Simon Property Group Inc (SPG) — Q4 2016 Earnings Call Transcript

Thank you, Bridget. Good morning and thank you everyone for joining us today. Presenting on today's call is David Simon, Chairman and Chief Executive Officer. Also on the call are Rick Sokolov, President and Chief Operating Officer; Andy Juster, Chief Financial Officer; and Steve Broadwater, Chief Accounting Officer. Before we begin, a quick reminder that statements made during this call may be deemed forward-looking statements within the meaning of the Safe Harbor of the Private Securities Litigation Reform Act of 1995, and actual results may differ materially due to a variety of risks, uncertainties, and other factors. We refer you to today's press release and our SEC filings for a detailed discussion of the risk factors relating to those forward-looking statements. Please note that this call includes information that may be accurate only as of today's date. Reconciliations of non-GAAP financial measures to the most directly comparable GAAP measures are included within the press release and the supplemental information in today's Form 8-K filing. Both the press release and the supplemental information are available on our IR website at investors.simon.com. For prepared remarks, I'm pleased to introduce David Simon.

Good morning. We had strong results to wrap up a very good year. We completed and opened several new developments and redevelopments. We successfully executed several capital market transactions, further increasing our liquidity, extending our average term, and reducing our average weighted interest cost, and we continued to achieve strong financial results. Our full year 2016 FFO per diluted share was $10.49, which includes a $0.38 charge for the early redemption of our 10.35% notes. On a comparable basis, full-year FFO per share was $10.87 and increased 9% year-over-year. We once again delivered compelling FFO growth and we have achieved a compound annual FFO growth rate of more than 11% over the last three years and 13% over the last five years. The $10.87 exceeded our initial guidance range of $10.70 to $10.80, even after the impact to our FFO of the $0.08 charge we recorded in the fourth quarter due to our decision to postpone the construction of the Copley Residential Tower. We are excellent project managers and had obtained 14 out of the 15 required approvals needed to proceed with the tower and expected to get the last one, but unfortunately, the goalpost kept moving. The change in the project approval dynamics and the uncertainty of receiving the last approval, combined with the rapidly rising construction cost and our heightened concern about supply in the Boston residential market, prompted us to postpone the project and take the charge. While write-offs of development costs can occur in the real estate business, it is rare for us to experience a charge of this size and we're not pleased about it. For the fourth quarter, FFO of $2.53 per share includes the $0.38 per share loss on the extinguishment of debt. On a comparable basis, excluding the debt charge, but including the $0.08 charge of the Copley Residential write-off, FFO per diluted share increased 6.6% year-over-year and comparable FFO per share growth would have been 9.5% without the Copley charge. Moving on from our results, now could be the time on the call where I could go into a lengthy philosophical discussion on the popular misconceptions about the mall business, created by the never-ending current public narrative. And I could counter that by pointing that we have 434 department stores in our portfolio, and only one is vacant, and how in the recently announced department store closings, we have only one closure in our portfolio, or how we have added more than 275 sit-down or quick-service restaurants, more than 20 entertainment concepts, and more than 80 big box tenants across our portfolio over the last four or five years, or how we've added mixed-use components to our centers in the last several years, we have built 10 hotels and residents representing nearly 3,000 units, or how according to a recent survey of Generation Z members, a group that outsizes Millennials, 70% of those surveyed visit the mall at least once a month and visit more than four stores during the visit, or how consumers still like to shop in stores because they want to touch and feel the products before they make a final decision, or how online retail sales have grown to less than 10% of total retail sales, and that the retailers who occupy our centers represent approximately two-thirds of those total online sales, or how leading e-commerce retailers, like Warby Parker, Blue Nile, UNTUCKit, Shinola, among others, are opening physical stores because the inherent advantage a physical location provides as well as being a natural extension to the digital world, or how basket sizes are higher, return rates are lower in stores compared to online purchases, and margins are much higher in the store than they are on the Internet, or how emerging brands like GUIDEBOAT, NIC+ZOE, Peloton, to name a few, continue to see the mall as the launch pad to build their brand awareness, as a result of the significant traffic they experience being at the mall, much like Apple or Microsoft did several years ago, or how we are making all these changes and enhancements to our center even though Congress has tilted the scale towards e-commerce by not implementing the Marketplace Fairness Act, which does not require the sales and use tax to be paid by consumers who buy products online, even though they are required to do so under existing laws. But I could do that, but I won't, because we've talked about that all before, so I'd rather focus on what we do and how we do it, and that is we reinvest in our properties, making them the best centers in their respective markets. We grow our earnings, we generate excess cash flow, we pay higher dividends, and we achieve all of this while maintaining the industry's strongest balance sheet. That's our model and that's what we do for the benefit of our shareholders, our communities, and our retailers. We continue to record solid key operating metrics and grow our cash flow. Over the last six years, we have doubled our dividend from $3.50 in 2011 to an expected payout of at least $7 this year and increased our annual cash flow after distribution by more than 20% from $1.2 billion to $1.4 billion, even after having taken into account the loss of cash flow from the spin-off of WPG. We continue to see strong demand for space across our portfolio. Our malls and premium outlets occupancy ended the year at 96.8%, 70 basis points higher than year-end 2005 and near historic high levels. Leasing activity remains solid, with the malls and premium outlets recording leasing spreads of $7.82 per square foot, an increase of 12.7%. In our supplement this morning, we have provided new information regarding our leasing spreads. Our new disclosure is based upon an open and closed methodology, excluding less than one year terms and captures a higher percentage of our leasing activities than our previous calculation, with over 8 million square feet of annual leasing activity included. Our base minimum rent was up to $51.59, which was up 5.4% compared to last year, reflecting strong retailer demand for our locations. Total portfolio NOI increased 6.7% or more than $380 million for the year. Comp NOI increased 3.8% for the quarter and 3.6% for the year. Comp NOI growth was impacted by more than $30 million decline in overage rent for the year due to the lower sales volume at our tourist-oriented centers. This lower overage rent impacted our comp NOI growth by approximately 60 basis points for the year and to put this all in perspective, which we think is important. Over the last five years, our comp NOI has increased an average of 4.4% per year and our annual comp NOI has increased by $1.2 billion since 2012. Now let's talk about reported retailer sales at our malls and outlets, which were $614 per foot compared to $620 per foot in 2015. Sales per square foot for our combined malls and outlets increased in each successive month during the fourth quarter, reflecting consumers' strong interest in holiday shopping at our centers. Reported retailer sales continued to be impacted by the strong dollar at some of our tourist-oriented malls and outlets. Excluding the impact on those centers, sales per square foot was flat for the year. We are the industry leader in gift card offerings and productivity. In 2016, we achieved record gift card sales with a 14% year-over-year comp growth. Consumer interest in our gift card program is a really good indicator of traffic to our centers. And these sales support our view that traffic was up in our centers for 2016. Quickly on redevelopment, at the end of the fourth quarter, redevelopment and expansion projects were ongoing at 29 properties across all three platforms, with our share of the net cost at approximately $1.1 billion. We completed a number of strategic developments in the fourth quarter and we'll complete a number of transformations throughout 2017, including The Galleria and La Plaza Mall, College Mall, and a new development. We opened two new projects in the fourth quarter, which promise to be great additions to our portfolio. First of all, Clarksburg Premium Outlets had the strongest open of any premium outlet in a long time. Shoppers swarmed the D.C. area's new premier home for outlet shopping, and Brickell City Centre in Miami opened in the fourth quarter. We believe it's a landmark mixed-use development offering an unparalleled shopping, dining, and entertainment experience. Construction continues on another full-price development in Fort Worth at Shops at Clearfork, which is anchored by Neiman. We also have five new outlets under construction, one in Norfolk, Virginia; four in the international markets, France, South Korea, Malaysia, and Canada, all scheduled to open this year. At the end of the fourth quarter, our share of investment at these six new development projects was $506 million. Now let's talk about our fortress balance sheet, which continues to differentiate us compared to our peer group. 2016 was the first year that our annual fixed charge coverage was over 5 times. We completed three senior note offerings during the year totaling $3.8 billion, with an average weighted coupon rate of 2.86% and a weighted average term of 11.4 years. The $3.8 billion is a record amount of notes we have ever issued in a single year. We also retired five series of senior notes comprising $1.9 billion at a weighted average coupon of 6.5%. We completed 27 mortgage loans with a weighted average interest of 3.67% and 9.4 years respectively. Our share of these mortgages was $3 billion, another record amount in a single year for us and contrary to media reports about the inability or ability to finance malls. Our current liquidity stands at $7 billion. We also repurchased 1.4 million shares of our common stock for $255 million in the fourth quarter. Dividend, we have paid a record dividend in 2016 of $6.50 per share and have achieved a compound annual growth rate of 12% over the last three years. Today we announced a dividend of $1.75 per share for this quarter, a year-over-year increase of 9.4%. As I mentioned previously, we expect to pay at least $7 per share in 2017, which will be an increase of 7.7% compared to 2016. Finally, guidance, our 2017 guidance range is $11.45 to $11.55. This range represents approximately 9% to 10% growth compared to our reported FFO per share of $10.49 in 2016, or 5.3% to 6.3% compared to our comparable FFO per share of $10.87, which, without question, will be the high end of our peer group. Once again, our range is based on the following assumptions: comparable NOI growth for our combined mall, premium outlet, and mills platform of 3%, no plans for disposition activity, a rising interest rate environment, the impact from a continued strong U.S. dollar versus the euro and yen compared to 2016 levels, including the translation impact of our international operations, and the impact on domestic spending by international tourists and a diluted share count of approximately 361 million shares. And we're now ready for your questions.

Thank you. I was wondering, your redevelopments, you have previously said, you think you can spend $1 billion through 2018? Does it look like if you go past that 2018 and still continue to spend that $1 billion a year?

Craig, I think the answer is most likely. Obviously, we do expect to redevelop a lot of the Seritage joint venture projects over time. And there may be other department stores. But I think we feel reasonably good about that kind of number. But we're going to also – look, I think the most important thing that we've done for ourselves and probably I could say for the industry is we've invested in our product. We are in the physical real estate business. And by having a good product, well-tenanted that looks and feels good, we think drives traffic and we think helps our retailers and our consumers. So we'll continue to invest in our projects because we know it pays dividends, literally and figuratively.

Okay. And then you touched on the international shopper, I mean, is that shopper plateauing—not plateauing but leveling out, stabilizing? And should we think of 2017 increase in percentage rent relative to the amount collected in 2016?

Well, we're being relatively conservative. I mean, it's impossible to project what's going to happen with tourism and the dollar vis-à-vis the yen or the euro or the real in terms of South America, so we're taking our best estimate. Obviously, we've experienced a lot of volatility in that area. These are great assets that we want to own for the long run. But we are suffering a little bit of extra volatility. I think we did see a plateau in the fourth quarter, Craig, as evidenced by our sales increase in each and every month. It was below the 2015 levels, primarily because of that tourism spend, but it is starting to get a little better. I think you've seen a number of the luxury players announcing better results, but it's just a volatile world—volatile market—and we do our very best at projecting what we think it is. And that's our number and we're kind of more cautious than anything at this point.

Okay. Thank you.

Sure.

Hi. Good morning.

Good morning.

Just on the lease spreads, you changed the reporting and I get your reason in terms of it being a bigger chunk of the activity. I mean, it still kind of shows a drop year-over-year. And I'm wondering, I mean, if you were to have reported it on a kind of the same basis, would it kind of have been comparable to the 10.9% you had last quarter and how should we think about next year?

Yeah. I figured you would ask that and it would be an 11.7%. But let me take a step back, because I think this is really – so Paul, it would be an 11.7% spread, okay. That's the answer to your first question. But let me explain to you how we think about our business. We run our business for cash flow growth, NOI growth. Okay. And the metrics spit out but we don't manage our business for metrics. So, when the market reacted to our leasing spreads, we said, well, we kind of have a feel for them, but that's not how we run the business, we run the business for cash flow growth. Obviously, that's been a pretty good strategy because we've grown our comp NOI by $1.2 billion over the last four years, five years, guys. So, that strategy that I've had about growing our cash flow and focusing on comp NOI has been pretty effective because $1.2 billion is bigger than most REITs. I don't even know how many REITs have $1.2 billion of NOI. So, put that aside. So, we were looking – boy, the market reacted to these spreads, what is it? So we did some research. And I'll give you a small example. So, we have a—because it's same space to same space is how we historically calculated our spreads. So, we're picking up, as an example, taking back a Forever 21 box in St. Johns mall, okay, which was, I don't know, 15,000 square feet thereabouts. We split it up into three rooms, Tesla, Apple, what was the third? Tory Burch. We had huge rent spreads, but because it wasn't same space to same space, for whatever strange reason, it wasn't in our numbers, okay. So we said, look, one of the goals that we're going to do to run our comp NOI is try to downsize as many of the retailers to increase their productivity and to put in as many tenants as we can in these great malls because we’ll get more productivity, which could lead to higher rents. But because it wasn't same space to same space, it's not going to be in the spread. So we went back to 2015 and did it based on the new calculation. We're going to be doing it for 2016 in total. And I gave you the number for what it's been under the old methodology, but we think, this is better. And it will pick up the ability for us to do what we do best, which is grow our comp NOI. As I mentioned to you, that's what I focus on, that's what we do. When we sit and go through the mall, we don't talk lease spreads, we talk about how we're growing the cash flow. And we've had this discussion, we had this discussion on tenant sales one year, we had the discussion on occupancy one year, now, it's lease spreads. My friend, we focus on cash flow growth. Now that's allowed us to increase our comp NOI by $1.2 billion and increased our dividend from $3.50 to $7. I don't know, what else I can tell you.

That was very helpful. And just a quick follow-up on Sears. You mentioned how you have almost no anchor vacancies in the portfolio and a little exposure to the closings that have taken place. Obviously, there is kind of speculation about maybe a larger volume at a faster pace coming back. Maybe you could just give a little bit of color on how something like that might play out in terms of your portfolio even if it's maybe a longer-term positive, what would kind of be the short-term dislocation and kind of what do you think it would look like in terms of backfilling space?

Well, let me just – without. Let me tell you why we've been able to grow our comp NOI is because we believe in our product and we invest in our product. And I think what we have seen from some in the retail world is, they're not investing in their physical stores and they're investing more online, and the margins online are not what they are in the physical environment. And so, if they're not keeping up with our – the bargain that we're doing, we have – we'd love to get the space back and redevelop it. And so, we're prepared for any and all scenarios. Hopefully, they will invest in their stores, but if they don't, we'd rather take them back and redevelop it. But Rick – I'll let Rick add to that as well.

One of the things that we are doing, have been doing and will continue to do is we have a constantly updated grid on all the boxes that are interested in each of our properties and we know exactly where we can accommodate them based on the opportunities that present themselves. David mentioned in his comments, we've replaced over 80 of them in the last five years. We're ready, we've done it on a disciplined basis. All you have to do is look in our 8-K in every quarter, you're going to see all that activity; it's continuing and we are ready to do it. And in virtually every instance, where we have replaced an anchor, we've increased our sales, increased the number of reasons that people come to shop our properties and we've made good returns on our capital.

Great, thanks.

Thank you.

Hi, good morning.

Good morning.

David, just related to your comments regarding managing the business for cash flow, in terms of your approach to the leasing environment today. On one of the last calls you talked about your experience with Aéropostale and PacSun and maybe not offering as much rent relief going forward as you did in 2016 and just letting stores close. And so with a lot of retailers out there today talking about store closures, just wondering what your thoughts are on managing that process today and are you seeing more requests for rent relief than you did a year and two years ago. Just trying to piece together the noise and versus what you're actually hearing.

Yeah. Sure. I think that it's – Christy, I think it's safe to say we're seeing more requests for rent relief. And I wish there were like—we're certainly prepared to look at it as leases expire. However, we're not going to go into 2018s, 2019s, and 2020s for retailer who wants to do that. And the fact of the matter is, our view of it is, a lot of times they ask and you certainly don't lose anything by asking. So we deal with it at least expiration and it really is a case-by-case basis. But I'll tell you a fascinating thing that I've learned at Aéropostale with the Aéro investment. So and it's just the dynamic of Wall Street, retailers, chasing Internet sales, there is a whole philosophical discussion that will take too long on this call to do. But one thing at Aéropostale that I learned is that that management team could produce higher levels of profitability, higher gross margins if they didn't have the Wall Street constraint on worrying about comp NOI or comp sales growth. I.e. they could generate more cash flow because they're not worried about posting a comp sales number that's below market expectations. Well, I'm a business guy, okay. And I kind of like cash flows. So we've got this Aéropostale and we're still in a turnaround and I don't really know how it's all going to work out. But it's like the management team has been unleashed in terms of how to run their business for profitability because they have no concern about posting a comp sales number that Wall Street wants to see. I'm not damning Wall Street, but the reality is sometimes it's okay, just to think about cash flow. And obviously, there are other metrics that people are more interested in. But we sat down and we focused on return on equity, cash flow growth, I mean, I think we'd see different dynamics from the retail community than what we have. But getting back to you, so the point is, if there is a lease action, i.e. an expiration, it's a case-by-case or more people are asking about it than they were maybe a couple of years ago, the answer is yes. We did experience fewer store closures last year than we did in 2015, the way we had suggested we would, that's why our occupancy went up, but I'm not going to sugarcoat it, the retail environment is not robust; it's dog-eat-dog right now.

Okay. And then, with percentage rent still trending down a lot year-over-year, I'm just wondering is that decline still only being driven by sort of the pressure from international tourist spend or is there another point of weakness there? And as you think about 2017 and your 3% store NOI growth, what impact are you expecting from any further decline in percentage rent, should we start to see that impact to be?

Well, I'm hoping it would stabilize. The reality is it's only because of this—the strong dollar and the tourism spend. It's—we've studied it. Look, there could have been—we have—I think the other thing to keep in mind is we have energy-oriented assets, Oklahoma, Texas, we have the peso, so I mentioned the euro, I mentioned the yen, but you throw in the peso, you throw in the Canadian dollar, I love that, all again, the energy market, that all had an impact on overage. I'm hoping the energy market is a little more stable. Obviously, the dollar—the currency is going to be a volatile year. We did our best guess—we estimate every tenant and whatever, we have a formula that does it. But I mean, it's more of an art, not a science; we'll see. But that's the sole impact; it's only because of the dollar and tourism.

Okay. And then just one final point of clarification on the re-leasing spreads just because we get asked about it a lot. With the change in methodology, is the rent relief that you granted last year still in the calculation or no?

Yes.

Okay. Thank you.

Hey, good morning.

Good morning.

Good morning out there. Just a few questions here, David. First, obviously, we all read Internet, newspaper, whatever medium it is, and you hear all the retailers making noise. But in practicality, in your experience, you mentioned fewer store closings last year than 2015, how much sabre-rattling is there among the retailers to say hey, we're closing stores versus when you guys get in there, their talk is different?

Well, I think it all depends upon what point are they in their financial equation. Look, I think—and again, this is more philosophical, but what we'd like to see from the retail community is a dedication back to improving the store environment. We think a lot of the capital that has been put forward has been to chase Internet sales; a lot of that has been done through promotional efforts. And between that and the promotions required to get them to buy online between the cost of shipping and the returns, it's not a great model for them. And we think it would be—and we've done so much to drive traffic in our centers, we've got decks that all these retailers, we've sent out to them. We did a couple of tests in middle market malls about what we can do; we put in an ice skating rink, we did concerts, we've done so much to drive traffic to the mall, to the store. We think, if they could pivot somewhat, it would do everybody a world of good. And at the end of the day, it is more profitable for them by and large—I'm sure there is a retailer here or there that would argue this. But it is much more profitable for them to have that transaction happen at the store, okay. And I just think there needs to be a pivot back towards that. And then I think it would be better for everybody's business. With that said, I mean there is a lot of noise; we're going to have to kind of go through the noise. I won't tell you though, Alex. I mean, the business is—we're growing now, we're pros at grinding; nobody does it better, nobody has ended up at the end of that grinding in a better spot than we have. We've done some of our best work in those grinding moments. We've got the group and the management team and the personnel. We don't have turnover; we're Midwestern roll-up-your-sleeves folks, and it's not as much fun but we get the job done. I mean, look at our balance sheet; $7 billion of liquidity, 5.0% of no floating rate debt, we did the most financing ever last year, so we got to deal with it. Don't really know how it will all shake out while we've been relatively conservative on our comp NOI, but that's not to say we don't have work to do to achieve that. Because I don't want to sugarcoat anything here; I mean we're in a—the retailer have to pivot in my humble opinion, what do I know, but in my humble opinion, they need to pivot a little bit and we're trying to encourage them to do that, but we'll see if we have any success in that. You know what I'm saying, Alex?

Yeah. No, absolutely, I don't think anyone would ever say that you sugarcoat stuff. So, no I think it's clear. More to that point though, the department stores seem to get a lot of headlines when they announced – Macy's announced. You guys mentioned 80 boxes backfilled and that you have plans for basically all of them. Do you think that there is an ability to see just acceleration of conversion of department stores, or based on supply and demand you actually don't want that many back at any one time? The pace that we're seeing right now, whether it be a Seritage or Macy's or whoever the department store chain is, the current pace that we're all seeing is actually the right pace to maximize supply and demand, or do you think that you can increase that to get at more?

Well, I think we've always shown that we'll—prune. So, it is very likely that we'll sell additional assets throughout the year. But we're not—I do not believe in selling. You have to understand, I'm maybe a little bit different. But I look at the present value of the cash flow stream first when I decide whether we should sell or not. Obviously, we think the mall or the asset's going away, then that present value, you can get a little premium to the present value of that stream, it can go away. But we don't sell assets, because of my help or sales per square foot go up or down. I look at cash flow. That's worked for us, because—I mean, look at our balance sheet, look at our NOI growth, look at any metric you want to compare us against; nobody in this industry has done that. So that kind of strategy has worked. But we still have assets that probably don't fit in our long-term view point and if we can make a decent trade, we will. But we're not going to be—we're not going to give away stuff just because we think it might help our metrics.

One of the things we are doing, have been doing and will continue to do, is we have a constantly updated grid on all the boxes that are interested in each of our properties and we know exactly where we can accommodate them based on the opportunities that present themselves. David mentioned in his comments, we've replaced over 80 of them in the last five years. We're ready, we've done it on a disciplined basis. All you have to do is look in our 8-K in every quarter, you're going to see all that activity; it's continuing and we are ready to do it. And in virtually every instance, where we have replaced an anchor, we've increased our sales, increased the number of reasons that people come to shop our properties and we've made good returns on our capital.

Okay, Rick. Thank you. Thanks, David.

Thanks, Alex.

Hey. Good morning out there.

Good morning.

It's out here. We are out here.

As you've got more of these anchor boxes back, F&B has played an increasing role in terms of some of the re-tenanting of those spaces. I was wondering if you could talk strategically about your desire to add more F&B. How do you weigh the credit risk versus doing more traditional in-line, maybe just framing out how much of the portfolio is F&B today versus where you see it growing?

Well I would say—yeah, one of the best things that we've done, we—the industry has done is add a lot better restaurants over the last five years. And I think we've added, what, 275 was the number over the last five years. So we think that's a trend to continue. We think one of the best things that we've seen in terms of our entrepreneurial focus has been on the F&B side and not only that, but also on the entertainment side. Like what we're doing at Clearfork, what we've done with some of the mills boxes. I think that's a trend; I don't have the exact percent that we've increased it from X to Y. We can get that for you; I don't have it in front of me. But it's clearly been a meaningful increase. And we do think, as some of these like Seritage joint ventures and even if we get some of the other department store boxes back, part of that will be to add F&B to add entertainment. But also, and I said a lot in my remarks, and I'm not very eloquent, so I stumble over most of my words, but I mean we did add 3,000 units. I actually had us double-check that because I said, let's add that in our text, between apartments and hotel keys, we added three units over the last few years. So we do think it's also—we know we failed at Copley and I'm not happy about that, is a mea culpa there. But the fact is we've added 3,000 units, which is not all profitable other than the Copley experience. And we think a lot of that, that this stuff will be mixed-use as well. So it will be probably generally away from just pure apparel. If you see what we're doing in McAllen, when we took the Sears box down, we are adding like traditional retail, but the front of that will be five—four or five restaurants?

Five restaurants.

Five restaurants kind of front of the mall there. So I think that's going to be an absolute; continue a trend and we're seeing more and more exciting concepts like—look, Shake Shack came out of nowhere four, five years ago, great operator, great company, great people to do business with. But we're seeing more and more of that creativity coming in that whole category.

And, Jeremy, let me just say, it's not only just adding restaurants, but I encourage you to go out and visit the Westchester and Roosevelt Field and King of Prussia, and look how we are transforming the environment in which these food operators are conducting business in our properties; greatly enhanced seating areas, entertainment areas, play areas, you name it. So with a much more sophisticated environment, which we know will extend the stay of our shopper and attract a more affluent shopper, because they are more inclined to spend time in the environments we're creating.

Appreciate it. And would that include adding grocery stores at any point?

Sure. I mean, we added Wegmans recently. We're under construction with 365, which is a Whole Foods product, and there is a bunch of other activities in that whole area. So we think that's a nice mix to add to.

Appreciate that. And if I could ask one more. I mean, in the opening remarks you mentioned no dispositions in 2017. Just given some of the commentary about the increased pressure in retailers, there is a secular change we are seeing in shopping online. Does this alter your view at all on the appropriate size of the portfolio long term and strategically make you think about possibly considering for any more assets from you?

Look, I think we've always shown that we've—we'll prune. So, it is very likely that we'll sell additional assets throughout the year. But we're not—I do not believe in selling. You have to understand, I'm maybe a little bit different. But I look at the present value of the cash flow stream first when I decide whether we should sell or not. Obviously, we think the mall or the asset's going away, then that present value, you can get a little premium to the present value of that stream, it can go away. But we don't sell assets, because of my help or sales per square foot go up or down. I look at cash flow. That's worked for us, because—I mean, look at our balance sheet, look at our NOI growth, look at any metric you want to compare us against; nobody in this industry has done that. So that kind of strategy has worked, but we still have assets that probably don't fit in our long-term view point and if we can make a decent trade, we will. But we're not going to be—we're not going to give away stuff just because we think it might help our metrics.

I appreciate the color. Thanks.

Sure.