Tanger Inc (SKT) 2016 Q1 法說會逐字稿

Good morning. This is Cyndi Holt, Vice President of Investor Relations. I would like to welcome you to the Tanger Factory Outlet Centers' first-quarter 2016 conference call. Yesterday we issued our earnings release, as well as our supplemental information package and our presentation. This information is available on our Investor Relations webpage, Investors.tangeroutlets.com.

Please note that during this conference call some of Management's comments will be forward-looking statements that are subject to numerous risks and uncertainties, and actual results could differ materially from those projected. We direct you to the Company's filings with the Securities and Exchange Commission for a detailed discussion of these risks and uncertainties.

During the call we will also discuss non-GAAP financial measures as defined by SEC Regulation G, including funds from operations, or FFO, and adjusted funds from operations, or AFFO. Reconciliations of these non-GAAP measures to the most directly comparable GAAP financial measures are included in our earnings release and in our supplemental information.

This call is being recorded for rebroadcast for a period of time in the future. As such, it is important to note that Management's comments include time-sensitive information that may only be accurate as of today's date, April 27, 2016.

At this time all participants are in listen-only mode. Following Management's prepared comments, the call will be opened for your questions. We ask you to limit your questions to two so that all callers will have the opportunity to ask questions.

On the call today will be Steven Tanger, President and Chief Executive Officer; Frank Marchisello, Executive Vice President and Chief Financial Officer; Tom McDonough, Executive Vice President and Chief Operating Officer; and Jim Williams, Senior Vice President and Chief Accounting Officer. I will now turn the call over to Steven Tanger. Please go ahead, Steve.

Thank you Cindy, and good morning everyone. Before we discuss our first-quarter results, I want to say that we were deeply saddened by the tragic loss in February of Donald Drapkin, a member of our Board of Directors. He was an exceptional leader, close friend, and trusted advisor who will be greatly missed by all of us at Tanger.

2016 is off to a great start, with a 12% first-quarter growth in AFFO per share compared to the first quarter of 2015. After Frank takes you through our financial results and a brief overview of our recent financing activities, I will discuss our operating performance, our external growth opportunities, and our outlook for the balance of the year.

Before I hand it over to Frank, I would like to wish a heartfelt farewell to Frank Marchisello, my long-time thought partner, who announced last October that he would be retiring effective May 20, 2016, to spend more time with his family. Frank has been an exceptional CFO, and an even better friend for more than 30 years. He has been involved with the Company since its inception in 1981, and helped to structure and implement our initial public offering in May 1993.

This is our 91st conference call together. Frank's contributions have been immeasurable during this period of extraordinary growth. His legacy is the fortress balance sheet that we have today. I know that I speak for everyone when I say that we are sorry to see him go, but happy he will be able to enjoy his retirement with his family. Go ahead, Frank.

Thank you Steve for the kind words. It is hard to believe that this will be my last earnings call. I am proud of the balance sheet that we built together, and I do appreciate your leadership over the years, and just as importantly, your friendship. It's been a great ride at Tanger, and leaving is bittersweet. I'm honored to have been part of such a top-notch organization, and have worked with a team of talented, dedicated professionals.

It is comforting to be able to pass the CFO baton to a proven leader like Jim Williams, our current Chief Accounting Officer. Jim and I have worked alongside one another for over 22 years. Many of you already know Jim. He's been a fixture at investor conferences and road shows for years. He's well respected inside and outside the organization, and this is a well-deserved promotion. Our robust succession planning processes were designed so that transitions like this are seamless, and I'm sure this one will be. Now back to the quarter.

As Steve mentioned, AFFO per share increased 12% during the first quarter of 2016 to $0.56 per share, or $55.8 million, from $0.50 per share or $49.8 million, during the first quarter of 2015. Our total market capitalization as of March 31, 2016, was $5.2 billion, up 3% compared to March 31, 2015. Our debt to total market capitalization ratio was 28.6% as of March 31, 2016, compared to 29.2% as of March 31 of last year. We continued to maintain a strong interest coverage ratio during the quarter of 4.12 times.

On April 7, 2016, our Board of Directors approved a 14% increase to the cash dividend on our common shares, from $1.14 per share to $1.30 per share annually. This represents a three-year cumulative growth rate of 44%, or a 13% compounded annual growth rate. We've raised our dividend each of the 23 years since becoming a public Company in May of 1993, and have paid a cash dividend for 91 consecutive quarters.

If you purchased one share of Tanger common stock in our initial public offering in May of 1993 for $22.50, or $5.63 on a split-adjusted basis, you have now received total dividends representing nearly three times your initial investment, as well as stellar stock price appreciation.

Our dividend is well covered, with an expected FFO payout ratio for 2016 in the mid-50% range. At these levels, we expect to generate more than $100 million in excess cash flow over our dividend, which we plan to continue to reinvest in our business by upgrading our properties and funding most of our development needs.

Since the beginning of the year, we have completed several financing transactions that's further strengthened our fortress balance sheet. On January 12, we closed on the sale of a small non-core outlet center in Fort Myers, Florida, near Sanibel Island. The $26 million transaction represented a capitalization rate of approximately 7% for this bottom-tier asset. We then executed a tax-efficient strategy for the use of proceeds from the asset sales we completed in late 2015 that also expanded our unencumbered asset pool to 91% of our consolidated square footage.

We did so by re-paying the $150 million floating-rate mortgage loan secured by the Deer Park, New York, property, and re-paying a $28 million deferred financing obligation owed to our former partner, increasing our legal ownership interest to 100%.

These transactions, which were funded with a portion of the proceeds from assets sold in 2015 and 2016, and borrowings under unsecured lines of credit, reduced our total leverage and our exposure to floating-rate debt by $108.7 million.

Subsequent to quarter end, on April 13, 2016, we amended our $250 million unsecured term loan. The size of the facility was increased to $325 million. The maturity date was extended more than two years, from February 2019 to April 2021. The LIBOR spread was reduced by 10 basis points from 105 basis points to 95 basis points. As a result, the next significant maturity on our balance sheet has now been pushed out to June of 2020. The $75 million in excess proceeds were used to pay down balances under unsecured lines of credit.

Earlier this month, we also entered into interest-rate swap agreements that fixed the base LIBOR rate at an average of 1.03% on $175 million in LIBOR-denominated debt through January 1 of 2021.

The dilutive impact of these transactions on 2016 FFO per share is expected to be approximately 0.5% per share. Combined with derivatives that had been in place since October 2013 that fixed the base LIBOR rate at an average of 1.3% on $150 million of LIBOR-denominated debt through August 2018, the recent derivative transactions effectively locked $325 million of our floating-rate debt at an average interest rate of 2.11%

When we were considering various financing alternatives, price indications from several of our banks suggested that strategy to expand the term loan and enter into the interest rate swaps was approximately 75 basis points lower than the expected all-in rate for a five-year bond offering.

On a pro forma basis, as if these transactions had occurred on March 31, 2016, our floating-rate debt exposure would've been 21% of our total outstanding debt, or 6% of our total enterprise value. The availability under our lines of credit would've been $331 million, or 64% of the total line capacity.

Our conservative mindset has served Tanger well throughout 35 years of economic peaks and valleys. Maintaining a fortress balance sheet and investment-grade credit is our way of life. Financial stewardship has become a hallmark of Tanger Outlets that we do not intend to change. I will now turn the call back over to Steve.

Thank you, Frank. I'm pleased to report that our strong rent spreads have continued into 2016 for lease renewals, and re-tenanting activity within our consolidated portfolio. Blended base rental rates increased 21.1% during the first quarter of 2016, on top of a 23.1% increase during the first quarter of 2015. Lease renewals during the quarter accounted for approximately 763,000 square feet, or about 54% of the space coming up for renewal, and generated an 18% average increase in base rental rates.

Re-tenanting activity accounted for an additional 185,000 square feet of leases executed during the quarter, and generated an average increase in base rental rates of 32.3%, with the lowest average tenant occupancy cost ratio among the high-quality mall REITs, at just 9.3% of our consolidated portfolio in 2015. We have been successful at raising rents while maintaining a very profitable distribution channel for our tenant partners.

Same-center net operating income increased 4.4% during the quarter, on top of a 4% increase in the first quarter of 2015. The growth during the first quarter of 2016 was aided by lower snow-removal expense compared to the first quarter of 2015. The first quarter of 2016 also compared favorably to the same-center net operating income growth of 2.1% during the fourth quarter of 2015. We now have reported same-center net operating growth in 45 consecutive quarters, dating back to the first quarter of 2005, when we first began tracking this metric.

Lease termination fees, which are not included in same center NOI were approximately $600,000 in the first quarter of this year, compared to $1.1 million during the first quarter of 2015.

In addition, total property-level net operating income for the first quarter of 2016, including all the NOI generated by our wholly-owned properties and our share of the NOI generated by our consolidated and unconsolidated joint ventures, increased 10.4% compared to the first quarter of 2015. This impressive growth was achieved in spite of the dilutive impact of the recent asset sales.

Traffic into Tanger centers was up 6% during the first quarter. Average tenant sales per square foot within the consolidated portfolio increased 4.7% during the first quarter, compared to the first quarter of 2015. For the trailing 12 months ended March 31, 2016, average tenant sales within our consolidated portfolio were $401 per square foot, flat compared to the 12 months ended March 31, 2015, but up 1.5% compared to the 12 months ended December 31, 2015.

Our consolidated portfolio was 96.6% occupied as of March 31, 2016, compared to 96.7% as of March 31, 2015.

We remain optimistic about the future of our business. Our reputation with retailers of having a quality portfolio of outlet centers and a refined skill set for developing, leasing, operating, and marketing them has afforded us that robust external growth pipeline. We delivered four new Tanger outlet centers in 2015, totaling 1.4 million square feet, which represents a 10% increase in our footprint at the beginning of the year. These investments generated a weighted average stabilized yield of 10.1%.

Since 2014 we have added six new centers totaling 2.1 million square feet, including both the consolidated and unconsolidated portfolio of properties. During that time, we have sold eight properties totaling 1.3 million square feet, with an average age of 22 years. Currently, the average age of assets in the Tanger portfolio is 16 years.

For 2016, we plan to deliver two new centers, both of which are already under construction. Most of the 355,000-square-foot Columbus, Ohio, center is in the tenant build-out phase. We expect the center to open highly occupied in June 2016.

In addition, both construction and leasing efforts are progressing as planned for our new 352,000-square-foot center in Daytona Beach, Florida, which we plan to open just in time for the holiday season -- holiday shopping season this year.

During the first quarter we announced our newest pre-development project, located in the greater Fort Worth, Texas, market, within the 279-acre Champions Circle mixed-use development adjacent to the Texas Motor Speedway. We plan to develop a 350,000-foot outlet center featuring over 70 brand-name and designer retailers. We have executed leases with a number of great retailers, including Nike, Levi's, Banana Republic, Gap, Old Navy, Express, Skechers, Carter's, OshKosh, and many more.

Pre-development and pre-leasing efforts for this project are ongoing. We plan to acquire the land, and commence construction once we have achieved our self-imposed leasing hurdle, which requires commitments for a minimum of 60% of the leasable square footage for new development properties. In addition, work is ongoing on a number of pre-development-stage sites in our shadow pipeline, which we plan to announce upon successful completion of our underwriting process.

Regarding our outlook for the balance of the year, we currently expect 2016 FFO to be between $2.29 and $2.35 per share; AFFO to be between $2.30 and $2.36 per share; and diluted net income to be between $1.05 and $1.11 per share. We are also leaving our guidance for same-center net operating income unchanged with an expected range between 3% to 3.5%, as our forecast includes the impact of re-merchandising activity planned to take place in a number of our centers during the balance of 2016.

Our estimates are based on average quarterly general administrative expense of approximately 11.4% to $11.9 million, and average projected Management leasing and other services income of approximately $1 million per quarter. Our forecast assumes tenant sales remain stable, and does not include the impact of any additional termination rents, any the additional financing transactions, any property acquisitions, or the sale of any out-parcels of land or additional outlet centers.

We remain optimistic about the growth prospects for our Company, as shoppers continue to seek Tanger's unique shopping experience, and a wide array of brand-name merchandise, direct from 80 to 90 manufacturers that operates stores at each Tanger outlet center. The tenant community continues to indicate its desire to expand into new markets, with Tanger as a preferred partner.

The resilience of the outlet center has been proven over the past 35 years through many economic cycles. We have more than 3,000 long-term leases with good credit, brand-name tenants, that have historically provided a continuous and predictable cash flow in good times and in challenging times.

No single tenant accounts for more than 6% of our base and percentage rental revenues, or 7.5% of our gross leasable area. In addition, approximately 90% of our total revenues are expected to be derived from contractual base rents and tenant expense reimbursements.

Now I'm happy to turn the call over to any questions.

(Operator Instructions)

Samir Khanal, Evercore ISI.

Hi, Steve. On your guidance here, the 3% to 3.5%, I know you talked a little bit about proactive re-tenanting and re-merchandising at the centers, but are you expecting any store closings or bankruptcies from tenants at this point?

So far this year, we've only had about 26,000 square feet of tenants in bankruptcy. That's compared to 200,000 last year. Reading the financial press, there are several tenants on our watch list that have either announced corporate restructurings or potential bankruptcies. We're watching this carefully.

We are in the process of talking to a couple of them, but we haven't finalized yet if and the number of stores that may close, and what our re-tenanting plans are. It's difficult at this point to determine the total square footage and any expected time to re-tenant the space.

However, I will point out that virtually every year this happens. We have a long history of re-tenanting space with more productive tenants, and usually at higher rents. We're hoping this year we'll continue. The reason our guidance remains the same is the uncertainty as to the timing and the amount of the space.

Got it. Then I guess my second question is I don't know if you can provide a bit more color on the sales trends that you're seeing at some of your tourism-driven centers. I know you sold Barstow recently, but then you've got Riverhead, San Marcos, and maybe, I don't know, to what extent Atlantic City is driven by international tourists, but any color around that would be good?

Most of our sites are -- most of our centers are consistently visited by Americans on vacation year after year. That's a very stable market place. We don't enjoy the thrill of higher sales when the dollar is weak and tourism is strong. Fortunately, we don't experience pain when the dollar is strong and tourism is down. It's a very stable type of portfolio.

We did identify about 18 to 24 months ago our most vulnerable site to foreign tourists, which was Barstow, California. Fortunately, we executed the sale of that center last October. We're really not experiencing any big negative down-turn from the foreign visitors' reduction in tourism and the strength of the dollar.

Great. Thanks, Steve.

Caitlin Burrows, Goldman Sachs

Hi, good morning. Just on occupancy, I guess. Your occupancy has traditionally been very high. While it's almost 97% now, it is down a little year over year. I was just wondering if we could expect that to turn positive later this year?

Let me please put that in perspective. We are 96.6% occupied, down 10 basis points from a year ago, which is statistically not important. We expect, although we haven't issued guidance, we expect occupancy to return pretty much to the level it was at the end of last year, in the mid-97% or 98% range, probably 97.5%.

We do expect some lease-up towards the end of the year. Of course, I'll caveat that with the uncertainty around unexpected vacancies caused by bankruptcies and corporate restructurings, which I mentioned earlier.

Okay. Then just on tenant sales, you mentioned this year was plus 4.7% for the first quarter, which sounds pretty strong. I was wondering if you could comment on which categories were driving this.

Also, for your mall peers, department store weakness has been a headline risk. I know your guys' exposure to those types of retailers is much lower, but to the extent you do have some exposure to their off-price concepts, how those are doing?

Well, our exposure to department stores, actual full-line department stores, is zero. The financial press is reporting that the full-line department stores are exploring potential closings.

The relatively new department store outlet stores, we basically have several Sax Off Fifth stores. We only have one Neiman's Last Call. We have no Bloomingdales outlets, no Lord and Taylor outlets, no Nordstrom. Our exposure there is extremely small. We are very fortunate in that.

Then in terms of the in-line tenants that were like plus 4.7% for the quarter, were there specific categories that were stronger than others, or does it just depend on the location and retailer?

It just really depends on the location and retailers. The retailers that are successful, high-volume retailers in the regional malls and other distribution channels are the same tenants that are high-volume, successful retailers in the outlet channel.

Okay, thank you.

Tayo Okusanya, Jefferies.

Yes, hi. This is George Hogland on for Tayo. On the transaction environment, what are you seeing out there? Are you looking to sell additional assets currently? Do you have anything out on the market?

We have no assets for sale on the market. The Sanibel sale occurred from an in-bound call, which we were happy to answer, and led to a very successful transaction. We do get in-bound calls from time to time on various assets, which we listen to. But we are not under any contract, and we are not marketing any centers for sale.

Okay, thanks. Also, in terms of development sites, and out there looking for new projects, how is the competition out there, with more players in the outlet space? Do you anticipate doing some more JV deals, given the competition for development?

First of all, there are not more players in the outlet space. I will remind you that it was about two, three years ago that there was a lot of conversation, because I think there were 51 or more outlet centers that were announced.

Our comment, which turned out to be accurate, was it's easier to announce an outlet center than it is to get one built. We anticipate this year that only four or maybe five outlet centers will be delivered in the entire country. That's a relatively small increase, and very few, maybe the same number next year.

As far as the number of developers, the largest and most respected is our partner in Columbus, Simon Property Group. They have several properties which they intend to develop and deliver, as do we. There are maybe one or two other developers who are attempting to market and get leased other outlet centers. But that's it.

There are not a lot of people now developing outlet centers, because it's very difficult to get that done. Once they open, it's just as difficult to maintain and market and operate them. The tenant community fortunately, after doing this for 35 years, tends to sign leases and support centers developed by Tanger and Simon.

Okay, thanks for the color.

Lena Rudashevski, JPMorgan.

Thank you, good morning. I was just wondering what impact, if any, do you expect on your Atlantic City property, with the increasing likely prospect that the city might go bankrupt?

The city's financial situation really does not impact us. Our business in Atlantic City is up. We have a lot of tenant interest. We are in discussions with several high-quality, high-volume tenants to go into Atlantic City. Bass Pro Shop has recently opened, attached to a very large parking deck. Bass Pro by the way is 85,000 square feet. There are been enhancements to several of the different hotels.

There is a lot of activity, positive activity going on in Atlantic City. For instance, there's 100,000 square feet of meeting rooms expansion at the Harrah's Waterfront conference center. As you can see, the City of Atlantic City's financial situation does not impact our center. By the way, our center acts as almost like a regional mall for that part of New Jersey. It's not totally dependent on tourism.

Thank you.

Christie McElroy, Citi.

Good morning. This is Katy McConnell on for Christie. Regarding the pre-development project in Fort Worth, Texas, could you provide us an update on the progress of pre-leasing, and maybe provide some color around the estimated spend and potential timing of construction commencement?

We're happy to do all of that once we reach the pre-leasing threshold 60%, and it's added to our development pipeline. But right now, as I'm sure you realize, we are very disciplined, conservative developers, and have for years not built on speculation, and don't intend to. When we reach the leasing threshold and actually purchase the property, we'd be happy to give that guidance.

Okay, thanks.

D.J. Bush, Green Street Advisors

Thank you. Steve, thinking back over the last couple years, it seems like there's been a pretty meaningful evolution in the merchandise mix at shopping malls, with respect to the amount of food services and restaurants that have been added. It seems like the response has been quite strong or favorable.

You mentioned last year that you had a couple food tenants coming in to replace some of the bankruptcies that you experienced in 2015, but I think traditionally food's been a challenge in the outlet centers due to the volatility -- the weekly volatility in traffic flow. How do you think about food in your centers going forward? Can we get expect that to be a more important part of the merchandise mix over the next couple years?

Well, keep in mind that our centers are 96.5% to 97.5% occupied, and average about 350,000 square feet, as opposed to the average in a mall of about 900,000 square feet. We don't have any excess space to convert to large-format sit-down restaurants.

We do provide food on either out-parcels through national franchises, or through what we call grazing food, where there's various types of coffee or pizza, pretzels, sandwiches throughout the center. It's just a different shopping experience. Our shoppers drive a half hour and spend an average three and half to four hours on our property shopping.

We constantly monitor food service. We're talking to various providers. It is a strategy to add more food, but we don't really have the space for it.

I guess we can continue to expect you to take advantage of out-parcels, but not so much as maybe potential space becomes available over time, to look to add more food in the actual center?

I think that's accurate. We're exploring different types of strategies, but right now that's proven the most successful.

Okay. Then Frank, going back to what you said about earlier this month you extended the term loan. I guess the feedback was it was 75 basis points lower than if you would've gone to market for a five-year bond. I know it's probably only been a couple weeks, but if you were to do that today, do you think that pricing would be different? Maybe just a little color from you or Jim on the overall unsecured markets as you see them?

I believe that the spread would probably be comparable today. I don't think anything's really changed since we did that. I do think the unsecured bond markets are open. Obviously there's a lot of headlines out there that could impact that, but I think for the most part if you wanted to get a deal done, particularly an investment-grade deal, you could do it, and it still would be at attractive rates.

We just felt like increasing the maturity on this term loan fit in a good spot on our debt maturity schedule. It was a relatively simple transaction, not a lot of fees involved. We were able to really fix it at no cost other than the LIBOR spread. I think it was a good transaction.

I do think the unsecured markets are open at attractive rates, should we need to do that. But as of right now, we have no intention of hitting the unsecured market any time in the near future.

Okay, great. Thank you.

Carol Kemple, Hilliard Lyons.

Good morning. Frank, congratulations again on your retirement. You'll definitely be missed on the calls.

Thank you.

My question's pertaining to some stories we have seen in the news recently. There's been a lot of articles about outlet concepts, particularly New York and Company and J.Crew Factory opening stores in the B&C malls. You can look at this two ways. One, maybe there's not enough outlets being opened to fill the demand of these retailers, and that could be a positive for you all. Or you could look at it as these outlet concept retailers have more options in leasing, which could be a negative for you all. Where do you see the situation?

Carol, the specific tenants that you mentioned -- J.Crew, who's been a valued tenant of ours for 25 to 30 years -- has been through several evolutions. They announced a mercantile concept a year or so ago, which is targeting small market, C or less quality malls. They're opening mercantile, which sells outlet product, but it's not labeled a J.Crew outlet. New York and Company, as I understand it, is converting some of their New York and Company full-line stores in failed or failing malls to New York and Company outlets.

These are isolated concepts. It really has not affected our leasing, nor do we expect it to affect our leasing. J.Crew is -- and we are proud to have both J.Crew and New York and Company in our new development properties. We continue to work closely with both of those tenants, and other tenants that have gone into other types of retail. The quick answer is no impact on us, as you can see from our extremely high occupancy, which has continued over the years.

Okay, great. Thank you.

Craig Schmidt, Bank of America Merrill Lynch

Hi, this is Jane Wong here with Craig Schmidt. Our question is two parts. First, we noticed the new project announced in Texas by the Texas Motor Speedway is about 20 to 25 miles away from Fort Worth, and the Daytona Beach project is in the city. Is this the direction of where Tanger is looking to build its new centers?

The second part of the question, as you had mentioned there are no assets on the market for sale now, but as you evaluate your portfolio is there any thought of an annual culling process? Do you -- where the new centers being built closer into major markets make you re-think some of your centers that are further away from major MSAs?

Let me try to answer one question at a time. First of all, the Daytona Beach project is not in the city. I don't know if you have ever been to Daytona Beach, but our project is on Interstate 95, which is a couple miles off the beach.

The project in Fort Worth is attached to the Texas Motor Speedway, which is a very large tourist attraction. I think the capacity is 190,000 people, and they get 200,000 to 250,000 people in a weekend whenever they have a race.

For years, we've been in tourist locations. The advantage of Fort Worth, it is both tourist and a major city outlet center, where there is very little competition for us. This is consistent with what we've done for 35 years, Jane.

As far as the question of outlet centers moving closer in and impacting other existing centers, our friends at Green Street wrote a report 23 years ago called Exit Ramp Risk. I would encourage you to read that, because it never happened. Our tenants are the ones that control the placement of outlet centers, because they sign the leases. They have not chosen to -- and rightfully so -- dilute their sales, or impact or cannibalize their sales in market places.

There's only about 175 outlet centers in the entire country. There's plenty of room to grow without cannibalizing existing centers. The answer to your question is we are not changing our site selection criteria. I'd be interested to know your examples of centers moving really close into center city.

Thank you. On the -- is there any thought of an annual culling process in terms of disposition?

Jane, we've for the past 35 years always had properties that are in the bottom 5% of our portfolio, as does everybody with a portfolio. We do not have an annual asset sale or disposition initiative. There's not a broad market for outlets. Right now, every one of our centers is doing well.

We, as I mentioned earlier, completed a disposition strategy over the past two years very successfully. But previously to that several years ago, and ever since we've been in business, we've sold probably 15 to 20 centers over the years successfully over time.

The answer is yes, we will continue to look at the bottom 5% to 10% of our portfolio. If somebody comes to make an attractive offer we will consider it. But no, there is no annual disposition strategy.

Thank you.

Rich Moore, RBC Capital Markets.

Good morning, guys. First of all, I'd like to echo Carol's thoughts, Frank, and wish you the best of luck in your retirement. Certainly, we're going to miss you a lot.

My question -- my first question for you guys is on Taylor Brands. I think Steve, if I'm not mistaken or maybe you could correct me, you have about 11 of the concepts -- Jos. A. Bank, I think. They said they want to shut all of their outlet stores by some time in July.

I'm curious. They can't obviously unilaterally not pay you guys. Is that something you have already discussed with them, and they're going to pay you some sort of termination so they can get out by July, and do you think they'll actually get out by July?

Hi, Rich and thanks to you and Carol for your nice comments on Frank. We're going to miss him also.

The Taylor Brands is just one of several companies that have announced either restructuring or bankruptcy that we're talking to. We have several, as you mentioned, Jos. A Bank, but Taylor brands is also Men's Wearhouse, which is a good credit company. We're in discussions with those folks.

The timing and the number of stores closing or staying open has not been finalized. We will give you more of an update and color when there is some certainty on the next call.

Okay, good, thank you. Staying on debt, if I could just for a second, Steve. The Aero and PacSun bankruptcies are out there, as well. Are you involved in any way with those? Do you get on the creditor committee, or are you just having discussions with the tenant itself?

Life's too short to be on a creditor committee. We have never done that, and have no intentions of doing that. Of course, as you know the trustee and the bankrupt estate makes the decision on whether the stores stay open or close.

Both of those are Chapter 11, to our knowledge. Both of those, if they do go -- I don't know if Aeropostale has gone into bankruptcy or not. They've discussed it. But when a Company goes into bankruptcy, they -- or Chapter 11 -- they normally get dip financing, which means our rents are guaranteed from the date of the filing and dip financing forward. We have very little credit risk.

Both of those tenants you mentioned and other ones in financial distress get there because their stuff doesn't sell. That means that their productivity is significantly lower than our portfolio average. We root to get some of those stores back, so we can replace them with more productive, higher rent paying tenants to upgrade the co-tenancy.

Okay, very good. Thanks for the comments.

Todd Thomas, KeyBanc Capital Market.

Hi, good morning. First question, if you look at the foot traffic that you reported up 6% in the quarter, a real big jump. Did you see any difference in traffic across various markets, just given the more milder winter this year versus the year-ago period? How important is the weather as it pertains to traffic and sales at your centers, just given the portfolio's dominantly open-air?

Snow and bad weather does impact our traffic, you are correct. There were several positive things this year with regard to traffic. Warm weather in the first quarter always helps. The only disadvantage is it's the lowest-volume quarter of the year. We will see how it shakes out on an annual basis.

Okay. Then just looking at the balance sheet, nothing really to speak of in 2016, but in 2017 you have a handful of unconsolidated construction loans. What happens there with regards to Houston, Savannah, Westgate? Would you and your partners look to permanently finance those assets, or do you think you want to encumber them?

It's obviously dependent upon the specific property and the specific partner. I think every one of those construction loans has an expansion option, which we certainly will look at. It's difficult today to sit and give you guidance on what we might do a year or two in the future. Just have to look with our partners as to the best financing option for that particular asset at that point in time.

Okay. Some of those will be just a couple of years old, but could the financing be an opportunity to consolidate the asset and buy out your partners' interest in any of those assets? What kind of provisions are built into the partnership?

Todd, every one of our partnership has an exit scenario. In most cases it's a buy-sell type of arrangement, where one party sets a price, and the other decides if they want to buy or sell. We have not entered into any buy-sell, and have no immediate expectations of doing that. Each of our partnership agreements has that exit.

Again, it's hard to speculate, and I don't intend to speculate. We have great partners. These assets are world-class assets that are hard to replace. If something happens in the future, where our partner strategy should change, we certainly would have discussions with them. We have great relations with each of our partners.

Okay, thank you.

There are no further questions at this time. I will turn the call back over to the presenters.

I want to thank you all for participating in the call today and your interest in our Company. Again, Frank will be missed, and thank you for your nice comments about Frank. We look forward to seeing you at whatever the next conference is. Goodbye, and have a nice day.

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