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Macerich Company (NYSE:MAC)

Q4 2013 Earnings Call

February 5, 2014 1:30 PM ET

Executives

Jean Wood – VP, IR

Tom O’Hern – SVP, CFO and Treasurer

Art Coppola – CEO

Bobby Perlmutter – EVP, Leasing

Analysts

Craig Schmidt – Bank of America Merrill Lynch

Richard Moore – RBC Capital Markets

Christy McElroy – Citi

Vincent Chao – Deutsche Bank

Alexander Goldfarb – Sandler O’Neill

Nathan Isbee – Stifel Nicolaus & Company, Inc.

Tayo Okusanya – Jefferies

Daniel Busch – Green Street Advisors

Linda Tsai – Barclays

Ki Bin Kim – Sun Trust

Michael Mueller – JP Morgan

Todd Thomas – KeyBanc Capital

Caitlin Burrows – Goldman Sachs

Operator

Good day ladies and gentlemen, thank you for standing by. Welcome to the Macerich Company, Fourth Quarter 2013 Earnings Conference Call. Today’s call is being recorded.

At this time, all participants are in a listen-only mode. Following the presentation we will conduct a question-and-answer session. Instructions will be provided at that time.

I would now like to turn the call over to Jean Wood, Vice President of Investor Relations. Please go ahead.

Jean Wood

Good morning. Thank you, everyone for joining us on our fourth quarter 2013 earnings call. During the course of this call, management will be making forward-looking statements, which are subject to uncertainties and risk associated with our business and industry. For a more detailed description of these risks, please refer to the Company’s press release and SEC filings.

During this call, we will discuss certain non-GAAP financial measures as defined by the SEC’s Regulation G. The reconciliation of each non-GAAP financial measure to the most directly comparable GAAP financial measure is included in the press release and the supplemental 8-K filings for the quarter, which are posted in the Investors section of the Company’s website at www.macerich.com.

Joining us today are Art Coppola, CEO and Chairman of the Board of Directors; Tom O’Hern, Senior Executive Vice President and Chief Financial Officer; Bobby Perlmutter, Executive Vice President, Leasing; and John Perry, Senior Vice President, Investor Relations.

With that, I would like to turn the call over to Tom.

Tom O’Hern

Thank you, Jean, and welcome everyone. Today, we’ll be limiting this call to one hour. If we run out of time and you still have questions, please do not hesitate to call me or John Perry, or Jean Wood.

It was another great quarter. We executed on our plan to dispose non-core assets. We continue to strengthen our balance sheet, and we had a very strong operating performance during the quarter.

Looking at the operating metrics, the leasing volume and spreads were both good. We signed leases on specialty tenants totaling 330,000 square feet, and we had positive releasing spreads for the trailing 12 months of 7.2%, excuse me, 17.2%. The occupancy level was at 94.6% at the end of the year. That was up 80 basis points from year end 2012.

It’s also important to note when looking at the year-over-year occupancy gain that we reduced our temporary occupancy that is included in that statistic, temporary occupancy at year end, stood at 5.8% and that’s down from 6.9% a year ago. That’s an area we will continue to focus on converting temporary tenants from an occupancy.

Average base rents increased to $48.16, that’s up 8.7% from $44.29 at the end of 2012.

Looking at FFO, the adjusted FFO for the quarter as $0.94 per share, that’s up from $0.90 in the fourth quarter of 2012. The full year FFO was up over 10% at $3.53 compared to $3.18 from 2012.

Same-center NOI was strong, growth was strong in the quarter, it increased by 4.9% compared to the fourth quarter of last year. This increase was driven by increased occupancy, positive releasing spreads annual CPI increases on leases. Year-to-date same-store NOI was up 4.1%.

Also on the same center base, looking at expense recoveries for the quarter, they were up to 96% and that compared to 92% in the fourth quarter of 2012.

We had a very modest amount of lease termination revenue in the fourth quarter, that was 600,000, that was down from $2.3 million in the fourth quarter of 2012.

Bad debt expense was also down for the quarter relatively modest level of $1.1 million down from $1.5 million in the fourth quarter of 2012.

Throughout the year, we had significant savings on interest expense due to the significant refinancing we had done over the last two years. Most of that benefit flowed through the first three quarters. During the fourth quarter, the average interest rate was at 4.22% down slightly from the 4.29% at the end of last year.

We also make great progress on our balance sheet. Looking at the balance sheet stats, at the end of this year, compared to 12-31-12, factoring in the acquisition of Green Acres which happened in January, debt-to-market cap went down from 45% to 40.5%.

Interest coverage ratio improved from 2.8 times the 3.2 times. Debt-to-EBITDA improved significantly down from 8.1 times to 7.2 times on a forward basis.

Average debt maturity improved from 5.3 years to 5.9 years. And floating rate debt as a percentage of total debt decreased from 23% at the beginning of the year to 10% today.

In addition, as we look at our maturities schedule, we have very little interest rate sensitivity in our upcoming maturities. We have only $119 million of debt maturing in 2014, and that’s a 4.1%. We have $640 million of debt maturing in 2015 with an average interest rate of 5.5%, and 2016 has $710 million of maturities at 5.8% average interest rate.

This morning, we also gave FFO guidance for 2014 in the range of $3.50 to $3.60 per share. That guidance assumes asset sales in the range of $225 million to $275 million and if those sales will occur in the first half of 2014.

The 2014 guidance also includes the dilution of $0.08 a share from those asset sales, plus another $0.16 of dilution from the assets that we sold in 2013.

The above guidance range reflects same-center NOI growth of 3.75% to 4.25%, and there’s no acquisitions after that guidance.

Looking at the quarterly split, we’d expect the first quarter to be approximately 23% of the total, second quarter also about 23% of the total, third quarter about 25%, and the remaining 29% in the fourth quarter at 2014.

We saw nice increase in tenant sales, the portfolio mall, tenant sales per foot were at $562, that’s up 8.7% from $517 at the end of 2012.

Strongest records for us in terms of sales for the year were Arizona and California. Now, I’d like to turn it over to Art.

Art Coppola

Thank you, Tom. And welcome to this call. First of all, I’d like to go through and kind of recap the major accomplishments that we had in 2013, and then address some general industry issues that I know all of you are interested in, and then we’ll open it up for Q&A.

2013 was truly a transformational year for Macerich. We gave guidance in the beginning of last year that we had an intent to significantly recycle out of some of our lower productivity, lower growing assets and to take that capital and ultimately redeploy it into proven winners and great developments and redevelopment opportunities that we had within our portfolio.

We ended up having a terrific year with the disposition of 10 malls, and one office related property. The malls averaged about $340 a square foot, and the sales generated almost $900 million of proceeds.

We are currently in the process of various stages of talks, dispose another four or five assets, weaker assets than the ones that we sold in 2013. As Tom mentioned, the range of sales proceeds that we would anticipate from that disposition process which we would expect to be completed in the early part of this year, would be $225 million to $275 million, give or take.

And the productivity of these centers are currently in discussions, are lower than the ones that we sold in 2013, generally somewhere between $250 and $300 a square foot with one possible one in the mid $300 of square foot.

There was a major accomplishment during the year to accomplish a de-levering of the balance sheet through the dispositions and through the use of an equity offering at about $70 a share as part of our S&P 500 inclusion that helped us to de-lever the balance sheet by over $1 billion.

As mentioned, it was a great honor and accomplishment for the company to be admitted to the S&P 500 during the year.

On the development front, we had huge winners across the board. At Tysons Corner, we were successful in preleasing the office tower to a 70% level so that we are able to move forward with the development. That development is moving along very well.

I will suggest that – weather has been quite an issue as we all know, in the east coast, both at Tysons and Niagara Falls, but that development is moving along terrifically. And again, the densification of that property is going to have a terrific impact on the retail center.

During the course of the year, we completed the total recycling of the department store line up at our Victor Valley Center and the Inland Empire.

JCPenney moved from a small 50,000 square foot store to a new 100,000 foot store late 2012. Macy’s came as a new to market fashion anchor for that market in March of 2013. And Dick’s which we find to be a great anchor for mid-market malls opened in November 2013.

As a result of that, that particular center is one of our highest performing centers in terms of sales per square foot growth. Most of you, a lot of you visited, or have, before or after the grand opening of the tremendously successful fashion outlets of Chicago which opened in August of 2013.

Staying in Chicago, we also had a terrific new anchor open up at our North Bridge Center, Eataly. They opened in December of 2013. And by all accounts, that particular Eataly could even be more successful than the New York one, in any of that, it’s been tremendously well received in the City of Chicago, and it’s already generating significant new tenant interest for the North Bridge Mall which is what we anticipated.

During the course of the year, we continue to clear the land for the expansion, the 175,000 expansion of our very successful fashion outlets of Niagara Falls. We were able to complete that, and we have started the work on the expansion, again, weather has been quite an issue there as you can imagine.

We are currently 55% leased on the expansion, and 81% committed. The grand opening of the expansion itself is still a little bit up in the air. So when you stop on it, you’ll see that it is in the fourth quarter or early the first quarter of 2015, either fourth quarter of ‘14, first quarter of ‘15 all weather permitting. Had we not had the weather issues which I don’t have to tell you all about, it would have been likely November, and we’ll see where we go with that.

We had a terrific year in terms of obtaining numerous entitlements in some sense governmental, as well as other consents that were required for us to go ahead and move forward on the breaking of the ground for Broadway Plaza at Walnut Creek.

This is one of our great properties, it’s anchored by Neiman Marcus, a terrific Nordstrom store, a top 20 Macy’s store in the United States, and we think it’s going to go from being a very, very nice boutique street-oriented type of retail center, to a true super regional center and one of the three dominant centers in the Bay Area. So it’s going to be a fabulous property.

We also, as you can see in and are supplemented, been refining our returns there, and have even a more optimistic view points on our views there.

In Santa Monica, we announced after many years of negotiations with the city, just a couple of weeks ago, that we’re going to be adding ArcLight Theater to the third level of Santa Monica Place. ArcLight is the premiere movie experience – in Southern California. And we think they will help generate at least 2,000 to 3,000 additional traffic body per year to that third level.

During the course of the year, we were fortunate to be able to buy 20 acres of contiguous land, to Green Acres Mall, one of the acquired centers during the year. And we are currently under way with the preleasing of that center, and we anticipate very nice returns north of 10% when that is fully entitled and then get to open in about two years.

We have announced the addition of two additional anchors at both Scottsdale Fashion Square and Cerritos. At Scottsdale Fashion Square targeted for spring 2015 opening, will be at Dick’s Sporting Goods, plus a mega cinema complex which will be operated by Harkins Theater who’s the current dominant theater operator in that market.

At Cerritos, we also announced two additional new anchors. One is the remerchandising of the old Nordstrom store that had been relocated a couple of years ago to a brand new store. That will be a theater, Harkins. And also, we announced that Dick’s will be also occupying space there. That’s targeted for fall of 2015 opening.

We’re proceeding very well on our planning for the complete re-merchandizing of Kings Plaza, so we’re very, very pleased with the development accomplishments as well as the development pipeline.

We’re very, very bullish on the opportunity to essentially take the billion dollars of proceeds when you add up this year’s disposition proceeds roughly $1.3 to $1.4 of proceeds that will be generated through dispositions, and redeploy it into a proven winning development pipeline here this year, next year, and the year after. And the returns are going to be very, very significant for the company for the foreseeable future.

Tom mentioned the operational achievements, but just to summarize, same-center NOIs came in at 4.1% which was an improvement of 110 basis points over the guidance that we gave at the beginning of the year, releasing spreads were extremely strong. FFO came in during 2013, $0.17 above our original guidance for the year, and 11% over the previous year, which we’re very pleased to have been able to accomplish that, primarily driven by the increases in same-center NOI growth.

To be able to accomplish that even though we ended up at the high end of dilution based upon going to the high end of dispositions during the course of the year.

So in summary, if you would have asked me in January of 2013, how I would feel about increasing our FFO that we achieved in 2012 which was $3.18 a share, up to $3.55 a share for 2014, and along the way to de-lever and reload the balance sheet by over $1 billion, to have disposed of 14 or 15 of our lower quality assets averaging just over between $320, $330 a square foot, thereby the increase – the average sales per foot in our portfolio to something in excess of $570 a square foot, and enable us to focus on proven winners, fewer bigger assets in dense trade areas, I would have said, "Wow, that would be a terrific year." And that’s what we accomplished. And we’re very proud of that.

I’m not unaware though, of the negative sentiment that weighs on the retail sector in general, and that weighs on retailers as well as retail landlords. So I do want to address a couple of issues on that point.

First of all, as it relates to a lot of the talk over Black Friday, Cyber Monday, about the impact of online sales, on brick and mortar sales, I just want to remind you all that the online merchandizing channel that retailers are using today, is essentially the catalogue channels that they used 10, 15, 20 years ago.

So hurrah for all the trees that we’re saving, and hurrah for a new channel being developed that allows retailers to globally expand their businesses through e-Commerce, and to expand and improve their profitability and to really create a seamless transition across all channels.

The dot com world and the catalogue world has been a source of great new retailers for our shopping centers both in the past, as well as the future. There are a number of retailers that were born in the catalogue world that now are some of our best in brick and mortar retailers, there are Internet retailers that were born digitally, that are now, have great retail stores with us. There are digital pure play retailers that never intended to have brick and mortar stores that have recently figured out that they need to have brick and mortar stores in order to really maximize their brand.

And then you have the manufacturer, direct type of folks that really didn’t have to have a brick and mortar presence, but elected to do so in order to create an opportunity for discovery, for entertainment, to create relationships with their shoppers and to actually feel the deal and make transactions.

So the retailers that really – Microsoft, Samsung, Sony, and even now, Tesla, and other car dealerships that want to use showrooms and – in our malls, is an emerging category that just proves the strength of the brick and mortar locations.

The best e-tailers are also the best retailers. And for a retailer to have solely a brick and mortar platform, they would not be strong, and likewise retailers realize that they need multi-channel platforms both full priced stores, off price channels, their e-Commerce channels, and now social media which they use tremendously to increase their brand.

A second issue that I know is – each time there is a hiccup at JCPenney and Sears, obviously, we catch a cold.

Over the past year, we’re very pleased that through the dispositions that we’ve accomplished and the ones that are currently underway, that we’ve gone from 78 to about 56 JCPenney and or Sears stores in our portfolio.

The stores that they’re occupying within our portfolio, we have 18 centers in our portfolio that have both a JCPenney and a Sears, most of those centers by the way have two or three other anchors in many other cases. Those centers average $557 a square foot. So those centers are very, very strong centers.

We have 10 centers in our portfolio that have only a JCPenney. Those centers average about $500 a square foot and includes centers like Queens Center, Fashion Fair, The Oaks, and Valley River, and others where there would be no issue replacing the merchant if you have to.

We have 10 centers where we have only a Sears store, and not a JCPenney store. Those centers also average an excess of $490 a square foot, and they include centers like Kings Plaza or Cerritos, Chandler Center, La Cumbre Plaza in Santa Barbara, all centers that we would have zero problem replacing that merchant if and when something were to happen there.

I would also note that we have 20 assets in the portfolio that have neither JCPenney or Sears. And those assets in our portfolio generates 34% of our net operating income.

The third industry issue that I wanted to just touch upon, and then we’ll open it up for Q&A, is sales.

Sales is something that I know you’re all are focused on. Sales are very important because rent is absolutely a function of sales. But when you’re operating at a very high sales level, and when the merchants, when they want to come into a market, really don’t have any other opportunities to enter the market other than with you, then you’re able to capture your market share, and we’re able to do that at rents that are appropriate.

I pointed out I think in our last earnings call that even in 2008 and 2009 when we had major sales decreases, we still generated very significant positive releasing spreads. From 2009, year-end 2009, we had a $407 square foot average portfolio sales per foot.

At the end of 2013, we’re at $562 a square foot, almost a 40% increase. But when I look at that, and obviously, I work with our leasing teams, we know that we have great demand for our spaces. I would also point out that roughly two-thirds of our new leasing activity are renewals anyway.

And we only generally renew with merchants that are proven winners. We took a look at our portfolio about a month ago, and we said, if you took a look at each of our top 20 centers, and we have not run this for our bottom 30 centers, but I think it’ll prove out the same, and if you start with the premise that two-thirds of the stores that are there, or belong there, and probably a third of them over time, probably belong to be replaced over a period of time.

And you take a look at the top two-third performers in each of our centers, and you eliminate the bottom one-third, the sales per foot of the top two-thirds in the top 20 centers that we own, goes up 40%.

So for example, in number 11 through 20 of our portfolio, sales per foot would go from $632 a foot, to almost $900 a foot for the top two-thirds of the merchants, and the top 10 centers that we own, sales per foot would go from just over $850 a square foot to something around $1,160 a foot if you eliminate the bottom third. And that’s what we do day by day.

So when we look at it, leasing strength and opportunities, leasing is obviously a function of supply and demand, there is no new supply coming into our markets. There is increasing demand and the productivity of our centers gives us the opportunity to re-merchandize them with new emerging concepts are higher sales per foot than the slower sales tenants that we tend to replace, and the two-thirds of the tenants that we renew every year, they’re able to pay us ever increasing rents because of the ever increasing quality of the portfolio.

So with that, I’d like to open it up for Q&A.

Question-and-Answer Session

Operator

(Operator instructions). Our first question today is from Craig Schmidt from Bank of America.

Craig Schmidt – Bank of America Merrill Lynch

Thank you, good morning, good afternoon. After the disposition of the four to five assets in the first half of the year, is this sort of focused disposition over with? Or do you have more assets that you’d like to call following those sales?

Art Coppola

It will be over with for this year. We will be a – what I look at what we did in 2012 and 2013 and in the beginning of ‘14, I look at this as portfolio management and where we have the opportunity to recycle out of lower growing assets into higher growth and higher productivity centers, we’re going to do it.

But after we complete the transactions that are currently underway, we will time any future dispositions to coincide more coincidentally and directly with the reinvestment opportunities.

Craig Schmidt – Bank of America Merrill Lynch

Okay. And is it possible to get a geographical breakout of sales for the fourth quarter?

Tom O’Hern

We don’t have that at out finger tips here, Craig. I can circle back with you a bit. As I mentioned, the strongest locations were California and Arizona. The east was relatively flat by comparison, obviously, weather had something to do with that. And the central was okay, but certainly not at the same level as Arizona and California.

Craig Schmidt – Bank of America Merrill Lynch

And then if you had to guess, what would you think the percentage of difference from weather related cause is impacting the east when you look at California.

Tom O’Hern

You know, that’s hard to say, Craig. Everybody blames the weather. We just know it was certainly one of the worst winters in a long, long time and had impact on a lot of people.

Craig Schmidt – Bank of America Merrill Lynch

Okay, thanks.

Art Coppola

Thank you.

Operator

Moving on, we’ll take a question from Rich Moore from RBC Capital.

Richard Moore – RBC Capital Markets

Yes, hi. Good morning, guys. Anymore thoughts – you obviously – or you have a couple of expansions going in the outlet centers. Any more thoughts on maybe new ground up project and outlets? Obviously, they’re still very popular and much like online sales, they’re popular too. I’m just curious where you guys are with that.

Art Coppola

There’s nothing to discuss on that at this point in time.

Richard Moore – RBC Capital Markets

Okay.

Art Coppola

But we’re open to – nothing to discuss.

Richard Moore – RBC Capital Markets

Okay, got you, got you. Thank you. And then Tom, a couple of items. The higher recovery ratio for the quarter or...

Tom O’Hern

Yes, Rich, I mean on that, you know, we just continue our move to convert every new lease we do to fix camp. And that has the added benefit of improving our overall recovery rate. Additionally, as we are selling some of our lower quality assets, they typically have a lower recovery rate as well. So over all, I know I gave you the same center calculation, but overall, you’re going to see our recovery rate go up.

If you looked at just the consolidated assets for example, it’s at about 100% for the fourth quarter. So we expect that to gradually continue as we continue to convert more leases from triple net to fixed CAM.

Richard Moore – RBC Capital Markets

Okay, good. Thank you. And then management company expense was also higher than fourth quarter last year as was G&A, so thoughts on those maybe?

Tom O’Hern

Yes, Rich, the run rate for the management company has been running $23 million to $24 million a year, the full year each quarter.

So that’s a good run rate going forward. I know it’s more than we saw last year in the fourth quarter which was unusually low. But if you look at the first through the third quarter this year, we were running $23 million to $24 million.

On the REIT G&A, we’re slightly higher in the fourth quarter because we had accruals [ph] for professional fees comp, and a few other things that fell through the fourth quarter.

Richard Moore – RBC Capital Markets

Okay, great. Thanks, guys.

Art Coppola

Thank you.

Operator

And we’ll take our next question from Christy McElroy from Citi.

Christy McElroy – Citi

Hi, good morning, guys. Art, excuse me – I appreciate your comments on e-Commerce, but just so you know, we’re not receiving any trades [ph] yet, I still got like 10 catalogues in my mailbox every day.

Art Coppola

Just say no.

Christy McElroy – Citi

Regarding the four to five malls that you’re selling, what would you pin cap rate on for the mid $300 small, and then where do you see cap rates for the $250 and the $300 range malls?

And then just regarding that $250 to $300 centers, were those among the assets that you put on the market a year ago?

I’m just trying to figure out is there’s a market for those types of assets now where there wasn’t before?

Art Coppola

Well, we’ll see. There is one asset in the grouping that is what most people would think of it as a B mall. And it may or may not trade. It’s in the mid-350s and that’s consistent with the cap rates that we were able to achieve on most of our transactions in 2013 which was generally low 7s to maybe mid 7s, but more towards the low 7s.

The stuff that is – the other three or four centers tend to be more in the $250 per square foot zip code, $250 to $275.

It remains to be seen, whether they’ll trade. I do think they may. And we’ll see. If they do trade, we’ll certainly be able to address the cap rates. If I had to guess what the blended cap rate of the four or five assets would be this year and let’s assume there was the $250 million of dispositions, they would blend out to be around 9, and that’s a function of one of them being in a B mall and in the low to mid 7s and the others being C malls. And they’re more double digit type of cap rates.

Christy McElroy – Citi

Okay. That’s helpful. And then in looking at your same-store NOI, there’s a big chunk of sort of EBITDA from non-comparable centers. Can you remind us what’s in that non-comparable bucket and what center should potentially be added to the same-store pool in 2014?

Tom O’Hern

Yes the non-comp, Christy, would include things like fashion outlets of Chicago, any asset that wasn’t in both periods for the full period. So FOC would not be in there, Green Acres would not be in there. Those are two of the bigger assets. And then anything, obviously that was disposed of during the year would come out of both periods for that calculation as well.

Christy McElroy – Citi

And what enters the pool next quarter? Just Green Acres?

Tom O’Hern

What new goes in next quarter? I don’t know that there’ll be anything new going in next quarter.

Christy McElroy – Citi

Okay.

Tom O’Hern

FOC will not go in until the fourth quarter, Green Acres will go in starting in the second quarter. I don’t think there’s anything new that will go in, in the first quarter.

Christy McElroy – Citi

And then did you disclose your growth in your sales per square foot, the year-over-year growth on same – enter basis?

Tom O’Hern

Well, as luck would have it, I’m sure you can ascertain that from the supplement. I think if you look at the pages that breakout the sales per foot, page 14 would give you the portfolio totals there, 562 versus 541, I think it’s roughly 3.9%. And you have one asset there, Christy, Paradise Valley that went into redevelopment that’s not included. If that were pulled out, it would be about 3%.

Christy McElroy – Citi

Okay, got you. Thank you.

Tom O’Hern

Thank you.

Operator

Our next question today is from Vincent Chao from Deutsche Bank.

Vincent Chao – Deutsche Bank

Yes. Hi, guys. Just going back to dispositions for a second. I know that it sounds like you’re pretty settled at 250 and would tie future dispositions more specific to some investment activity, but I’m just curious how many assets you’re actually marketing to get to the four to five, and if the demand proves out to be better than you expect, would you consider just selling more?

Art Coppola

No, we would not like consider selling more. And anything that is in our guidance is already in the market and may even be under contract, various stages of conversations. But there may be one other joint venture asset, a joint venture partner. It’s not that big, may ask us to market in the middle part of the year.

But anything that is in the band of the $225 to $275, they’ve already been identified and they’re either under contract already, or they’re very close to being under contract. It’s an identified pool of assets.

Vincent Chao – Deutsche Bank

Okay. Thank you. And I’ll just switch on the development side, how much you guys expect to spend this year under your own pipeline [ph]?

Tom O’Hern

Yes. It will probably between $200 and $300 in total including everything, pipeline projects, shallow pipeline projects and then miscellaneous projects that are smaller than that and not listed on the schedule.

Vincent Chao – Deutsche Bank

Okay. And just one last question, just – in terms of just the sales environment which you addressed pretty necessarily [ph], there does seem to be some mismatch between sort of what the companies were expecting sell versus what they did, whether it’s weather or otherwise any other reasons, given the amount of preannouncements we’ve heard from folks, I’m just curious if you think first quarter I can see that typically there’s a bit, I mean, do you think it will be – it will be worse than it’s been in the past two years?

Art Coppola

Are you talking about retail sales? Are you talking about that [ph] when you say preannouncements?

Vincent Chao – Deutsche Bank

Well, retailers pre-announcing negatively and seemingly a little bit surprise by the sale environment.

Art Coppola

I don’t see that impacting our occupancy at all.

Vincent Chao – Deutsche Bank

Okay.

Art Coppola

I mean, these folks don’t make decisions to sign new leases based upon last weeks or last months or last quarters’ sales or even what they think next week or next month’s sales are going to be and likewise they’re all generally on long-term leases and they don’t have the option of leaving if they had a bad month.

Vincent Chao - Deutsche Bank

No, no, no, it was more a question about profitability maybe being down worse than expected and possibly leading to some additional closures and that kind of thing, maybe not even from the public guys but form the guys that the other players out there. But yes, it sounds like you’re not really expecting any significant difference from the past few years.

Art Coppola

No, I’m not. And this is going to be a joke. It’s my understanding though that their profitability is up because of how well they’re doing online.

Vincent Chao – Deutsche Bank

Okay.

Art Coppola

That’s was a joke, an attempt. Thank you. Next question.

Operator

We’ll take our next question from Alexander Goldfarb from Sandler O’Neill.

Alexander Goldfarb – Sandler O’Neill

Good morning out there.

Art Coppola

Hi, Alex.

Alexander Goldfarb – Sandler O’Neill

Hey, I trust Santa Monica is a warm 80 degrees or so or are you guys having a chill as well?

Tom O’Hern

Yes, down to 75 today.

Alexander Goldfarb – Sandler O’Neill

Okay. And the violins are out. First opt, Art, if you take a look at your portfolio, the top malls clearly were driving the sales growth, and the bottom – the top 10 were – the bottom 44 were basically flat. So you talked about as you went through the portfolio and called the bottom third of tenants and replace those that it would certainly enhance the mall growth. What should we expect? Should we expect that the top 10 malls are going to continue to deliver growth and the bottom – the bottom 40 are just going to be as is or do you envision a way to sort of accelerate the growth? Basically is it easier to call – how easy is it to call the bottom third of the tenants at the bottom 40 malls versus at the top 10?

Art Coppola

Okay. Well, thank you. That’s a good question. I appreciate it. If I take a look at – so I’m going to take out the top 10 centers, they’re not in the pool anymore. I’m going to take out the bottom 10 centers, they’re not in the pool anymore. And I just go from 11 through 40. So from the 11th best center that we have to the 40th best center, so that’s a pool of 30 malls. Those malls average $525 a square foot. And centers that are doing $525 a square foot that are of a nature such as Kings Plaza, Burberry [ph], you can go through any part of the list from 11 through 40 and we have the demand for space in those centers.

So I can’t predict what sales are going to be in these centers. I know that a lot of these centers were going up against tough years, last year, sales increases were relatively decent in 2012 fairly much across the Board. But I can tell you that leasing demand in each of these categories has been very good and that we have had positive releasing spreads in every category.

And then again, as I mentioned when you slice and dice that a little bit more and you go into any one of these centers and you take out the bottom third of the tenants and think about the – what the top two-thirds are doing, that’s more than the stated number. And these centers we’ve got very strong demand, we’ve got good occupancy. The occupancies are sitting right there in the supplement for the – basically for themselves. And I anticipate continuing to have good demand in these centers.

The other thing and this is a nuance [ph], and I’m going to consider talking about it or disclosing it is that sometimes these numbers in here are anomalies because they’re comp sale tenants. So you can have new tenants that come in and they’ve only been there for six months and they’re tearing the cover off the ball, they don’t show up in any of our comp sales for almost 18 months to two years.

So when I look at our comp sales and then I look at our total center sales for our mall tenants, a lot of times it’s – well, it’s almost always two different numbers. And the total sales are always much more positive than the comp sales. And that’s strictly a logistical reporting system that we have. And I’m going to consider beginning to talk about that because the comp sales that you see in these schedules and likely that you may see at other companies too, they’re very trailing in terms of picking up new tenants that we’re adding. And the new tenants that we add generally are doing a lot more than the tenants that we replaced.

Alexander Goldfarb – Sandler O’Neill

Right. But presumably the same impact to all the malls. So at the end of the day you still have the top centers that are driving the growth whereas the bottom – the other 40 –

Art Coppola

– you’re right, you’re right.

Alexander Goldfarb – Sandler O’Neill

The second question is, the assets – the four to five that you have that you’re marketing what was the comp sales for those assets?

Art Coppola

Flat to down a little bit.

Alexander Goldfarb – Sandler O’Neill

Okay. So from the – Okay, so from –

Art Coppola

Probably flat [ph].

Alexander Goldfarb – Sandler O’Neill

Okay. If we look at one of your peers today, it’s obviously getting hurt because of their blockbuster sales productivity. Do you think at some point buyers of B malls do start give a flat sales, somebody’s malls starts to impact their appeal or their view is that they can provide more attention, more focus and therefore it’s sort of a relevant what the current sales trend are at the B malls that they’re looking to buy?

Art Coppola

I think it’s irrelevant. I think that there’s couple of groups of B mall buyers, there’s the private buying groups and that’s a substantial group. Honestly they could care less about sales growth from what I can see. They don’t look at numbers like that. They look at what can my levered return be and what kind of remerchandising can I do. And a lot of the B mall buyers are do have expertise in the big box arena, and they’re able to think about things a little bit differently, and think about the opportunities that can be created adding some non-traditional to a mall owner, big boxes to a B mall center. But I have not – I have not seen one buyer of any center that we have sold get preoccupied with the sales growth one way or another.

Alexander Goldfarb – Sandler O’Neill

Okay. Thank you.

Art Coppola

Thank you, Alex.

Operator

And we’ll move on to Nathan Isbee from Stifel.

Nathan Isbee – Stifel Nicolaus & Company, Inc.

Hi, good morning.

Art Coppola

Hi, Nathan.

Nathan Isbee – Stifel Nicolaus & Company, Inc.

Art, from your perspective you elaborated on the whole e-commerce issue. I’m just curious how you see the Omni channel [ph] retailing will impact the outlet-only retailers not those that have both full price and half price strategies?

Art Coppola

I’d have to go through and do a survey of how many outlet-only tenants there are, I mean, those are more just the pure manufacturers. And I’m sure they have online distribution channels also. But the vast majority of the retailers that we have been exposed to that are in the outlet centers that we’re involved with or that we would seek to be involved with are pure Omni channel [ph] retailers that are in all I’ll say four channels, full-price, half-price, online, and social media.

Nathan Isbee – Stifel Nicolaus & Company, Inc.

Okay. Thanks. And then on Tysons development, as the leasing their progresses it gets closer to opening. Can you just talk a little bit more in more detail what impact that we’ll have on the retail? How much growth, incremental growth you think you could drive from the mall there?

Art Coppola

Sure. We expect that the three towers when they’re open will bring between 3,000 and 5,000 people per day to Tysons Corner that are not there today. And our experience is that when you – the closest analogy that I have to bringing 3,000 people a day to a site that formally were not there would be when we added a theatre to Tysons Corner, and it’s one of the most successful theatres in United States, the AMC there.

And when we added that, we have brought tremendous new traffic and sales per foot in the center [ph] went up about $150 a foot. Probably the more – when you have a center that’s already doing $700, $800 a square foot and doing almost $1 billion, honestly doesn’t matter necessarily. If the center goes up $100 a foot, I doubt it. But I do know and Bobby may want to elaborate on it, that even before the densification is open for business and even before the rail is open for business, the retailers have begun to pick up on the dramatic change that they expect as a consequence of the densification. Do you want to talk to that Bob?

Bobby Perlmutter

Sure. Obviously Tysons is one of the most productive centers and most important locations for retailers in the Washington D.C. market. So demand for space is always strong at the center. Probably the most important addition from the mix use development that we’re seeing is greater demand from retailers to do these flagship stores. We have two tenants who are signed and underway for flagship stores right at the entry and there’s two more that we’re working on.

So probably the biggest new ones that we’re seeing at Tysons is the demand for retailers to put in-stores that are more than their average stores but are really flagship stores. And interestingly willing to step up and pay the rents required to accommodate those stores.

So it used to be that the larger tenants would seek lower rents and the opposite is really happening [ph] at Tysons. In addition we’re adding to the food venue with the mix use and obviously the additional traffic. So it’s a very logical next step when you look at the location within the center. It’s really have spaces that are coming due over the next couple of years. So it gives us the chance to really generate above average growth at the asset in the near-term.

Nathan Isbee – Stifel Nicolaus & Company, Inc.

All right, thank you. And then just finally at Santa Monica aside from the new theater deal, any other changes coming down the pike at that asset [ph]?

Bobby Perlmutter

Santa Monica, probably the theater is clearly the most important element, as well as the rail, which is coming to the property and the surrounding peripheral development which continues to get stronger. What we’re seeing at Santa Monica is the luxury and designer tenants have very, very strong performance on the ground floor. So we’re actually going through and adding additional designer in luxury brands to the ground floor, already replacing tenants that are good tenants but not necessarily doing the productivity needed on the ground floor. So we’re sort of settling those tenants in on the second floor.

So you’re going to see the ground floor luxury and brands further develop. The traditional mall and better specialty starts to be on the second level and the theatre will not only support the existing restaurant at third floor but allow us to bring in additional restaurants. And continue to make a destination which as we look to distinguish ourselves from other retail venues, clearly the entertainment, restaurants, outdoor environment are very important.

Nathan Isbee – Stifel Nicolaus & Company, Inc.

All right, Thanks.

Art Coppola

All right, thank you. I know we’ve still have several folks in the queue. So I would request maybe that you try and limit your question to one question, maybe two if you need to and I’ll try and keep my answers a little shorter. Next question.

Operator

And that will come from Tayo Okusanya from Jefferies.

Tayo Okusanya – Jefferies

Hi, good morning, just one quick question. I mean, everything we have kind of seen out of the portfolio in all your plans, everything just seems to be good and really, really well right now. Just curious one or two things that you’re may be concerned about over the next 6 to 12 months?

Art Coppola

Taxes.

Tayo Okusanya – Jefferies

Okay.

Art Coppola

No, actually I’m joking a little bit, I’m not joking, I mean, taxes are real right? So when we think about the retail sales in 2013 across the Board and you look at the incremental Federal Income Tax bracket that the world got exposed to, add to that the California Income Tax increases that got hit on the people out here, and the tax bite is pretty significant.

So that is kind of an issue. I guess the biggest thing that concerns me is that I think retail landlords are being more negatively than they deserve to be for an issue that I thought we had put to bed 15 years ago. And that’s the interrelationship of online shopping and brick-and-mortar shopping, but you know what? Over the next six months we’re going to address that as an industry.

Tayo Okusanya – Jefferies

Got it. Thank you.

Art Coppola

Thank you. Thanks, Tayo.

Operator

Moving on, we’ll hear from Daniel Busch from Green Street Advisors.

Daniel Busch – Green Street Advisors

Thank you. Just going back to some of your comment on the two-thirds of the top tenants and the bottom one-third, when I look at the top 10 centers and think about the 8% sales productivity growth, do you have an idea on how much of that is true same store growth by those two-thirds? And then how much is from – moving from a lower productivity tenant and bringing in a higher productivity tenant?

Art Coppola

I don’t have an exactly number for you but intuitively I know that the good get better and the average get worst. So typically the ones – the tenants that are producing, they continue to produce. And the ones that just have missed the market – they might be a good tenant but they may just be on the wrong – may not be right for that market. And so, that could be the reason that they’re not performing. They tend to just kind of drag it down. And that’s why when it come – when the opportunity presents itself you recycle them with somebody that’s more appropriate.

Daniel Busch – Green Street Advisors

Okay. It helps.

Art Coppola

It is an interesting way to slice and dice these numbers, I mean, I’ve started doing it a couple of months ago because we intuitively said, look why aren’t we interested of renewing two-thirds of the tenants anyway, the top two-thirds. So what’s the occupancy cost and what’s the sales productivity in those guys.

When we look through it, we look at just our top 20 centers, and it took our sales up by 40% and take our average cost of occupancy for the guys that would renew anyway [ph], from 13.5% to 10%. And it just further validated that hey, we still got plenty of runway here for growth. And the real challenge is to make sure that you have good replacement tenants for the guys that you know or don’t belong there anymore, weather their concept [ph] is dead or maybe they’re in the wrong location, maybe they over expanded, maybe they’re in the wrong sector, any number of different things.

Daniel Busch – Green Street Advisors

And along those lines, so when you slice it like that going forward, would you expect – would you expect more – the most of your re-leasing spread growth to come from the signing new leases with these underperformers going or away as opposed to the renewals from your better tenants?

Art Coppola

I don’t think so. I think it’s both. I mean, the renewals are strong is my point because those tenants when you really look at them, their cost of occupancy isn’t the mall cost of occupancy it’s less because they’re outperforming the mall. And so, they can afford to pay more. They don’t love to pay more but they can and they do. I think it’s both, it’s both.

Daniel Busch – Green Street Advisors

Okay. Thank you.

Art Coppola

Thank you.

Daniel Busch – Green Street Advisors

No, thanks Ed.

Operator

Our next question is from Linda Tsai from Barclays.

Linda Tsai – Barclays

Good afternoon. I’m looking at your sales per square foot property ranking, and for the lowest group, group five is a nominal contributor of NOI, but it looks like it’s the only group that saw a decline on occupancy at the end of 2013 versus the prior year. I’m just wondering what do you attribute this to? Is this a timing issue or is it reflective with leasing efforts because it’s not a big NOI contributor? Or do you think it says something about the consumer macro challenges facing these lower productivity malls?

Art Coppola

I think it’s a function but maybe of all of the above, but most importantly it’s a function that when leases roll over in centers like this sometimes they’re not able to renew the leases with existing tenants because retailers attended to try concentrate their efforts on the A and the B mall locations of the world and kind of gravitate away from the lower productivity locations.

Linda Tsai – Barclays

Thanks.

Art Coppola

Thank you.

Operator

(Operator instructions) We’ll take another question from Ki Bin Kim from Sun Trust.

Ki Bin Kim – Sun Trust

Thank you. So I think the most interesting things that today was – that two-thirds of the retailers on top 20 centers [ph] sales are up 40% which –

Art Coppola

No, I said their sales are – wait a minute, I said, if you look at the top two-thirds of the tenants in our top 20 centers, their sales per foot are 40% more than the sales per foot that we published for the entire mall. That’s what I said.

Ki Bin Kim – Sun Trust

Okay. Got it. Okay. That makes much more sense.

Art Coppola

Yes. Yes. Yes. I could see where that would be confusing.

Ki Bin Kim – Sun Trust

Okay. Maybe along the similar lines, which types of tenants are actually putting up from a apples-to-apples stand point much stronger same store sales growth than kind of your average portfolio tenant? And tie to that are you doing any kind of reverse inquiries into online retailers like I think it’s Brandy Melville that you have in Santa Monica place that are really highly successful and maybe trying to have them expand more into brick-and-mortar?

Art Coppola

Sure. Bobby Perlmutter, you want to –

Bobby Perlmutter

Sure. This is Bobby Perlmutter. Brandy Melville we actually opened in Corte Madera, but it’s a great example of that. In terms of categories that performed the best in 2013, probably the two best categories were home furnishings and jewelry. Jewelry had a very, very strong year after going through some fairly significant consolidation.

The third bucket that really does well is really brand specific. And those are retailers that understand their customer and are doing a good job selling their product and differentiating their product in marketing to their customer. And you see some promoter names like lululemon and Michael Kors in particular, Kate Spade. But we also see names like Victoria’s Secret having very, very good success with Pink [ph] in extending – expanding their store base. So in terms of categories I would probably identify jewelry and home furnishing, and beyond that it’s more brand specific as supposed to category.

Ki Bin Kim – Sun Trust

And the part on Brandy Melville, sorry for taking a little more time.

Art Coppola

I’m sorry, what was the question about Brandy Melville in terms of will they expand?

Ki Bin Kim – Sun Trust

Well, I mean, have you guys started targeting more proactively a very successful online retailers or having them maybe try out store concepts they haven’t pursued in the past?

Bobby Perlmutter

Yes. I mean, again, those retailers I’m thinking about it, I think earlier it was mentioned Microsoft is an example of someone who is moving. Athleta has been very aggressive starting as an online retailer, Gap has other concept, Piperlime that they’re looking at. So more –

Art Coppola

[Inaudible].

Bobby Perlmutter

Yes.

Art Coppola

Is it Warby Parker, the eyewear person, they swore they would never open a brick-and-mortar store --

Bobby Perlmutter

And then we’ll close with them.

Art Coppola

Now, they’re going to be opening.

Bobby Perlmutter

Yes. Yes. So we think you’re going to see more of that. [inaudible] Bosh and properties and other [ph] group that we’ve been able to do a couple of deals with that are new to the Brick and mortar [ph].

Ki Bin Kim – Sun Trust

Okay. Thank you.

Art Coppola

Thank you.

Operator

Moving on, we’ll hear from Michael Mueller from JP Morgan.

Art Coppola

Hey, Michael.

Michael Mueller – JP Morgan

Yes, hi. Hey, Art, I know this is exactly what you said, but going back to the idea that the bottom third of tenants could cycle out over time. If we’re thinking about the normal $500, $550 a foot mall, how big is the pool of tenants that usually draw from or draw from for a mall?

So for example if you have 100, 200 tenants in there, how big is the pool that that draws from, is it 400 deep, 300 deep, 500 deep?

Bobby Perlmutter

Well, this is not, a lot depends on the particular market. Sort of example, in our portfolio we have two centers, one in Fresno and one in the modesto that are sort of in that range but have a very large paid area because there’s no alternatives in that market.

So even though they are larger and productive centers, they’re truly the only game in town. Other markets can be more fragmented or more deeply developed that the trade becomes more limited or more specialized in, in terms of who they’re drawing. So a lot depends on the competitive situation.

Michael Mueller – JP Morgan

Okay. But not talking about the shoppers coming in, if we are just thinking about the pool of tenants [ph]? That’s what –

Bobby Perlmutter

Well, yes, they’re sort of related though.

Michael Mueller – JP Morgan

How come?

Bobby Perlmutter

I mean, depending on what shoppers we’re pulling and how many will also dictate how deep the tenant demand is and if the tenants don’t have alternative locations within the market and Queens is the classic example, one of reason we’re able to drive very high rents and very high occupancy cost at Queens well in excess of the portfolio average is not always a productivity which is the measure that most people look at but a retailer has very few alternatives to cover the market, they’re not in Queens.

Art Coppola

In good centers the pool of tenant is virtually unlimited and that is proven out. You take a look at our occupancies which we published by center and you’re going to see numbers above 90% for virtually every center that we have until you get down into the bottom 10 or 12 centers that we own. What can happen and this particularly can happen in tend to be more the B malls is that as you’re cycling out of – maybe a B mall was built to be too big.

And so, you got the unproductive tenants. And maybe the pool in that town, maybe it’s a smaller town has gotten to the point to where you have to think about other uses [ph] and that’s kind of what I was saying earlier is that I found that some of the B mall buyers have been really successful at introducing junior anchors into these malls that will pay decent rents and generate a lot of traffic. And we have begun to do that ourselves, so people like TJ Maxx, Marshalls and [ph] folks like that that take up a lot of space that home goods, TJ Max Home Goods [ph] that we didn’t use to leased space to in the malls, usually in the B malls, that’s where we’ll take. And as we assimilate a group of unproductive tenants we’ll accumulate a block of space and re-merchandize it with the junior anchor [ph].

So the occupancies are all there to read by property. But if it’s a good property, it’s relatively unlimited. The only thing that I would say is that over time you constantly have to re-imagine what you are doing in the way of a use. So the theatre that we’re adding to cerritos for example, part of the space that the theatre is going to occupy is an old Nordstrom store that was functionally obsolete that we replace as well as some mall shops that we always historically had trouble leasing, we’ll demolish all that, create a new Megaplex [ph] theatre and it will become a new anchor for the center. So you are introducing new uses. So the new uses really begin to – the number and the opportunities are unlimited.

Michael Mueller – JP Morgan

Okay. And just one other quick one, is Estrella close to kicking off?

Art Coppola

No.

Michael Mueller – JP Morgan

Okay.

Art Coppola

We’ll kick it off when it’s ready.

Michael Mueller – JP Morgan

Okay. Thanks.

Art Coppola

Thank you.

Operator

Our next question is from Todd Thomas from KeyBanc Capital.

Todd Thomas – KeyBanc Capital

Thanks. Good morning. Just two quick ones, first circling back to Tysons Art, I think you mentioned that preleasing for the office remain at 70% at the end of the year. I was just wondering what the leasing pipeline is like for the remaining space and maybe where you think you’ll be at opening? And I’m sort of curious about learners office development across the road there, any concern that it will be a little bit more difficult to get the remainder of that space in your tower leased?

Art Coppola

No, no, no. We’re very far long in the negotiations. We’re basically leasing four floors right now. We have one tenant that is either going to take two or three of the remaining six floors. We got another guy that is going to take one of the remaining six floors. So I fully anticipate that we’ll be way over 80% least on the opening.

Todd Thomas – KeyBanc Capital

Okay, got it. That’s helpful. And then just one last question on investment, I know you mentioned that guidance doesn’t include any acquisitions and there certainly been a lot of focus on this dispositions, but I was just curious if you could maybe talk about the pipeline today for investments if there’s anything out there that you’re looking at and maybe any opportunities to buyout joint venture partners in ‘14?

Art Coppola

No, I really – we have no guidance on any new acquisitions or buyout to partners for 2014. We find that at this point in time these assets are so precious the ones that we want to own, I mean, look right now there’s probably 50 malls on the market and we got four or five of them on there, but they’re not malls that we want to buy. We made a conscious decision that we want to focus on fewer, bigger assets in the select dense markets that we know really well. And we find that that portfolio has got a huge reinvestment opportunity.

So when I think about the Sears stores or the Penny's Stores and I’m not throwing either one of them under the bus because the rest of the world already did that for all of us. And if I’m going to make the assumption that one or either of them are going to either shrink or something else [ph] or consolidate or something else happen, that creates massive opportunities for expansion within our existing portfolio.

I mean, there are cases here where Sears may own a 20 acre parcel of land and a 300,000 foot building at Washington Square in Portland, Oregon for example. I mean, that’s an unbelievable opportunity for reinvestment.

So we can’t find anywhere better frankly than our existing portfolio to put our money. Should an opportunity arise, we’ve always been opportunistically there to acquire. We are very fortunate to be able to buy Kings and Green Acres 15 months ago. And we’ve had great success with the centers that we have acquired but they’re really precious and they’re generally in very strong hands and I don’t expect them to become of the market.

So on a risk adjusted basis, I can’t think of anywhere that is safer and more profitable than plowing money into proven winning locations like Tysons Corner, Broadway Plaza, Walnut Creek, the expansion of Chicago, the expansion of Scottsdale Fashion Square, the expansion of Cerritos, look at our pipeline the addition of a theatre to Santa Monica place, they’re just isn’t a better smarter place for us to put our money on a risk adjusted basis.

Todd Thomas – KeyBanc Capital

Okay, great. Thank you.

Art Coppola

Thank you.

Operator

We’ll take a question from Caitlin Burrows from Goldman Sachs.

Caitlin Burrows – Goldman Sachs

Hi, we already kind of touch on this, but would you say the interest of your malls that you plan to sell this year is in fact coming from private buyers?

Art Coppola

Those are the majority of the buyers, yes, but the major thing I would say is that the buying pool in general and I’m not talking about necessarily the properties that we’re looking at right now because we drop down with the exceptional one property in terms of quality level, probably closer to the C category. So it is a different pool of buyers. But as I think about the type of assets that we sold last year, the buying – number of buyers is greater today than it was a year ago, and their appetite seems to be greater today than it was a year ago. And I think that’s really just a function of the fact that they found out and figure it out that they can do really well with this.

Caitlin Burrows – Goldman Sachs

And then I guess that sounds like –

Art Coppola

No, go ahead.

Caitlin Burrows – Goldman Sachs

I was going to say that the pool for those C properties then it’s probably not nearly as large [ph]?

Art Coppola

No, I didn’t say that, I said, it’s a different pool. And no, it’s not as deep as big as well funded – it’s a different pool. It’s a different pool, but there’s plenty of capital out there.

Caitlin Burrows – Goldman Sachs

Thank you.

Art Coppola

Thank you.

Operator

And that’s all the time we have for questions today, Mr. Art Coppola, I’ll turn the conference back over to you for additional or closing remarks.

Art Coppola

Okay. Thank you very much for joining us. We’re really looking forward to a great year and looking forward to seeing you also. Thank you very much.

Operator

And that does conclude our conference today. Thank you all for your participation.

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