AH Realty Trust, Inc. (AHRT) Q2 2017 Earnings Report, Transcript and Summary

Welcome to the Armada Hoffler's Second Quarter 2017 Earnings Conference Call. At this time, all participants are in a listen-only mode. After management's prepared remarks, you will be invited to participate in a question-and-answer session. [Operator Instructions]. As a reminder, this conference call is being recorded today, Tuesday, August 1st, 2017. I would now like to turn the conference over to Michael O'Hara, Chief Financial Officer at Armada Hoffler. Please go ahead.

Good morning and thank you for joining Armada Hoffler's second quarter 2017 earnings conference call and webcast. On this call this morning, in addition to myself, are Louis Haddad, CEO; and Eric Smith, our Chief Investment Officer, who will be available for questions. The press release announcing our second quarter earnings, along with our quarterly supplemental package were distributed this morning. A replay of this call will be available shortly after the conclusion of the call through September 1st, 2017. The numbers to access the replay are provided in the earnings press release. For those who listen to this rebroadcast of this presentation, we remind you that the remarks make herein are as of today, August 1, 2017, and will not be updated subsequent to this initial earnings call. During this call, we will make forward-looking statements including statements related to the future performance of our portfolio, our development pipeline, impact of acquisitions and dispositions, our construction business, our portfolio performance, and financing activities, as well as comments on our outlook. Listeners are cautioned that these statements are subject to certain risks and uncertainties, many of which are difficult to predict and generally beyond our control. These risks and uncertainties can cause actual results to differ materially from our current expectations and we advise listeners to review the Risk Factors discussed in our press release this morning and in documents we have filed with or furnished to the SEC. We will also discuss certain non-GAAP financial measures including but not limited to FFO and normalized FFO. Definitions of these non-GAAP measures as well as reconciliations to the most comparable GAAP measures are included in the quarterly supplemental package, which is available on our website at www.armadahoffler.com. I'm now turning the call over to our Chief Executive Officer, Louis Haddad. Lou?

Thanks, Mike. Good morning everyone and thank you for joining us today. This morning we reported second quarter results $0.25 of normalized FFO per share, which was in line with our expectations. After successfully raising over $85 million in an overnight public offering in May, we have updated our per share guidance for the remainder of 2017. Before Mike takes us through the quarterly results, capital markets activity, and updated 2017 guidance in detail, I'll comment on our retail portfolio and a many exciting offers multi-family and student housing projects in our development pipeline. At a diversified rate, we invest in, develop, and build several different product types; office, multi-family, student housing, mixed use and retail. And we also generate additional revenue through our operating divisions. Due to our opportunistic rather than formulae approach to development, over the course of our company’s history the segment mix in our portfolio has fluctuated and will continue to do so. For example, just three years ago, office assets generated nearly half of our portfolio NOI and retail assets made up less than 40%. Through constant proactive and strategic portfolio management, the retail portion of our portfolio today stands at over 60% of NOI, they’re significantly less when combined with other income from our operating divisions. But it is important to point out, against the current backdrop of excessively broad concern regarding the retail segment, that our current mix is merely a snapshot in time. In fact, this is the highest value in the retail we’ve had as a publicly traded company. Upon stabilization of the multi-family, student housing and office projects in our development pipeline, we expect that retail will represent less than half of our portfolio NOI and even less as a percentage of our NOI and operating division income. Irrespective of these metrics, we remain confident and bullish about the retail assets in our portfolio. These properties continue to perform with year-to-date same-store NOI up over last year. As you know we don’t own malls, we don’t own department stores and shy away from big box centers. We own three types of retail properties. One, mixed use, destination assets; two, grocery acreage centers and three, power centers anchored by best-in-class retailers. The best example of our mixed-use destination retailers is our signature talent centre project in Virginia Beach. Talent centre is home to 8,000 square feet of office space, 800 residential units, two hotels and a performing art centre. Within the district, we own 460,000 square feet of mixed use retail, comprised of 25 restaurants and cafés, professional services, higher education facilities and boutique that support and drive the live, work, play atmosphere. Mixed use destination retail currently makes up about a quarter of our retail NOI. When it comes to grocery anchored centers, we invest in superior locations in our geographical footprint with high quality anchors which we believe will continue to perform well in an increasing competitive landscape. Roughly half our retail NOI comes from grocery anchored assets. The remaining 25% is in our power centers which are led by best-in-class retailers that are discount closures, pet supply stores, home goods and service providers along with typical outparcel users. In summary, our philosophy and approach to retail is simple. We develop and invest in places where people want and need to shop. So, despite the current perceptions facing the retail sector, we will continue to acquire a methodical approach that has worked for almost 40 years. While we remain upbeat about our retail assets, as is the case with our other product types, we continue to actively manage our portfolio to divest or expand when and where it makes sense. Along those lines, we may sell or repurpose a couple of our smaller retail centers in the coming quarters. With regard to active portfolio management, we recently closed on the sale of our two build-to-suit state office buildings at a nearly 40% profit margin over our development cost which once again exceeds our target wholesale to retail spread and demonstrates the value creation from our development platform. We use these proceeds to partially fund the acquisition of the outparcel space at Wendover Village in Greensboro, North Carolina for $14.3 million. This acquisition complements the primary phase of Wendover Village that we acquired a little over a year ago as part of our 11-property portfolio purchase. Moving on to the rest of the portfolio, as I previously mentioned, we anticipated that our three-year streak of positive same store NOI growth would come to an end this quarter and it has. The construction at Phase VI of Town Centre has impacted multi-family occupancy at the cosmopolitan next door and with a number of office tenant relocations within Town Centre we expect these impacts to continue until the end of the year. At the same time, we are confident about our ability to return Town Centre occupancy to its historical levels and contribute to future growth in same store NOI. I’ll now spend a few minutes on our projects currently under development and construction. By the end of the summer, we expect to begin construction on two students housing projects on the historic Charleston Peninsula located within one mile of the College of Charleston and in closed proximity to five other schools in the area. We continue to evaluate and explore opportunities to grow our footprint in this market. Design progress on our new build-to-suite office building for Huntington Ingalls at Brooks crossing is on track for an early 2018 construction start and 2019 delivery. This state-of-the-art facility is expected to house nearly 600 employees and serve as a catalyst for further development in its public private partnership with the city of Newport News. Our Harding Place project in Downtown Charlotte is well underway and we are very pleased with the rent growth and absorption that this sub-market continues to display. The construction of Phase VI of the Town Center Virginia Beach is now on the vertical space and is tracking for a delivery next summer. The 10-pillar block will have a variety of entertainment options as well as exciting new retailers and loft style apartments. The initial units at Annapolis Junction will be delivered next month and Point Street is on track to begin delivery early next year. Given their prime locations and compelling market dynamics, we are excited about these projects and fully expect to exercise our ad cost purchase options. Last quarter, we entered into an LOI for a significant block of the remaining office space at One City Center in Downtown Durham. These negotiations continue in earnest and assuming leased execution, the office component will be 90% pre-leased in advance of our expected summer 2018 delivery. We began preliminary discussions with our joint venture partner and Duke University about the next phase of this project. With almost $440 million of development in our current pipeline and our target wholesale to retail spreads of around 20%, we expect that these projects alone will add well over $1 per share of NAV. We continue to explore a number of exciting development opportunities in our target markets. For the growing stable of trusted and like-minded development partners, we’ve been able to increase our development run rate without compromising our core underwriting criteria. Premier locations, high quality anchored tenants, accretive returns and healthy wholesale to retail spreads. As a result, we continue to be highly selective and decline the vast majority of opportunities presented to us. The same as we used to evaluate whether to deploy our precious capital on our new project will continue to be exceedingly rigorous. All of these decisions are considered in light of management's decision as far away the largest equity holder in the company. This sheer volume of opportunities allows us to select only the most attractive projects for evaluation, after which only a small fraction of these opportunities are pursued in earnings. As an example, this quarter we entered into an agreement with S.J. Collins, a seasoned developer of high quality grocery anchored retail centers to deliver a whole foods center in Decatur Georgia. We are hopeful that this relationship will lead to more opportunities with both this developer and the exclusive retailer. Lastly, our construction company continues to exceed expectations and is on track for one its best years ever. This quarter, we substantially completed work on three new legal stores in South Eastern Virginia and look to expand this new relationship as their rapid Mid-Atlantic expansion continues. Our successful execution across all areas of our business, investment, development, construction and asset management and our rapid growth in both profits and market cap has led to our addition to the S&P small cap 600 index. This will likely expose our company to an expanded institutional investor base and continues to solidify our identity and brand recognition. At this time, I’ll turn the call over to Mike to discuss our second quarter results and updated 2017 guidance in detail. Mike?

Thanks, Lou. Today I want to cover the highlight for the quarter, thoughts on our balance sheet and additional details on our 2017 guidance. This morning, we recorded FFO of $0.24 per share and normalized FFO of $0.25 per share which met our expectations. Our same-store NOI growth which has been positive for 11 consecutive quarters came to an end this quarter as expected. Same-store NOI was negative 3.6% and negative 2.4% on a cash basis as compared to the second quarter of 2016. These results were expected because of the ongoing Town centre tenant changes and construction activity. Multi-family was negative this quarter due to the cosmopolitan apartments. Occupancy dropped to a little over 84% this quarter as a result of the construction of the Town centre Phase VI across the street. Office was negative primarily due to relocating of a town centre tenant to 4525 Main Street which is not in our same store NOI calculation combined with the least expansion in downsizing of a law firm. Due to these disruptions, we expect this temporary impact to continue for the remainder of the year. At the end of the quarter, our core operating portfolio occupancy was unchanged at 94% with office at 90%, retail at 97% and multi-family at 92%. On the construction front, we reported a segment gross profit in the second quarter of $2.7 million on revenue of $57 million. This is another strong quarter for this segment of our business, at the end of the second quarter, comping at a third priority construction backlog of $117 million. Now turning to our balance sheet, we continue to take actions to enhance flexibility and strengthen our balance sheet including a large equity rate in the second quarter. Maintaining a strong balance sheet as a private company was instrumental in being successful to 34 years prior to going public in 2013. But the management team, being the largest shareholder at 17%, this approach has not changed. The company is managing physician for the long-term and not quarter-to-quarter. That said, in May we completed an equity offering through $85 million to fund our $440 million development pipeline. With this equity in need and the market uncertainty for REITs, we thought it was the right time to raise equity and take market risk off the table. Alternatively, we could have raised this equity through our ATM program over the next 12 plus months but that would have left little capacity for additional development projects. With this equity raised, we now have the capacities to complete and bring the current development projects on balance sheet. While this equity raised is dilutive to earnings and NAV in the short-term we believe it will be accretive in the long-term. We only move forward with development projects that are accretive, develop earnings and NAV inclusive of our cost of capital. The return on cost and the value creation of the projects must be higher than our cost of capital including any equity requirements which is the case with the current projects. As Louis said, we believe these government projects once stabilized will add in excess of $1 of NAV per share. At the end of the quarter, we had total outstanding debt of $470 million including $28 million outstanding under a $150 million revolving credit facility. We continue to evaluate our exposure to higher interest rate and look for opportune times to hedge our interest rate exposure. At quarter-end, 100% of our debt was either fixed or hedged, during the quarter we purchased a two-year $50 million interest rate cap at 1.5%. Subsequent to quarter-end, we continue with asset recycling. We sold the two commonwealth Virginia single tenant office buildings at a 6.8 cap rate with a gain of 38% of REIT [ph] development cost. The proceeds from this sale were used in the 1031 tax REIT [ph] exchange to purchase the other half deposits at our window centre. Now for an update on our full year 2017 guidance that we issued this morning. We expect 2017 non-life FFO in a range of $0.97 to $0.99 per share. This guidance is lower than the one we which issued initially due to the capital rate in May. As we previously noted, 2017 is a year of execution and positioning the balance sheet, and development pipeline in future growth. Now the details of our 2017 guidance. This updated guidance is predicated on the following assumptions: Disposition of the Commonwealth Virginia office buildings with proceeds being used to acquire the Wendover outparcels during the third quarter, no additional capital market activities including under ATM program, interest expense calculated on the forward LIBOR curve. 2017 guidance of $0.97 to $0.99 per share is also predicated on the following. Total NOI and its $72.8 million to $73.3 million range, third-party construction company gross profit in $6.9 million to $7.4 million range, general administrative expenses in $10.8 million to $11 million range, interest income from our mezzanine financing program in the $6.7 million to $6.9 million. Again, in the quarter, the aggregate balance of these mezzanine loans was $73 million, interest expense in the $16.9 million to $17.4 million range and $60.3 million weighted average shares outstanding. Now, I’ll turn the call back to Lou.

Thank you, Mike. And thank you for your time this morning and your interest in Armada Hoffler. Operator, we would like to begin the question-and-answer session.

Thank you [Operator Instructions] Our first question comes from the line of Dave Rodgers with Robert W. Baird. Please proceed with your question.

Hi, good morning, guys. Lou, in the spirit of retail and obviously it remains and focus for your portfolio here in the near-term. Can you talk about any potential [Indiscernible] you might have or pressure that you’re seeing on leased economics, as tenant might talk up, kind of this retail environment in any additional color or any other challenges that you may or may not be having?

Great question, Dave and good morning. We’re really not seeing any pressure in our centers, we’re seeing releasing, we’re seeing the options taken, we’re seeing sales remain steady or growing. We’ve got several centers where there are significant leases coming up in ‘18, ‘19 and ‘20. And right now, we don’t foresee anybody doing anything other than renewing their options. As you’ve seen, we’re seeing somewhere around 97% full in the retail and we expect that to continue. We really don’t have exposure to the types of retail that are seem to be under pressure. We’ve got one tenant you see on our top 10 list Bed, Bath and Beyond, which I think has come under pressure. We look monitoring the sales in those units that we own, we own four them. The one here at Town Center is amongst their best stores in the nation and the other three are in line or a little above average. So really not seeing that pressure there, that’s probably the thing on our watch list. We do expect when we bought the 11-property portfolio a year and a half ago with primarily the Kroger, the last piece of that, the smallest centre by far is a centre in Western Virginia where there is a 30,000 some foot Kroger that we expect to repurpose probably in the next 18 months or so, because I doubt they would stay in a footprint that small.

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

Sure, again as Mike said we’ve got this tremendous pipeline marching its way through the company and we are really excited about those properties coming online and actually beginning next month and working all the way through 2018. We want to make sure that we have the equity set aside to fully absorb those properties because we believe they are a top quality and is going to have substantially both NAV and earnings. Taking that off the table gives us the opportunity to focus on potential equity needs for the next generation pipeline. As you know, development is a slow gain so when we talk about our shadow pipeline being in essence probably about the same size as the current pipeline, that’s a very slow built. What we’re working on now, be it the next phase in Durham, the next phase in Town Centre, the next phase at the inter-harbor in Baltimore or Charlotte or Charleston, all of these projects you are looking at a fairly decent timeframe for entitlement and design before there is any equity needs whatsoever. So, I don’t think we’re going to be in the market anytime soon either as Mike said with the ATM or obviously an equity raise but we do believe that, that shadow pipeline is developing very quickly again at the rate of development as it proceeds.

Thank you. Our next question comes from the line of Rob Stevenson with Janney Montgomery Scott. Please proceed with your question.

Good morning guys. Lou, just sticking with the retail side of things, when you take a look at the strip centre portfolio, I mean where do you think value is because obviously I mean one of the overhangs on the stock is that you bought this thing 20 months or so ago, roughly at seven cap rate and there are people out there that believe that today if you had to sell it, it's worth you know closer to an A cap rate and there has been significant value diminishing here. You know when you take a look at that portfolio today and where things have been trading in the market and those various submarkets et cetera. I mean where do you think value is today?

I’ll first take the first question. We try not to pay a whole lot of attention to fluctuations and cap rates and what's in and out of vogue and in the not too distant past, people were talking about the types of centers that we have been able to fetch a low six cap rate. Today people are talking about high sevens, low eights. Lord knows what’s going to happen in the fall. What we do pay attention to is increasing sales, increasing rents, and increasing occupancy. As long as we stay focused on that and it really doesn’t matter a whole lot and that’s what’s happening in our portfolio, as you can see by the results. As I said, as you guys know, we’re not afraid to recycle this portfolio, and we do it fairly regularly and we do have a couple of smaller centers, I mentioned one, that might be repurposed. We’ve got a couple of small grocery anchored centers that we believe are at or near peak value. So, you might see in the next 18 months that we trim the portfolio in that direction. But remember, we’ve been doing this, I’ve been in this chair for 33 years, our Chairman for nearly 40, we’ve seen lot of these fluctuations in the past and it’s really going to get distracted over what matters and what matters in real estate is locations, credits, sales and escalating rents. And as long as you stay focused on those real estate principles, you really can’t get yourself in trouble.

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

Okay, I’m going to take those data of order Rob, I mentioned, I’ll talk about construction and then I'm going to let Eric Smith talk a little bit about the Wendover outparcel. On construction as you can see this is a banner year for us and it’s a confluence of several events. We had a very larger project that ended earlier in the year and delivered significant savings beyond our fee, nearly seven figures of savings. We also picked up a couple of clients along the way intra year, one being this legal relationship, that added substantially to our backlog and those projects are starting and finishing essentially in the same year. So, it may well be based on our guidance that the construction company has $7 million a year. I do want to say that, as you guys have heard us say before, we’re not looking to expand the construction company, it has high quality work for people who want to negotiate projects with us and as such that stayed fairly stable at the $200 million, $250 million and that typically yields profits where we started guidance in that $4.5 million to $6 million. I expect that, that construction will return to its norm next year and the years to follow. Eric, can you take the question about the Wendover outparcels?

Sure, happy to do. Thanks, Lou, good morning. As you'll recall, the primary portion of the Wendover Village asset was purchased when we did purchase that 11-property portfolio and we purchased the entire portfolio in the seven and a quarter cap rate range on a cash basis and that is only increased overtime is our asset management team has applied an increased attention to that asset both on a quality and leasing perspective maybe than it had prior to our ownership. And so, we’d enjoy some nice bumps there. Within those 11 assets, the Wendover Village asset was one of the premier assets. As you may know, it's located on the Southwest side of the Greensboro, right off 85 and 40 shadow anchorage by a Costco right at exit 214 and really good demographics around that, that retail centre. And so, we felt very good about the primary centre. The outparcels that we just purchased, that seven cap rate little bit of color commentary of why we were interested in buying retail in the backdrop of the, that Lou mentioned about the retail segment that we currently face. We had the opportunity to buy these outparcels immediately after we acquired the 11-asset portfolio and we turned them down based on the cap rate that the seller was asking for. It came back across our desk, about a year later and we said no again based on the cap rate that was being asked for just because we didn’t need the acquisition, we were interested in it given the help of the centre. But we didn’t need it and a little color of commentary, the seller came to us when they had another buyer under contract, they wanted some REA changes that we were not willing to do. And so that deal fell apart and we became really the only viable buyer given that it didn’t make sense for another buyer to buy without the REA changes they were asking for where they didn’t obviously only in the core centre not a concern for us. And so, we put a very aggressive offer on the table that was accepted, so we think we’re acquiring it at a nice cap rate relative to its value, especially when you consider that now we had the entire center without the whole of the outparcels that we feel really good about that acquisition.

And what do you plan to build on the out parcel?

The outparcels are all developed and 100% occupied.

Okay. So, it’s a not a development phase, it's just an income phase [ph].

Yes, almost 46,000 square feet anchored by [indiscernible] and a number of other credit quality tenants.

Thank you. Our next question comes from the line of John Guinee with Stifel. Please proceed with your question.

Oh, great, okay. I had just a whole bunch of little questions. First, explain what you’re doing in the CAGR, how much are you investing, what kind of return are you expecting, how long will you have that investment in place?

John once again, that’s a whole food centre and that was the first step in the relationship that we’re working on with FDA [ph] Collins as well as Whole Foods. I am staring at Mike, I believe it’s a $10 million investment.

Yes, $10,750,000 Mezz loan on that project, our return on that is 15% and the loan is the same maturity as the construction loan, I think it’s three years.

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

Okay. They just are paying you the Mezz out of essentially the borrowing capacity, 15% will you be able to record that currently and how long do you expect to be in that loan?

Yes, we are recording currently it’s -- centre is 180% leased, I know that held of leasing because of demand they think they can push rate, so I expect I think it’s a year and a half of construction phase, so I’d assume shortly after completion they will be looking to take this out.

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

Yes, John I'll give you the statistics, we've got $100 million invested on few properties representing 600 beds. So, we are looking at a $150,000 or so a bed. We are programming this around a 7% return on cost and properties as you know are still particularly in that locations are selling right around a 5 cap, but our intent is not to sell it but to hold it long-term and we’ve been in a position. So, I’m not sure where your math…

Well, I’m just looking at your spreadsheet here and it says there’s 188 units that [Multiple Speakers].

I got it.

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

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

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

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

Thank you. Our next question comes from the line of Craig Kucera with SBR Capital Markets. Please proceed with your question.

Hey good morning guys. You had a meaningful decline in your development occupancy and a rent cut at the John Hopkins village, can you give us some color on how lease up is trending going into the school year-end and maybe that the supply situation there?

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

Yeah, Craig what we had is come May the students started moving out, we had 10 months leases in that properties so we dropped from 79% occupied to 50% occupied here during the summer, like Lou said will be a 100% leased on the bids coming end of this month.

Great. And just another question, this maybe just call to answer but can you estimate what the impact of same store was from some of the movements going on at Town centre related to multi-family in the construction and your retail client moving to 4525?

We’ve got a couple of different pieces there if you think about as at the cosmopolitan we had occupancy go from the 90s to the mid to low 80s and that represents in of itself a couple of 100,000 dollars. On the office side, basically we took a 14,000-foot tenant and moved the amount of the pool. There are backfill leases that are coming in in place that are not producing yet, but when you take those two factors as well as the downsizing of essentially the last law firm that cycled through at Town Centre. I think it accounts for the entirety of the change.

Thank you. Our next question comes from the line of Bill Crow with Raymond James. Please proceed with your question.

Hey good morning guys. Two questions, the first one on the multi-family Town Centre. Is it going to get worse, as you look at the upcoming lease rollover trends?

Bill thanks for the question. I was hoping somebody would ask that because the cosmopolitan as of today over 90% leased. So, we saw the bottom and as we’ve said last quarter our expectation with that would be that we return to normalcy around the end of the year. So, we’re on track for that.

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

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

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

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

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