Kite Realty Group Trust (KRG) Q4 2013 Earnings Report, Transcript and Summary

Greetings, and welcome to the Retail Properties of America Fourth Quarter 2013 Earnings Conference Call. (Operator instructions) As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Mike Fitzmaurice, VP of Finance for Retail Properties of America. Thank you. You may begin.

Thank you, operator, and welcome to Retail Properties of America Fourth Quarter 2013 Earnings Conference Call. In addition to the press release distributed last evening, we have posted a quarterly supplemental package with additional details on our results in the Investor Relations section on our website at www.rpai.com. On today's call, management's prepared remarks and answers to your questions may include statements that constitute forward-looking statements under federal securities laws. These statements are usually identified by the use of words such as anticipates, believes, expects and variations of such words or similar expressions. Actual results may differ materially from those described in any forward-looking statements, including in our guidance for 2013, and will be affected by a variety of risks and factors that are beyond our control, including, without limitation, those set forth in our earnings release issued last night and the risk factors set forth in our most recent Form 10-K, 10-Q and other SEC filings. As a reminder, forward-looking statements represent management's estimates as of today, February 19, 2014, and we assume no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise. Additionally, on this conference call, we may refer to certain non-GAAP financial measures. You can find a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP numbers and definitions of these non-GAAP financial measures in our quarterly supplemental package and our earnings release, which are available in the Investor Relations section of our website at www.rpai.com. On today's call, our speakers will be Steve Grimes, President and Chief Executive Officer; and Angela Aman, Executive Vice President, Chief Financial Officer and Treasurer; and Shane Garrison, Executive Vice President, Chief Operating Officer and Chief Investment Officer. After their prepared remarks, we will open up the call to your questions. With that, I will now turn the call over to Steve Grimes.

Thanks, Mike, and good morning, and thank you all for joining us today. On our call this morning, I will touch on our financial and operational results, and discuss our primary objectives for 2014. Angela Aman, our CFO, will provide further detail on our fourth quarter and full year performance, as well as 2014 guidance, and Shane Garrison, our COO, will provide color on our operational results, as well as progress on our portfolio optimization initiative. The fourth quarter of 2013 marked a strong end to a year of tremendous progress on our strategic objectives, and we are pleased to have met and in several areas exceeded the goals we outlined for you earlier in the year. Full year same-store NOI growth was 2.7%, 20 basis points above the high end of our previous guidance range of 2% to 2.5%. Year-end economic occupancy was 93.8%, well above the 92.5% we had expected earlier in the year as a result of both stronger leasing momentum, and the impact of certain key dispositions such as University Square, which closed in the fourth quarter. In total, we completed over 440 million of non-core and non-strategic dispositions, while also closing on nearly $300 million of compelling acquisitions in our target market. And as we recently reported, subsequent to year-end we received an investment grade rating from Moody's, a strong acknowledgement of the progress we have made over the last few years on transforming our balance sheet and positioning the company for growth going forward. Looking ahead to 2014, we will remain focused on successful operational and transactional execution. From an operational perspective, we will continue to build on the leasing momentum we generated in 2013, particularly as it relates to small shop space across the portfolio. The substantial improvement we saw in our small…

Thanks Steve, and good morning. Operating FFO was $0.30 per share for the fourth quarter, and included $8.4 million or $0.04 per share of net lease termination fees and other non-recurring income, primarily comprised of a $6.2 million lease termination fee discussed on last quarter’s call, and $1.1 million in additional settlement proceeds received from the Mervyns bankruptcy. Nonoperating items during the quarter had a negligible net impact, and were primarily related to the early repayment of mortgage debt, offset by an adjustment for our real estate tax liability associated with the sale of the University Square. For the full year, operating FFO was $1.05 per share, which was ahead of expectations, primarily as a result of disposition timing, additional termination fee income and higher same-store NOI. Total net lease termination fee income for 2013 was $15.8 million or $0.07 per share. Including non-operating items, FFO was $1.14 for the full year. Non-operating items during the full-year were primarily related to the settlement of the mortgage accrued interest and real estate tax liability associated with University Square, offset by activity related to the early repayment of other mortgage and mezzanine debt. As expected, same-store NOI growth accelerated as we progressed through the year, totaling 5.2% in the fourth quarter, substantially above the 50 basis points we reported in the first quarter of 2013. while rental income was a consistent, positive contributor to same-store NOI growth during the year, the contribution from operating expenses net of recovery income improved throughout 2013 as a result of those lower non-recoverable expenses and a higher recovery ratio. For the full year, overall positive fundamental trends, including significant occupancy gains, positive releasing spreads, as well as contractual rent increases were partially offset by remerchandising efforts at certain centers, most significantly the Gateway. In fact, the…

Thanks Angela and good morning. I'd like to discuss our operational results and then provide some color on our recent transactional activity and outlook for 2014. We had a very strong fourth quarter as we continue to execute on our leasing and asset management initiatives, as well as our portfolio optimization objectives. For the year, we signed 856 leases, representing approximately 5 million square feet of GLA, the highest annual volume we have ever reported. As a result, occupancy at year-end stood at 93.8%, up 330 basis points during the year, and up 130 basis points sequentially. The majority of the sequential improvement was attributable to the positive net absorption, as we continue to experience the benefits associated with the stabilization of our anchor space, namely a notable improvement in demand from small shop tenants. Small shop occupancy ended the year at 83.9%, up 440 basis points during the year and 250 basis points sequentially, and including leases signed but not yet commenced, our small shop lease rate is now 85.8%. Looking ahead to 2014, our leasing pipeline remains robust, and is still primarily with national and regional small shop tenants, voting well for growth going forward. Furthermore, there is a slowly but steadily improving economy, we have continued to experience rental rate growth, delivering consistently positive releasing spreads. For the fourth quarter, we realized an impressive 13% cash spread on comparable new leases or 11.1% for the full year. Overall comparable new and renewable leases signed in the quarter, our blended cash releasing spreads were 5.1% or 4.6% for the full year. Given the overall strength of the leasing environment today, we continue to look for opportunities to upgrade our tenancy and reinforce the dominance of our shopping centers. For example, during the quarter, we proactively terminated a 115,000…

Thank you, Shane, and thank you Angela for another great report on our financial and operational performance. I would like to conclude by stating that we cannot be more pleased with our 2013 year and more specifically the solid footing we are on for 2014. in summary, it was an exciting year for RPA as we continue to deliver strong growth, which is a direct result of the strength of our portfolio, our best in class balance sheet and the certainty of our execution. I’m very pleased with what we have accomplished and feel very good about where we are headed. We will continue to provide clear and transparent disclosure on our progress against plan throughout 2014, and look forward to seeing many of you over the coming weeks. With that, I will turn it over to the operator for questions.

Thank you. (Operator instructions) Our first question comes from Todd Thomas with KeyBanc Capital Markets. Please state your question.

Hi, good morning. First question, just regarding the 2% to 3% same-store NOI growth outlook, you know, Shane I heard the comment about the impact that you expect in the first quarter from the recapturing of a large box, but it seems like occupancy in the same store will be higher by maybe 150 basis points or 200 basis points or so throughout the year, rents are trending higher, you know, new and renewal leasing spreads have been pretty solid and then, you know, there is an annual rent bumps in a lot of the leases, I was just curious, you know, what would keep you sort of at the low end of that range?

Yes, Todd I will take that one. In terms of the components of the 2% to 3% same-store guidance, I think the numbers you gave on occupancy were maybe a little bit up. We ran on average same-store occupancy in 2013 of 92.5%, and we expect that to be closer to 93.5% next year. So you are going to get we think, you know, you have got the mix issue sort of coming off, so we think kind of at the midpoint of the range you are expecting 125 basis point contribution from occupancy growth. And then as you mentioned, you add to that about 75 basis points, which is what to expect from us in terms of contractual rent bumps, and then another 50 basis points due to releasing spreads. We also think next year you do see another positive impact from operating expenses net of recovery income, although it is going to be a smaller contributor to same-store NOI in 2014 then it was in 2013. But that will still give us around 50 basis points, and then that will be offset by lower specialty income due to lower inventory, lower other property income and slightly higher bad debt expense.

Okay, that is helpful. And then just switching over to the opportunistic capital raise that is in guidance, you know, it sounds like a bond deal, you know, after getting investment credit rating from Moody's in January, are you in conversations with one of the other two rating agencies at this point to be able to be eligible to do an index eligible bond offering and any sense of the timing of a potential capital raise?

Yeah, I mean, I think it is fair to assume at this point that a capital raise happens mid year based on where we sit today. In terms of the rating agencies, we continue to have informal dialogue with both of the other rating agencies. We are well aware of what their underwriting criteria and methodology is and we anticipate approaching them formally probably not until the back half of the year based on, you know, what we expect to be a continued improvement in the credit metrics as we move through the year. So we are considering a variety of options as it relates to the capital raise we expect to do in the middle of the year. That could include additional bank capital, accessing the private placement market. Both of those are very realistic goals for us and, you know, getting there in midyear, but I think timing of a rating is probably still a second half event.

Okay, and then, you know, just in terms of leverage overall, it seems like you are running even a little bit below your target leverage levels. You are expecting to be neutral with regard to, you know, acquisitions and disposition, so, you know, thinking about the debt deal later in the year, I mean, should we expect to see the company lever up a little bit, you know, throughout the year, and maybe later in the year and utilize leverage for some new acquisitions going forward?

No, I think – I think we’re not quite as far below sort of our long-term target as you might think. I mentioned on the call that the 5.3 times debt to EBITDA we reported in the quarter did reflect an annualization of the lease termination fees and urban bankruptcy proceeds in the quarter. We have been reporting debt to EBITDA on a current quarter annualized basis, and that is because given that we had such significant deleveraging over the last couple of years, we would have been overly benefiting the metric by using a trailing 12 metric that picked up all the NOI from dispositions that have been sold. So that is giving you some volatility in the metric. That is quarterly reported 5.3 times, ex the one time the termination fees in the Mervyns bankruptcy proceeds, you are about 5.8 times. But going forward we do expect that most of the activity will be leverage neutral. We think that is a decent place to run, and it gives us, as you mentioned, some flexibility to the extent we did find incremental acquisition opportunities to exceed that guidance without needing to access the equity market.

Okay, got it. Thank you.

Our next question comes from Christy McElroy with Citi. Please state your question. Christy McElroy – Citi: Hi, good morning everyone. In thinking about the target markets that you identified at your Investor Day last year, I’m wondering if you have started to become more involved in looking at acquisition opportunities. If anything has changed geographically in terms of your target market strategy and Steve you talked in your opening remarks that taking advantage of dislocations when they exist in both buying and selling, can you talk about where you see the greatest dislocations today?

Yeah, Christy I will take that. So, the 10 target markets haven’t changed at all. I would tell you some have been a little more robust than others. You know, we look at Phoenix and specifically San Antonio and Austin, those are – we haven’t really seen anything compelling come to market on or off that we would have been on last year, or even early this year. I would say the other seven or so that are on consideration right now have been fairly ratable, but admittedly very granular. And our expectation for the year really in contrast with 2013 is that this is going to be a much more granular process for us. So, 2013 was really three transactions on the acquisition side for call it 300 million. And this was obviously kind of 450 and I don’t know 30 million on the average transactional size, but we – we haven’t really seen a lot of dislocation, I think when Steve talks about that potential dynamic, what he is really referring to is just we spend a lot of productive time in limited markets versus a wider net, so your filter is much more productive. And we have seen a lot of progress in what we have – what would otherwise be very tough markets to crack. We talked about Seattle last year, and that has admittedly been our best progress. We’ll have something to announce here I think shortly, but very granular, very fractured, but we think there are dislocations because again a lot of people have a bigger filter, and don’t necessarily have the ability to spend time and develop those one off relationships to break free one off assets in markets like that. So, I think that is what he is talking about when he speaks to dislocation. Christy McElroy – Citi: Okay, and then just with regard to your acquisitions guidance, I think you mentioned that you expected to be concentrated more in the back half of the year, it sounds like you have a little bit of visibility on a deal or two at this point, do you – you don’t have – do you have anything under contract currently and I just want to make sure just in terms of the G&A, it sounds like part of that increase is related to acquisition expenses, I just wanted – wondering how much of that is related to acquisition cost, and where – how we should expect that to be weighted?

The acquisition expenses probably makes up about $1 million of the difference. Despite the fact that we had roughly similar acquisition volume last year, given the fact that $100 million of it came through the RioCan, and the windup of the joint-venture, it was a lower cost transaction than you should expect I think to see going forward.

The pipeline question, again, it is much more granular this year. We have got, I think the average asset was 20 million or 25 million, and the pipeline right now we have really got 50 million or 60 million of contracted LOI. So early indications are definitely going to be back half weighted. Christy McElroy – Citi: Okay, and then just lastly Angela, just following up on I think Todd’s question, how should we be thinking about the recovery rate in 2014, you talked a little bit about expenses adding to more marginally to the same-store NOI growth, how should we be thinking about that recovery rate?

Yeah, I mean I think in total based on how you will see reported, you should expect a fairly significant increase in the recovery rate going forward, you know, my comments were focused on the fact that during this year you did have a significant contribution from lower non-recoverable expenses. And while that – a lot of those savings at the Opex line are sustainable and will carry over to next year, you’re obviously up against a different – a more difficult comp, and we don’t expect additional significant savings in that line. We continue to try to manage expenses on the recoverable side as best we can but given the occupancy gain you should see on a recovery ratio basis, an improvement year-over-year. Christy McElroy – Citi: Okay. Thank you.

Our next question comes from Vincent Chao with Deutsche Bank. Please state your question.

Hi, good morning everyone. I just wanted to go back to same-store NOI guidance a little bit, just curious, you did talk about or mention the Gateway drag in 2013 versus 2014, you know, being less. Just curious what the total drag you expect in ’14 is relative to ’13 in terms of all the remerchandising activities that are going on, and it sounds like maybe that is baked into the plus 125 basis points from occupancy, but just want to confirm that?

Yes, it isn’t fair. We have always left Gateway in same-store NOI. We’re just trying to disclose for you the order of magnitude in terms of the impact. I mentioned in prepared remarks it was 110 basis points in 2013, and we expect it to be between 25 and 50 basis points in 2014. I would say looking at all the re-merchandising opportunities in the portfolio, you are probably looking at, you know, 50 to 75 basis point impact in ’14.

And what would that have been in ’13?

Well, Gateway alone was the biggest component at 110. I don’t know if it was significantly above that, maybe in order of magnitude probably 125.

Okay. Tat is fine. And then in terms of just the comparability to the 2% to 3% in ’14, I think the Opex was down quite a bit in the fourth quarter, so you know, the 2.7% for the year came in a little bit ahead of what you were thinking. I guess if you net out sort of one time, or true up type of things, what would be equivalent to same-store NOI growth had been in 2013?

I don’t know if it was really true ups, you know, we did have – as we moved through the year end, what I had mentioned is that non recoverable expenses were lower, and they were lower pretty consistently all year. They were a little bit – you had a little bit more contribution from lower non-recoverable in the 5.2% you reported in the fourth quarter, but that was really because that line can be volatile, and you classify non-recoverable expenses in the fourth quarter of 2012. So that wasn’t really a true up. It was just, you know, we are up against an easier comparison on the non-recoverable line. In terms of the other operating expenses that recoverable expenses net of recovery income improved considerably as you move through the year. That was due in part if you are looking back, you know, versus sort of where we started the year. You did have as we talked on the Q1 call, about a negative impact from CAM reconciliations in the first quarter, which weighed on the recovery ratio, and that impact improved as you move through the year, and you began to see especially in the fourth quarter the impact of the occupancy gain we have seen across the portfolio of taking hold in the same-store NOI. So, you know, going forward we expect a very consistent contribution if not an acceleration in same-store NOI related to occupancy or rental income growth. We are not expecting an deceleration in that line at all. What we are expecting is that the contribution to same-store NOI growth from expenses will moderate throughout 2014.

Okay. And then just maybe going back to the capital raise, 250 million to 300 million, you mentioned some of the debt that you plan on repaying with those proceeds, I’m just curious, I mean, how do you come up with the 140 on the longer dated stuff. I mean, obviously there is natural roll off, but, you know, there is a fairly significant amount that comes due in ’15, I guess what is the possibility or what is the thinking behind maybe potentially doing a little bit more on the capital raise, and just prepaying a bit more of the 15 maturities?

Yeah, I mean we are weighing that versus, you know, what it would cost from a prepayment standpoint. So most of what we are pulling forward that is in that sort of extra 140 million. It has to do with assets where we think taking the prepayment penalty makes sense in order to facilitate the most efficient execution on the disposition pipeline. The assets for one reason or another we feel have – we can maximize valuation by selling this year, and so we believe it makes sense to go ahead and do that. The rest of the 15 maturities, obviously to the extent we were to pull more forward would come with additional prepayment penalties. We have pulled forward and have assumed in guidance already pulling forward anything that we can do so without cost.

Okay. So it sounds like a lot of the additional then is tied to the disposal program.

That is right.

Okay, and then just a last question on the acquisitions given that they are back half weighted and there is not much of the 250, 300 that is currently – I’m sorry of the acquisition guidance that is currently under contracted LOI, I guess what is the chance of that those acquisitions just don’t materialize, I guess what would make the environment get better such that you would be able to close on a fairly larger now sort of in the back half there?

Well, I don’t know if it gets better or worse, again it is just going to be much more granular. I think the pipeline is about the same. But admittedly it is going to be, you know, 10 or 20 plus transactions versus three that it was last year. So we’re just trying to guide appropriately.

Okay, and I guess, if in the event that the pipeline doesn’t materialize the way you think it might, I mean would you just moderate the dispositions, or do you think they are sort of separately looked at and the dispo program would happen regardless of what the pipeline in the acquisition look like?

I think it depends on a lot of different variables as we move through the year. Obviously based on the guidance we gave last night, we think that both numbers are achievable to the extent we got into a couple of quarters into the year, and think differently on either side. We will obviously update guidance accordingly, but, you know, I think right now we feel pretty decent about both numbers that we put out.

Okay. Thanks.

Our next question comes from Jay Carlington with Green Street Advisors. Please state the question.

Great, thanks. So, maybe just a quick broader question on the acquisitions front, so you just hired a person to kind of head that team, can you kind of talk about what his priorities are going to be initially, and then how that is going to develop over the next couple of years?

Sure, Jay, this is Steve Grimes. Yeah, we just hired Matt Beverly. We announced that he came from GGP, and essentially he is one of the key strategic hires that we have in our call it vertical integration plan as we migrate to these 10 to 15 markets. So, effectively what we have done is we brought him on board to run everything roughly east of the Mississippi. And then we still have [Mike] on staff here, who has been running things mostly west. Those two individuals are there really to spearhead all transactions, both acquisitions and dispositions, minimum amount of redevelopment opportunity, but obviously looking to make sure that we can come to 10 to 15 markets that we have identified a little bit more extensively. Back to Shane’s comments earlier about our target markets and the granularity, we are finding out there are opportunities out there, but they are smaller rather than some of the bigger acquisitions that we have done last year. So we just are really working towards getting a more thorough scrub of each of these markets, and that was the first strategic hire in that effort.

Okay, and then maybe just on, you know, the longer term acquisition disposition pace, you kind of mentioned the size and the magnitude, and just as you think about it maybe over the next couple of years, you know, is this something that you are going to try and be capital neutral on that from a acquisition disposition standpoint, or will we get volatility over the year depending on what you kind of see in the environment, so I am just trying to, you know, kind of think how you are balancing that going forward?

Well, I’ll kick this off and then Angela will talk a little bit. I think it goes back to what we announced at Investor Day. Last year was going to be our hopeful final year as a net seller. As we move forward we wanted to be acquisition disposition neutral because we happened to like our size. We just wanted to concentrate in the 10 to 15 markets that we had identified, you know, at that investor day. That being said, and back to Christy’s earlier question about dislocations in the market, you know, we want to be opportunistic both on the sale as well as the acquisition side. And that being said there may be opportunity to sell prior to the acquisition. So I think that that points directly to the guidance that Angela put out there that we feel a little bit more comfortable about being ratable with disposition throughout the year, but back end loaded on the acquisition side. I think Angela had a few comments as well.

I would just say if you think about the repositioning plan in total over the 10-year timeframe we laid out at the Investor Day, we expect the plan overall to be neutral in terms of acquisition to dispositions over the long term. But that said, I think importantly we’ve created enough capacity and financial flexibility on the balance sheet now that we are in an environment where we did see the ability to get further ahead on the acquisition side, in the target markets strategically we could do that, you know, again without necessarily needing to come back to the equity markets depending on size. And I think we also have the flexibility, you know, in certain years to the extent that the market is much more heavily weighted in favor of sellers to get ahead on the selling side as well. So we are going to be thoughtful about execution in any given year given the context of the environment and feel good that the balance sheet now can support us being able to do that from a capital allocation perspective.

Okay, and maybe just a quick follow up on the capital raise, did you – you mentioned it was baked into the guidance, can you just talk about if it was dilutive or the magnitude of dilution from that?

Yes, I mean it is slightly dilutive. Obviously we mentioned the debt pay downs. So you can assume I think based on the rating we received then, there are a lot of I think public comps in the market to get a sense of what you think should be expected pricing, obviously I said it’s kind of mid-year execution makes the most sense. So there is obviously volatility between now and then, but you can probably get a pretty decent sense for expected pricing today based on where some of the public comps trade from a debt perspective, around secured bond perspective. And then we gave all the numbers in terms of the debt repayments on the call in total for the year to be 195 million at a 5.8% rate give or take. And then the remainder is really going to pay down the line given sort of all the progress we've made with the balance sheet we’re very committed to running, you know, in a lot of different ways, the balance sheet the way we believe it should be, which means revolver utilization should be relatively minimal in order to preserve the capacity going forward. So you do have, you know, some portion of that capital raise going to just paying down the revolver, which is obviously what’s creating the dilution.

Okay, great. Thank you.

Our next question comes from Chris Lucas with Capital One Securities. Please state your question.

Good morning. Angela, first thanks for the additional mortgage detail. On these prepayments or on the pay down of the debt for this year, the 140 million, is that simply from the sale or the expected sale of assets? Or is that pulling forward 2015 maturities?

I mean I think that I’ll try not to make it too complicated. But we’re basically going to be repaying mostly 2015 debt in order to effectuate efficient execution on the disposition when we sell them. We think that the mark-to-market we would take in terms of sales prices potentially greater than – then we will take on the prepayment penalty by bringing this forward. So of the 140 million, 113 million relates to 2015 maturities and then the remaining piece represents much longer dated maturities we will be pulling forward. But it is primarily on the disposition pipeline, or related to the deposition pipeline.

Okay, and then within the guidance that you’ve outlined more broadly, are the prepayment costs associated with that built into that number as well?

Yes, we demonstrate on the guidance reconciliation table after the press release. You can see that OFFO adjustment on a per share basis, not represents entirely the prepayment penalties associated with the transaction. So there obviously needs to be an adjustment to interest expense and then a back off from, or an add back excuse me from FFO to OFFO.

Okay. And then Steve, any comments that you could make on the current environment as it relates to the cap rates and how those maybe compared to a few months ago?

Let’s say, you know, [we] had some comments in the opening remarks that we expect them to be fairly consistent with what we experienced last year. I think we were guiding to on the disposition side say a mid-7 and then, you know, on the low 6 side on the acquisition side. So that’s pretty consistent with what we had articulated back at investor day and throughout the back half of last year. And we don't expect any significant changes as we’re guiding for the acquisition and disposition pool for this year.

Okay, and then my last question is so far, so year-to-date on the tenant fallout are you seeing anything that is surprising?

Nothing surprising, I think of no seasonal tenants, we don't count as occupancy, they are more license agreements. So it’s not really a drop there. We touched or starting to touch a little bit on our re-merchandising efforts earlier, clearly the [BJ's box] is going to cost us somewhere around 40 bps of occupancy in Q1. And there is additional boxes in progress I think four, five specifically and they have lifestyle product call it, Gateway obviously but certainly Southlake legacy and Eastwood we continue our efforts there, kind of want you to choose to drive runs. So I think in a nutshell Q1 is probably 50 to 75 basis point impact in economic occupancy just through the broader re-merchandising efforts. And we continue to think, you know, that’s the right thing to do. This is a unique environment, Class A supply is extremely low. We also realize this will not last forever and we’re going to be very aggressive through this part of the cycle.

Great. Thank you.

(Operator Instructions) Our next question comes from Yasmine Kamaruddin with JP Morgan. Please state your question.

Hi, I guess a related question here. On small shop occupancy, where do you see that at the end of 2014?

You know, we think small shop occupancy is probably 85 to 86 by year end. Again most of the volatility is going to be in the larger spaces this year.

Okay. All right. Got it. Thank you.

Our next question comes from Todd Thomas with KeyBanc Capital Markets. Please state your question.

Hi, thanks. Just two quick follow-ups, just regarding the – you know, some of the tenant fallout that you are expecting or I guess remerchandising, you know, I'm not sure if it really would impact that much. But Angela, you did in 2013 bad debt expense for the year was, little bit around 1.6 million, is that roughly consistent with what you're expecting in ’14?

Yes, I would expect it to be a little bit higher, that was about 30 basis points of total revenues during the year. I think we have modelled something closer to 50, that’s just about our historical run rate we think, a more normalized run rate. We haven’t seen anything specifically yet in the first quarter that’s giving us additional concern but we just think that’s a more prudent run rate for the full year.

Okay, and then just secondly, so circling back to the composition of same store NOI growth that you provided. I think you said 75 basis points is due to contractual rent increases. I was just curious, you know, on the new leases that you’re signing today, are you generally getting greater rent bump, it seems like the contribution from rent escalators seems a little bit on the low side?

I think it depends on which bucket you are talking about, above or below 10,000. Below 10,000 I think are obviously much more compelling bumps, especially below 5, I think mostly in line that we have done really over the last three years is kind of in that 2% to 3% annual and the anchors typically we’re still seeing kind of that 10% after initial 10-year term on a new deal. You may get a midpoint bump but it’s not typically going to be the 10%, it’s usually kind of the 5% number.

I would just add to that. To some extent the 75 basis points does represent a little bit of its own mix issue. To change point on the smaller shop space, we’re getting between 125 and 150 basis points on the anchors, you know, you're getting 50 to 75. But given the concentration of single tenant assets within the portfolio today, which continues to ratchet down, you should see that number naturally improve going forward, you know, even if the contractual bumps on new leases doesn’t change from this point.

Okay, and is the leasing that you’ve completed over the last two years or so, I mean is that sort of rent bump built into the leases? Is that different generally than what's already in place sort of from the legacy leasing and properties that you had over the last 5, 10 years or so?

I think it’s a fair question. But the anchors aren’t really going to be markedly different. You know, we’ve turned -- when you look at vacancy and the lease-up really over the last, call it, I don’t know three to four years, we’ve turned over 50% of the portfolio. So really the impact should be on the smaller shop in my stuff. You will get the age of the portfolio call it 11 years, you look at kind of built between ‘03 and ’05. So yeah, admittedly you had some development leases burn off where you had little growth and higher rent year one. So I think to your question, those in line rents, specifically the growth in those leases should be markedly better as time goes on.

Okay. That is helpful. Thank you.

There are no further questions at this time. I will turn the floor back over to Mr. Grimes for closing comments.

Well, thank you all again for your time and attention today. As we had mentioned, we’re very pleased with how we concluded 2013 and are extremely excited about beginning yet another year as a public company. We have done a tremendous amount of heavy lifting over the last two years and we remain committed to doing so again in 2014. So thanks again everyone and have a great day.

Thank you. This concludes today’s conference. All parties may disconnect. Have a great day.