, we anticipated that there was the potential for something like this. However, to be conservative, we simply underwrote the acquisition based on the existing shopping center retail space, just as we did with Crossroads. Assuming this transaction moves forward, the price that we could potentially get for selling the additional land is not far from what we actually paid for the entire center three years ago. And, not only would we receive a handsome price for the additional land, the long-term intrinsic value of our shopping center would be enhanced with the new surrounding homes.

In summary, we continue to have good success at advancing our business across all fronts through a variety of initiatives. Now, I'll turn the call over to Michael Haines, our CFO, to discuss our financial results. Mike?

Thanks, Stuart. For the three months ended September 30, 2015, the Company has $50.1 million in total revenues and $16.4 million in GAAP operating income as compared to $41 million in total revenues and $12.3 million in GAAP operating income for the third quarter of 2014. On a same-center basis, which includes all of the shopping centers that we have owned since the third quarter of 2014 totaling 58 properties, net operating income on a cash basis increased by 5.8% for the third quarter of 2015 as compared to the third quarter of last year.

With respect to GAAP net income attributable to common shareholders for the third quarter of 2015, the Company had GAAP net income of $7.8 million, equating to $0.08 per diluted share as compared to GAAP net income of $7 million, or $0.07 per diluted share for the third quarter of 2014.

In terms of funds from operations for the third quarter of 2015, FFO totaled $25.9 million as compared to FFO of $20.8 million for the third quarter of 2014. On a per-share basis, FFO was $0.26 per diluted share for the third quarter of 2015, representing an 18.2% increase over FFO per diluted share for the third quarter of 2014. Included in our 2015 third quarter FFO is a $1.7 million lease termination fee that we received in connection with replacing an anchor tenant. Rich will discuss the details in a minute.

Turning to the Company's balance sheet, as Stewart mentioned, we completed several capital-raising initiatives during the third quarter. In August we completed a common stock offering issuing 5.5 million shares, raising approximately $87 in net proceeds. Additionally, in September we closed on a new $300 million unsecured term loan. The new loan has an initial maturity of January 2019, with the flexibility for us to extend the maturity for another two years, to 2021. The new term loan also has an accordion feature providing us with the ability to increase the loan amount by another $200 million.

We utilized the proceeds from stock offering and new term loan to pay down and reload our credit line. Accordingly, September 30, we only had $16 million outstanding on our unsecured credit facility. In other words, we currently have over $480 million available on our line. In addition to the stock offering and new term loan, during the third quarter we retired our largest mortgage, a $48 million loan. We replaced it with a new, smaller mortgage totaling approximately $36 million, which bears interest at a much lower fixed rate. As a result, this one refinancing loan saved the Company about $1.7 million a year in cash interest.

Taking into account all of our third quarter financing initiatives, on September 30 the Company had a total market capital of approximately $2.6 billion, with $872 million of debt outstanding, equating to a debt-to-total market cap ratio of just 33.9%. With respect to the $872 million of debt outstanding, the vast majority of that is unsecured. In fact, at quarter end we only had $63 million of mortgaged debt outstanding. 96% of our portfolio is now unencumbered, which is a new record high for the Company. One additional note regarding our debt, we have virtually no debt maturing for the next three years, five years when you include the extension options on our term loan and credit line. In fact, all that we have maturing in the next three years are three small mortgages totaling about $26 million.

Turning to our EBITDA-to-interest expense ratio, the Company's interest coverage remains strong. In fact, it steadily increased during 2015. For the third quarter our interest coverage ratio was 3.8 times. Lastly, in terms of our FFO guidance, based on our results for the first nine months, we are now increasing our 2015 guidance, first, in terms of the fourth quarter. Taking into account the full per-share impact of the stock offering we completed midway through the third quarter, as well as the debt financings, lease termination fee, which is nonrecurring, and the four properties we acquired during the quarter, we expect FFO in the fourth quarter will be between $0.23 and $0.25 per diluted share. And with that in mind, we expect our FFO for the full year 2015 will be between $0.95 and $0.97 a share. Now I'll turn the call over to Rich Schoebel, our COO, to discuss property operations. Rich?

Thanks, Mike. As Stuart indicated, we continue to have great success with running our portfolio. We continue to lease space at a record pace, continue to post very strong numbers. In fact, through the first nine months we have already leased more space than in any previous year, and we have already leased more than double what was originally scheduled to expire in all of 2015. As a result of our strong leasing activity, we continue to maintain our portfolio at near full capacity, finishing the third quarter at over 97% leased. Specifically, as of September 30, our portfolio was 97.1% leased. Breaking the 97.1% number down between anchor and nonanchor space, at September 30 our anchor space was 99.6% leased. As Mike touched on, during the third quarter we terminated one anchor lease where the tenant paid us a $1.7 million fee. We have already signed a lease for the new retailer who is taking about two-thirds of the anchor space whereby we are achieving a 240% increase in the base rent, and we have considerable interest for the remaining space.

In terms of our shop space, demand continues to be very strong across our portfolio. On September 30, our shop space stood at a strong 94% leased. With respect to the spread between occupied space and leased space, which includes newly signed tenants that will soon take occupancy and commence paying rent, you may recall that at the end of the second quarter the spread was 3.8%, representing about $5.5 million in incremental annual base rent on a cash basis. During the third quarter, tenants representing approximately $1.3 million in incremental annual base rent took occupancy and commenced paying rent of which approximately $200,000 was included in our third quarter cash NOI.

In terms of the current spread between occupied and leased space, as of September 30, the spread was 3.9%. This takes into account not only those tenants that started paying rent in the third quarter but also includes all of the new leases we signed during the third quarter, where these new tenants haven't yet taken occupancy and commenced paying rent. With these new leases included, the 3.9% spread represents about $6.1 million in incremental annual base rent on a cash basis.

Turning to our leasing activity, during the third quarter we executed 90 leases totaling 485,000 square feet, achieving a strong 19.3% increase in same space comparative rents on a cash basis. Breaking that down, we executed 39 new leases totaling 172,000 square feet, achieving a same-space comparative cash rent increase of 52.8%, and we renewed 51 leases totaling approximately 313,000 square feet, achieving a 7.2% increase in cash rents.

As we discussed on our last call, given the extraordinary demand for space across our portfolio, we have been implementing a proactive strategy of seeking out every possible opportunity across our portfolio to recapture below-market space well ahead of lease expirations and make the most out of the demand. The anchor space that I just mentioned, where we achieved the 240% increase in rent, is a perfect example of this. All totaled thus far in 2015, we have successfully recaptured about 166,000 square feet of below-market space and released that space at considerably higher rents, adding approximately $1.6 million of incremental annual base rent.

Lastly, with respect to the news regarding Walgreens acquiring Rite-Aid, we consider it to be very positive from our point of view. We currently have 12 Rite-Aid stores in our portfolio and three Walgreens stores, which combined account for about 2.5% of our total base rent, and both the Rite-Aid stores and Walgreens stores are all performing well. In fact, in terms of sales, the Rite-Aid stores at our properties are among the top third best performing stores. Additionally, the rents are well below market on average, some by as much as 250%, and we will now have a much improved credit, being Walgreens, backing all of the leases. So, again, we view the transaction as being very positive in terms of potential impact to our business. Now I'll turn the call back over to Stuart.

Thanks, Rich. Needless to say, all of here at ROIC are very proud and very enthusiastic about our results thus far in 2015. That said, as enthusiastic as we are about our achievements to date, we are even more excited about our prospects looking ahead. With respect to acquisitions, our pipeline of off-market opportunities continues to be as active as ever. In fact, there are several potentially great acquisitions on the horizon which, assuming they come to fruition, could get us off to a very strong start in 2016.

In terms of leasing, as Rich discussed, we continue to aggressively pursue recapturing below-market space. And while we have had good success so far, we believe there is a lot of embedded growth opportunities in our portfolio that lie ahead. Additionally, with respect to the current 3.9% spread between occupied and leased space representing over $6 million of incremental cash flow, we are working hard to get as many of these tenants up and running in the fourth quarter, which will help to drive our same center and NOI growth as we finish 2015 and head into 2016. All in all, we firmly believe that we are well positioned with the portfolio and operational platform, together with a strong balance sheet and financial wherewithal to continue to steadily growing our portfolio, achieving strong, reliable results and enhancing long-term value. Now we'll open up the call for you questions. Operator?

Thank you. (Operator Instructions) And our first question comes from Christy McElroy from Citi. Your line is now open.

Stuart, just with the stock having recovered pretty meaningfully in the last two months, you're now trading close to your 52-week high. Given that a primary source of capital for new acquisitions is common equity issuance, and you're also very focused on keeping leverage low, I'm wondering if you could talk about how changes in your stock price impact your appetite for new acquisitions and your willingness to be aggressive on price?

Changes in the stock price. Well --

So, effectively, your cost of equity.

Yes, our cost of equity, sure. Well, look, number one, we will continue to be as disciplined in terms of external growth as we have in the past. And that's a discipline that we've always had here at the Company since day one. More importantly, in terms of looking at equity, we take several factors into account. Certainly, the stock price is, of course, one of those factors. But that said, our view of our NAV is certainly higher than where our stock is trading. It is the most precious resource we have. But as we look forward in terms of our stock price, we believe that the acquisitions in front of us are primarily going to be OP units, and that is going to give us the ability to bring equity straight into the balance sheet without having to look to the market as it relates to raising that equity. So, although our stock price is trading close to our 52-week high, when it comes to growing the Company, we will continue to have that discipline and, more importantly, we believe with what's in front of us we won't need to the market as it relates to growing the Company.

Okay. And then with regard to your acquisition volume of the remaining $75 million under contract not yet closed, did you say in your opening remarks that all of that should close before year-end, or could some of that leak into 2016? And then just specifically to Iron Horse, given that it's an OP unit deal, when do you expect that one to close?

Yes. No, we do expect everything to close certainly by the end of the year. In terms of Iron Horse, this transaction involved unwinding a complicated partnership, which has taken the seller a little while to resolve. The good news is that we are almost done, and at this point we certainly expect to close before year-end, and that is as important to the seller as it is to us.

Okay. And then just lastly, you mentioned that you're working on a bunch of potential new deals, but you also mentioned you'd rather use OP units to fund. What percentage of those deals are you currently negotiating OP units, or are they really more in early stages?

100% of the acquisitions are being considered in OP units right now.

Okay, thank you.

And our next question is from the line of Paul Morgan from Canaccord. Your line is now open.

Hi, good morning. How are you seeing the Haggen bankruptcy play out as they're out in the market trying to sell a bunch of stores? I mean, is there any disruption in terms of -- I mean, obviously, you don't have a lot of anchor vacancy, but just in terms of the way market share is moving around and decisions are getting made, how is that happening right now?

Well, I'll let, sort of, Rich comment on that Haggen situation as it relates to us, but just in general, we're tracking it very closely in terms of what's going on. As you probably know, a number of these locations have already been purchased, although it's still subject to court approval, by some very strong operators. So, it's going to diversify the grocery store base on the West Coast, which is good for everyone. In terms of what's left on Haggen, we really don't see -- most of those locations are really outside the metro areas of the West Coast, so we really don't see much impact as it relates to our real estate. Rich, I don't --

In terms of tenant demand, it is not impacting anchor tenant demand in the marketplaces that we're operating in.

So, as you look at, because you've talked about looking at your own below-market anchor leases and trying to recapture those, it's not kind of interfering with any of that process at all right now?

Exactly. Not at all.

Okay. And just as you do that work on the below-market anchor deals, I mean, how should we think about -- I mean, some of these take time to work through, to negotiate and then to take occupancy. I mean, is this sort of a -- should we think of this as a one- to two-year process, or could we see things hitting every quarter for a while?

I think you'll see things hitting every quarter for a while. As you say, some of these take a bit longer, but we've already completed a significant portion of initiatives, and those will start taking effect in 2016, some in the first quarter. And the ones we're working on now will probably flow in after that.

And is it, obviously, it's a great situation where you can get a termination and then have upside. I mean, do you think it's going to be a mix of that and then actually buyouts? Are you trying to avoid the buyout (inaudible)?

Yes, it's definitely a mix. I mean, like we talked about last quarter, up in Bothell, where we paid to get a space back and then re-leased it to PCC, and now we've re-leased the balance of the space to Petco this quarter. We paid a little bit there to get that space back, but, again, we got really good rents coming on that. This one we announced this quarter, we got paid and again got 240% increase, and one that's coming on in the first quarter we're getting back for nothing. So, it's definitely a mixed bag. Obviously, we have to look at the whole deal in terms of it making sense.

Okay, great. And then just lastly, for the 390 basis points of leases that are signed but not occupied yet, how should we think about the timing of those kind of rolling into the rental stream?

I mean, again, it's hard to give a specific number in terms of how that's going to roll in, because it's about timing of getting them built out. Some of these require demising of anchor boxes and that sort of thing, but we certainly are going to be bringing in some every quarter going forward, but we will also be adding to it. So, I don't know.

It's kind of hard to pinpoint it. I think our fourth quarter same store is fairly strong and Q3 was up to our expectation, anyway. And rolling into 2016, the initiatives we're working on now are going to flow into each one of those quarters.

Okay, great. Thank you.

And you next question is from the line of Paul Adornato from BMO Capital. Your line is now open.

Stuart, I was wondering if you could walk us through how you came about the four properties that you closed and the two under contract? You said that 100% of them were OP units, at least discussed.

Well, no, I think my comment in terms of the OP units was going forward, not looking back. Although looking back a number of the deals we've announced this year have been OP units. So, primarily, what we've closed this year, which is San Francisco and Portland, outside of the OP units, the other assets were really acquired through relationships that have gone back many, many years. And I think one of the advantages of being on the West Coast for a number of decades is that some of these relationships go back, again, that far. So, it's really, Paul, a combination of being on the ground, tracking what goes on year after year and being ready to use those relationships to really buy what I call very high quality assets at pretty good prices.

Okay. And sorry if I missed it, did you talk about cap rates and upside in these acquisitions?

Well, cap rates for the $114 million have been about 5.5% to 6%, and upside is going to be really to re-leasing below market space, a bit of filling up vacancy. But what we always do best from an operating perspective is really increase the yields on these deals from 75 to 100 basis points over the next 12 to 24 months.

Uh-huh. And, finally, Stuart, given your track record, there is always the discussion of a portfolio sale, a sale of the Company. I know in the past you've said that you have more wood to chop, so-to-speak. And so I was wondering if you could just kind of step back and give us the big picture view of both maximizing NOI of the platform and the potential appetite of buyers out there?

Sure. Well, look, as a public company we try to always operate with an open mind in terms of looking at all avenues when it comes to maximizing shareholder -- that's our job. And while we're open to all things, we continue to be very excited, Paul, about the future prospects of our business. I mean, the fundamentals across our core markets continues to be very strong. Job growth, income growth is expected to continue to outpace the nation. There is no new supply, and tenant demand, as Rich articulated, has never been stronger. So, we believe there is a lot of embedded cash flow growth in this portfolio, and we continue to see a lot of great acquisition opportunities through our off-market sources. So, while we're open to all things, we are really excited about the opportunities we see on the horizon for the Company to significantly enhance value. And that is sort of where think, where we are today in terms of looking forward.

Great. Thank you so much.

And our next question is from the line of Collin Mings from Raymond James. Your line is now open.

Good morning, guys. Just first question, Mike. Maybe I missed it, but what is maybe your latest thoughts on putting a swap in place as it relates to the term loan, just to bring down some of your floating rate debt exposure? I want to say it's about 36% of you total debt right now is floating rate, so how do you think about swapping that into fixed rate?

We are mindful of our floating rate level and are currently exploring several different strategies to fix a good portion of it.

Okay. All right, the I guess as far as, Stuart, just as it relates to Sacramento, I know that's kind of a market where you've not been as upbeat on as some of your other markets, talked about exiting that market in the past. How do you think about the potential timing of proceeds from that and what type of cap rate you could get on those assets?

Sure. Well, we haven't deployed capital there in a number of years. It's getting better, Sacramento, but still probably one of the weaker markets, our metro markets on the West Coast. We currently have one of our properties on the market and, of course, I can't discuss what's going on, because we are under confidentiality. But we are focused on getting out of the market, and in terms of dollars, I would probably look at, and I think we've mentioned this before, anywhere from $25 million to $50 million over the next several quarters.

Okay. That's helpful. And, Mike, just going back again to my question on the debt side, can you just maybe expand upon what options you're exploring as we try to think about what might be a more normalized cost-to-debt going forward?

Sure. Obviously, we have our investment grade rating, we've done a couple of bond deals. We looked at the bond market and given the volatility we opted to do the term loan. With that in mind, we are sensitive to floating rate debt, so swapping a portion of that is definitely in the cards. That's the primary alternative. I mean, there is also the private placement market, but we really prefer to be unsecured [corporate] bond issuers, so we're going to wait and see how the market evolves on that front.

Okay, so you might hold out for that market just given some of the success of some of your peers on the private placement side, but it doesn't sound like you want to go down that road yet?

It's not preferable but definitely an option we have, for sure.

Okay. All right, thanks, guys. Congrats on the quarter.

And our next question comes from the line of Todd Thomas from KeyBanc Capital. Your line is now open.

Stuart, your comments about the acquisition market sounds positive heading into 2016. Can you maybe provide an outlook as to what might be reasonable to expect in terms of deal volume in the year ahead? Do you think that 2016 could be consistent with what you've done this year?

Well, look, we're going to continue to -- based on our pipeline, our sense of the market is we are certainly going to have a very strong beginning to the market subject, of course, to the transactions we're working on, primarily -- or everything is off-market. However, it's a bit early for us to set forth a target for 2016. We intend to put forth guidance for next year as it relates to acquisitions and other things when we report our year-end results. But as I said in my comments, our pipeline has never been more active.

Okay. And then the properties that you have your eye on, being that there are 100% OP unit deals sounds like for the most part, are they separate sellers that you're working with, or is this a portfolio deal that you're sort of speaking about?

It is separate sellers, and in terms of the quality of assets, it is some of the best assets, certainly in terms of demographic profile, on the West Coast.

Okay. Then just a couple questions for Rich. I was wondering if you could just talk about the trends in tenant improvements and leasing costs in your markets? It looked like the numbers were elevated this quarter. Wondering what you're seeing in the markets where you operate?

Yes, I think that number will change from quarter-to-quarter depending on the type of leasing that we're doing. I think this quarter, the spaces that were driving that number a bit higher were first generation space that we took over that had not been leased by the prior owner for quite some time, so they required a bit more work. But that number is going to change quarter-to-quarter. There are a lot of deals we're doing that have no TI, and I think if you look at where we're at, blended for year in the $5 range, it's still a pretty even number.

Okay. And was the 240% increase in rent at the property where you backfilled two-thirds of that anchor space where the lease was terminated, was that included in this quarter's leasing activity, or is that next quarter?

That's in this quarter's leasing activity.

Okay. All right, great. Thank you.

And our next question is from the line of Jay Carlington of Green Street Advisors. Your line is now open.

Hey, Rich, maybe just a follow-up to Todd's question there on the tenant quality. Which anchor left in that recent box and who are you replacing them with?

Sure. That was an Albertson's that actually had been dark for a little while at that property, and the replacement tenant is Sky Zone, which is an entertainment type retailer, and maybe some of you are not familiar with them. They're an indoor trampoline park. They have over 100 locations throughout the US, Canada, Mexico and Australia, and they're very popular on the West Coast. Matter of fact, we have a birthday party there with my family this weekend. So, they are making a big push and I think it's going to add a lot of traffic to the shopping center. And then for the balance of the space we have a lot of activity on it and we're actually in discussion with some smaller format, well established regional grocers to come back to the property.

Okay. And was that 240% increase, was that net of TIs for that property?

No, that is just rent-to-rent, cash rent-to-cash-rent.

Okay. And, Stuart, I guess another track, did we see a report that I guess the head of acquisitions recently left the Company?

No. That report is incorrect. We have not had a head of acquisitions at the Company for close to three years -- two and a half years, I think is when John left. So, that report is incorrect.

Okay, great. I'll get back to them on that. I guess, finally, a question just, the five anchor leases next year that are coming up, how many of those have, I guess, renewal options on them?

I think all but one have a renewal option.

Okay. Thanks, guys.

And our next question is from the line of Michael Gorman of Cowen Group. Your line is now open.

Most of the questions have been asked at this point, but just a couple of quick follow-ups. You mentioned the senior housing development at Crossroads is going to break ground sometime next year. I'm wondering when do you expect the ground rent to actually commence? So, basically, when do you expect them to finish that development?

Probably 2017 at this point, but it's going to be -- this is the first two phases, but on this particular phase, the way the ground rent phases in is on occupancy. So, when you hit certain thresholds, that's when the rent begins to kick in. The good news is that there is no senior housing in all of Bellevue and the projections that we're seeing and hearing about is that the occupancy numbers could accelerate very rapidly in terms of getting that rent. Rich, I don't know if you want to add to that.

Yes, I think Stuart is right. It's probably early 2017, they start paying rent when they hit 85% leased, and we would anticipate that early 2017.

Okay, great. And then just looking at the site plan, I mean, it's in a pretty -- it's in obviously one of the extreme corners there, but do you expect any disruption of any of the other tenants at Crossroads during construction, or is there any type of allowances that would have to go through?

No. There has been a lot of time and effort spent making sure that we've unlocked these perimeter areas at the property to allow for this type of development. The good news, as you point out, is that it's over in the corner and really surrounded by parking and the movie theater next-door. So, we are working with the theater in terms of hours that they'll be under construction, to keep parking open for them and to keep the noise level down, but it should be fairly seamless.

Great. Thanks, guys.

And I'm not showing any further questions in the queue. I would like to turn the call back to Stuart for his closing remarks.

Great. Well, in closing, I'd like to thank all of you for joining us today. If you have any additional questions, please contact Mike, Rich or me directly. Also, you can find additional information in the Company's quarterly supplemental package, which is posted on our website. And for those of you attending the NAREIT's annual convention in Las Vegas in a couple of weeks, we hope to see you there. Thanks again, and have a great day, everyone.

Ladies and gentlemen, this concludes the program. You may now disconnect.