Michael Fitzmaurice – Vice President of Finance Steve Grimes – President and Chief Executive Officer Shane Garrison – Executive Vice President, Chief Operating Officer and Chief Investment Officer.

Todd Thomas – KeyBanc Capital Markets Kitty McCall – Citi Jay Carlington – Green Street Advisors Michael Mueller – JPMorgan Vincent Chao – Deutsche Bank Chris Lucas – Capital One.

Greeting and welcome to the Retail Properties of America Second Quarter 2015 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Michael Fitzmaurice, Vice President of Finance. Thank you sir, you may begin..

Thank you, Operator and welcome to Retail Properties of America Second Quarter 2015 Earnings Conference Call. In addition to the press release distributed last evening, we have posted a quarterly supplemental package with additional details on our results in the Investor Relations section on our website at www.rpai.com.

On today's call, management's prepared remarks and answers to your questions may include statements that constitute forward-looking statements under Federal Securities Laws. These statements are usually identified by the use of words such as anticipates, believes, expects and variations of such words or similar expressions.

Actual results may differ materially from those described in any forward-looking statements, included in our guidance for 2015 and will be affected by a variety of risks and factors that are beyond our control, including, without limitation, those set forth in our earnings release issued last night and the risk factors set forth in our most recent Form 10-K, 10-Q and other SEC filings.

As a reminder, forward-looking statements represent management's estimates as of today August 5, 2015 and we assume no obligation to update publicly any forward-looking statements whether as a result of new information, future events or otherwise. Additionally on this conference call, we may refer to certain non-GAAP financial measures.

You can find a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP numbers and definitions of these non-GAAP financial measures in our quarterly supplemental package and our earnings release, which are available under Investor Relations section of our website at www.rpai.com.

On today’s call, our speakers will be Steve Grimes, President and Chief Executive Officer and Shane Garrison, Executive Vice President, Chief Operating Officer and Chief Investment Officer. After the prepared remarks, we will open up the call to your questions. With that, I will now turn the call over to Steve Grimes..

Great. Thank you, Mike and welcome everyone to our second quarter earnings call.

I am very pleased with what we have accomplished this quarter as we continue to position RPAI for meaningful long-term value creation for our shareholders by delivering on our operational and strategic objectives in addition to making ongoing enhancements to our operating platform and leadership team.

To begin, as recently announced and after completing a thorough search process, I want to welcome our new CFO Heath Fear to our team.

Heath comes from General Growth Properties and brings an extensive knowledge of capital markets and public REIT operations in addition to an outstanding reputation within the industry, making him an excellent complementary addition to the executive team.

He is an ideal person to be our next CFO and he will be an integral part of the executive leadership team as we continue to execute on our portfolio and balance sheet strategy.

Heath will begin at RPAI on August 17 and we look forward to all of you getting to know Heath in the coming months and are very confident he will have an immediate positive impact on the company. Moving on to portfolio repositioning strategy.

We are making substantial progress toward our goal of transforming RPAI into a dominant owner of Class A shopping centers in some of the most sought after markets in the country, well ahead of our initial expectation.

We are successfully exiting our non-strategic markets and redeploying that capital into high quality, strategically located assets in our target markets. Year-to-date we have made extraordinary progress in several of our core markets, including the D.C./Baltimore corridor as well as Seattle, Austin and Dallas MSAs.

In aggregate we project adding an additional 1.2 million square feet to our core markets in 2015.

Looking back to our Investor Day strategic plan announcement in 2013, we have expanded our footprint in our 10 target markets by approximately 3.4 million square feet and decreased our exposure to non-strategic markets by approximately 6.2 million square feet.

To provide additional transparency around our repositioning progress, we added a new disclosure to our supplement, which can be found on page 13.

Here we show occupancy and ABR detail for each of our target markets and as you will see almost 60% of our multitenant retail ABR is now comprised of assets situated in our target markets, as compared to just 43% of the time of our long-term strategy announcement.

Our portfolio and our target markets consists of 79 shopping centers within ABR per square foot of approximately $18. The 3 mile demographics are compelling with weighted average population of 153,000 and an average household income of $96,000.

By nearly any measure, this core portfolio is impressive and indicative of what to expect in quality as we continue to execute on our portfolio repositioning plan.

Our transformation is not limited to just our portfolio, given the progress we have made on our target market focus strategy, we have realigned our operating platform to better match the geographic location of our assets by creating an eastern and western division.

We believe that this operating structure will further enhance timely decision-making and allow our team to operate in a more agile and efficient manner.

We have hired Tim Steffan to be President of the Eastern Division where he has direct oversight over 16 million retail square feet and multiple disciplines including asset management, leasing, property management, property marketing and development.

Tim brings a wealth of industry experience to our company and most recently served as Senior Vice President at Macerich where he oversaw asset management and leasing for the company's eastern region and the redevelopment of Tysons Corner Center in the Washington, D.C. MSA.

Given the large majority of our current redevelopment opportunities there in the Eastern division, we believe Tim's experience with creating value through large-scale mixed-use redevelopment and local knowledge will help drive value as we began several redevelopment and densification projects in the coming months including Tyson Circle and Boulevard at Capital Centre both located in the D.C./Baltimore corridor.

As Tim's counterpart for the Western division, we have promoted Gerry Wright who will have oversight of approximately 14 million retail square feet. Gerry has been with RPAI for over seven years, previously serving as our Senior Vice President of Asset Management.

Gerry has amassed over 25 years experience in various senior level asset management roles and his promotion is an indication of the bench strength we have here at RPAI. Lastly, as it relates to leadership changes, we have promoted Julie Swinehart to Senior Vice President and Chief Accounting Officer.

Julie will continue to be responsible for the oversight of the company's financial reporting and accounting activity and serve as RPAI's Principal Accounting Officer.

These appointments in addition to Heath are indicative of our ability to attract and retain deep cycle tested talent and we look forward to leveraging their experience in industry relationship as we continue to transform our portfolio.

We are also excited to announce our newest board member Bonnie Biumi who joined our Board of Directors at the end of July. Bonnie brings extensive experience in capital markets from her work as a CFO in the resort and cruise industry. She currently serves on two consumer-oriented public REIT board's for Home Properties and Isle of Capri Casinos.

Bonnie's financial experience and board experience will complement the wealth of knowledge and experience of our other board members. This is our third new board member in the last two years and her appointment represents yet another step we have taken to position RPAI for continued success.

We believe we have demonstrated our commitment and ability to deliver on our strategic vision and we remain focused on where we are headed. When we first announced our long-range strategy approximately two years ago, we anticipated taking 10 years to achieve our goals.

Given the progress we have already made with respect to our portfolio and operating platform and assuming the current pace of success, absent any adverse macro level event, we are confident we can reduce our repositioning goal by two to three years. Turning to our CFO commentary, I'll discuss our second quarter performance.

Operating FFO for the quarter was $0.26 per share, compared to $0.28 per share in the same period in 2014. The year-over-year change in operating FFO was driven by higher same-store NOI, which was offset by higher general and administrative expenses and interest expense.

Including non-operating items FFO was $0.23 per share compared to $0.27 per share in the second quarter of last year. Non-operating items this quarter were largely related to the early repayment of debt of $4.2 million, primarily to effectuate the decision of three properties as well as the executive separation charges of $3.5 million.

Same-store NOI growth was 3.3% in the second quarter, primarily driven by higher rental income in addition to lower net expenses and higher other property income.

The combination of strong contractual rent increases and releasing spreads along with improvements in average same-store occupancy, driven primarily by our continued efforts in leasing small shop space in addition to an increase in percentage rents during the quarter resulted in 270 basis points of same-store NOI growth from rental income.

Also, total operating expenses net recovery income and other property income contributed 60 basis points of same-store NOI growth. This year we have also been aggressive in taking advantage of the positive retail real estate landscape by re-merchandising some of our big-box inventory.

As previously announced, we are taking back 15 boxes in 2015, which is causing and will continue to cause some short-term disruptions to our same-store NOI, but we believe this is absolutely the right step in order to enhance the dominance of our shopping centers over the long-term.

Same-store NOI excluding the impact from our 2015 strategic remerchandising activity was up 4.8%. In total, these 15 boxes represent approximately 537,000 square.

As of the end of the second quarter, 10 of the 15 anchor locations representing approximately 400,000 square feet were vacated with three more representing 87,000 square feet expected to vacate in the third quarter. The final two representing 51,000 square feet expected to vacate in the fourth quarter.

We currently anticipate that 65,000 square feet will be open and operating in the third quarter of this year and an additional 90,000 to 130,000 square feet in the fourth quarter of this year for a total of 155,000 to 195,000 square feet by year-end. Onto the balance sheet.

During the second quarter, we repaid $103 million of mortgage loans at a weighted average interest rate of 6.27% and defeats $15 million of mortgage debt at an interest rate of 7.50%. Subsequent to the quarter end, we repaid $54 million of mortgage loans at a weighted average interest rate of 5.92%.

Net debt to adjusted EBITDA at the end of the second quarter stood at 6.3 times. We continue to expect that disposition proceeds are realized over the course of 2015, they will be used to repay debt and our net debt to adjusted EBITDA at year-end 2015 will again be at or below six times.

Turning our attention to guidance, I would first like to address the key components driving the improvements to same-store and OFFO guidance. First of all, we have even more clarity around the timing and impact of our transactions for 2015 and the effects on the operational and financial performance.

Additionally as noted, we are realizing the results of our remerchandising activity a little earlier than expected and along with these efforts have more clarity on the lease termination fee income and non-cash items we expect from these efforts, which was not taken into consideration in our original guidance.

With half of the year behind us, the effects of our CAM reconciliation and non-recoverable expenses are known and are expected to have little to neutral effect on 2015 performance.

In that regard, we now expect the same-store NOI growth for 2015 will be between 1.75% and 2.75%, representing 100 basis point increase at the midpoint of the range, which is primarily driven by outperformance in the first half of the year.

We continue to believe that our same-store NOI growth rate in the second half of the year will drop in the third quarter and increase in the fourth quarter as our remerchandising efforts are realized, and the net expense improvements will be a less significant contributor to same-store growth for the remainder of the year.

Accordingly, we have also increased our full-year operating FFO guidance to a range of $1.02 to $1.04 per share from the previous range of $0.97 to $1.01 per share, representing a $0.04 increase at the midpoint of the range.

The increase assumes an additional $0.015 of same-store NOI growth achieved in the first half of the year, $0.01 of NOI from transactions timing assumption, $0.01 of non-cash revenue adjustment, $0.01 from termination fees, $0.01 from interest expense savings, which are partially offset by an increase in G&A of a $0.015.

Our updated G&A guidance is $43 million to $45 million, which includes $1.8 million of acquisition cost, but excludes $4.7 million of executive and realignment separation charges.

The increase from original G&A guidance of $40 million to $42 million is $3 million at the midpoint of the range, impacted by the accelerated amortization of restricted stock due to one of our executives reaching the requisite retirement age, but primarily attributable increased incentive compensation due to the changes made to the executive compensation program effective January 1, 2015.

Offset by compensation savings due to executive downtime. The changes to the executive compensation program are largely incentive based, and align compensation for executives with the long-term performance of the company. The range and guidance depicts the potential for incentive compensation under the new program.

And with that, I will turn the call over to Shane..

Thank you, Steve and good morning. Today I will discuss our second quarter operational results and provide an update on remerchandising progress and transactional activity.

We are very pleased with our overall portfolio performance based on some of the most important operational metrics, including leasing spreads and ABR per square foot, which we believe are indicative of the quality of our portfolio.

We are also excited about the substantial progress that we continue to make on our strategic remerchandising initiatives, which I will update for you in a minute. First, I want to touch on our overall leasing results.

Fundamentals remain strong and we continue to see robust demand from restaurants, soft goods, health and beauty tenants and various franchise operators, as evidenced by our small shop lease rate of 86.9%, representing 130 basis point increase year-over-year.

Our small shop portfolio lease rate is approaching our peak of 88%, last achieved in late 2007 and we continue to believe we can exceed that level given our market change in portfolio quality and overall market focus since that time.

During the second quarter, we signed 142 leases representing 782,000 square feet with blended comparable cash releasing spreads of 8.8% comprised of a 7.2% spread on renewals and a 23% spread on new leases.

In aggregate through the first half of the year, we have signed 281 leases representing 1.5 million square feet with blended comparable cash releasing spreads of 7.9% comprised of a 6.2% spread on renewals and 23.3% spread on new leases.

Of the 281 total leases year-to-date, we have executed 83 new leases or approximately 457,000 square feet of space with weighted average base rent of $20.81 per square foot and weighted average unit downtime of nearly two years, representing some of the more difficult space to lease within our portfolio.

These results not only contributed positively to occupancy and drove NOI, but are a testament to the strength of our assets, the desirability of our locations and the ability of our teams to execute.

As expected occupancy was down 30 basis points sequentially to 93%, primarily due to one anchor location that vacated as part of our 2015 strategic remerchandising activities. We are happy to announce that we now have signed seven leases the back fill five of the 15 anchor locations.

These seven leases two of which were non-comparable represent 146,000 square feet with a weighted average comparable releasing spread of approximately 38%. Minimal leasing cost of approximately $19 per square foot and expected weighted average downtime of approximately four months.

In addition, we are in lease negotiations on an additional 115,000 square feet related to five of the anchor locations, with an expected weighted average downtime of approximately 12 months.

To date, we have either sign or are in lease negotiations for approximately 261,004 square feet representing almost half of the square footage we are strategically remerchandising. Users for these locations have been diverse and include discounts soft goods, national wine concepts, dollar stores, arts and crafts and home furnishing.

Based on the tremendous progress, on our remerchandising initiatives, the quality of the space and the overall lack of supply and the strength of the retail environment, we now believe we will achieve weighted average downtime of approximately 12 months and weighted average comparable releasing spreads of low double digits, of which nearly 70% of the space is expected to be comparable.

The remaining portion of the square footage is not expected to be comparable due to a change in lease methodology.

As a result of these leasing efforts and continued portfolio repositioning, we continue to create substantial improvement in total retail portfolio ABR per square foot, which has increased nearly 6% from second quarter of last year to over $16 and is up more than 10% since the announcement of our long-term strategic plan.

We believe this metric is one of the leading indicators of the quality of a portfolio of scale.

As we continue to optimize the quality and geography of our portfolio, we have also seen a significant shift to our mixed-use lifestyle component, which today represents over 21% of our multitenant retail portfolio, compared to 16% at the time for our long-term strategy announcement, just over two years ago.

This subset continues to deliver above portfolio average same-store NOI growth, driven by our aggressive small shop leasing efforts resulting in significant releasing spreads and annual rent growth.

Tenants added to this segment of portfolio within the last year includes Vineyard Vines, Lily Rain, Bluemercury, Apple, Kendra Scott Andrew Scott, True Religion as LEDA, Elaine Turner, HMK, Boston Proper, lululemon, on Trader Joe's, Del Frisco's and Snap Kitchen.

Turning to transactional activity market for institutional quality shopping centers continues to be competitive with strong demand from investors in a limited number of properties within our target markets that are available and meet our criteria.

However, because of our scale and presence locally in our target markets, we continue to be successful in regards to sourcing off market transactions. We have been very effective with this approach, specifically in the Washington, D.C., Baltimore corridor and Seattle, where have gained significant critical mass this year.

During the quarter, we closed on the acquisition of Tysons Corner for $32 million in Washington, D.C., MSA representing the fourth acquisition we have made in D.C. since the beginning of the year, resulting in an expansion of our D.C./Baltimore footprint by over 600,000 square feet to approximately 3 million square feet today.

Additionally, we closed on the previously announced acquisition in the Seattle MSA, Woodinville Plaza for $35 million and remain under contract to acquire an additional multitenant retail asset in Seattle for $18 million. Both our grocery anchored centers and are located in affluent, high barriers entry markets.

Including these acquisitions, our footprint in Seattle will be over 1.2 million square feet at your end, representing an approximately 360,000 square foot increase, since the beginning of 2014 and making Seattle our fifth largest market within our portfolio, based both on GLA and ABR.

In total for 2015, we have announced or closed $457 million of acquisitions, which represent high quality strategic assets with compelling demographics and strong long-term growth potential to have a weighted average ABR per square foot of approximately $21.

These properties have weighted average household income of $129,000 and weighted average population of 101,000 within a 3 mile radius. These metrics are indicative of the quality of the progress we continue to make as we edge closer to our ultimate goal of a 10 to 15 market portfolio.

With respect to dispositions, we continue to sell non-strategic assets as we reach the midpoint of the year. During the quarter, we sold eight properties for $119 million and subsequent to quarter end we sold three properties for $78 million.

Under contract we also have eight additional properties expected to be sold during the third quarter or $217 million. Year-to-date, we have completed or are under contract for $451 million comprised of 16 non-strategic retail assets and five office assets.

Lastly we now have one remaining single tenant office asset having completed over 9 square feet of office and industrial asset sales or nearly 90% of this pool, most of which requires substantive lease extensions and restructuring in order to maximize value.

As a result of our transaction progress to date, we are increasing our acquisition guidance to $450 million to $475 million from $4 million to $450 million. We continue to expect the year one cap rate on acquisitions will be in the low 5 range.

Additionally, we are raising our 2015 disposition guidance to a range of $5 million to $550 million from $500 million and still expect the weighted average cap rate to be in the low end of the previously provided 7 to 7.5 cap range.

In conclusion, we continue to drive dramatic transformation with minimal disruption of our portfolio and platform, which has enabled us to significantly advance our goal of becoming a finite 10 to 15 market company.

In that regard, we are on track end 2015 with over 60% of our multitenant retail ABR in our selected target markets, along with a significant shift in tenant concentration, quality and overall portfolio growth. And with that I would like to turn the call back over to Steve..

Thanks Shane. It goes without saying that this was a very eventful quarter, full of progress and clarity around our 2015 and long range initiatives. As I mentioned earlier, our strategic vision and our focus is paying off with better-than-expected results.

I continue to applaud our team's commitment and effort on driving long-term value for our shareholders and thank them for their unwavering efforts. And with that, I will turn the call over to the operator for questions..

[Operator Instructions] Our first question comes from the line of Christy McElroy with Citi. Please proceed with your question..

Good morning, this is (Kitty McCall) on for Christy.

Can you discuss what factors could get you to the high or low end of the new same-store NOI guidance range? How much of an impact do you expect to remerchandizing could have in the back half of the year?.

That's a fair question, this is Steve Grimes talking. With respect to the movement in the same-store range, the 100 basis point is the midpoint of the range; we're really expecting that that increase is primarily attributable to rental income improvements to the tune of about 80 basis points and then about 20 basis points of expense savings.

As we've gone through the realignment and have better clarity on the expenses for the balance of the year. With respect to kind of the expectation quarter-to-quarter, obviously we expect a bigger trough in Q3 as a result of the remerchandising activities taking full effect in Q3.

But as we had mentioned about 175,000 of spaces coming back online in Q4, so we expect a little bit of an uptick from the Q3 results from the remerchandising activity affecting same-store for the balance of the year.

So we do expect that the midpoint of the range obviously is pretty safe at the 100 basis point improvement and again largely attributable to rental and improvements to the tune of 80 basis points and 20% or 20 basis points coming from expense savings..

Thank you. Our next question comes from the line of Todd Thomas with KeyBanc Capital Markets. Please proceed with your questions..

Hi, thanks good morning. First question and apologies if I missed some of this in the commentary upfront. But as you look ahead to backfilling the remaining eight anchor boxes.

What's the timeline to get those re-tenanted? Do you think that you might have at least signed for the remaining space by the end of the year or additional leasing at this point will most likely bleed into 2016?.

This is Shane, good morning. I our assumption again is average downtime of 12 months to date we're four months, so I think we've exceeded early, both in relative timing and comps. I think we have strong activity on the remainder of the space we've taken back today.

But I think the expectation is a few of the boxes will certainly push through into beginning of '16 in this case..

Okay. And then Shane, you mentioned that the mixed use and lifestyle centers comprise roughly 21% of the portfolio and that that portion of the portfolio is performing above average or did in the quarter.

Where do you take that exposure to in the portfolio? What's the right concentration for lifestyle and mixed-use centers?.

It's a good point. I think historically we have talked about configuration and how we think about allocations in that regard. We don't buy by configuration, we buy the best real estate we can and hopefully optimize and add density over time.

So based on what we're seeing today, we certainly expect our mixed-use footprint to continue to increase and that will be through acquisition efforts and additionally redevelopment efforts internally..

Okay.

Are you able to disclose what the same-store NOI growth was like for that segment on the portfolio? What that delta was like relative to the overall portfolio?.

Yeah, for the quarter we were somewhere between 4% and 5% for mixed-use segment..

Okay.

And then with regard to the Zurich office tower any update there?.

No real update, you know I talked about in the prepared remarks we've addressed 90% of the single tenant office and industrial portfolio. When I look back on comparative quality, this is arguably the best asset in that pool. So we are very comfortable with ultimate resolution here.

The submarket market, northwest corridor still has, I think it's mid to maybe even high teens vacancy. But this is certainly the best by far, both from visibility and amenity standpoint asset in the market and again we're very comfortable. We can drive 10% to 20% rent comps through that process.

We think it takes probably three years to lease up on the outside, but are certainly focused on driving meaningful value through the process and have already had some decent activity in regard to several large block users walking through the space..

Okay. And then just last question on the Rite Aid portfolio that mortgage pool comes up for maturity and it matures in December.

Can you remind us, does that open for prepayment ahead of the schedule maturity? I guess the only expectation is that it's still that you'll sell those properties and if so what will the timing maybe look like?.

Yeah, it's open for prepay in September. The drugstore, we have 50 remaining single tenant assets in the entire portfolio at this point, it's just under 6% of ABR. A large quantity of that is Rite Aid in other drug stores.

We contemplate right now, while we have not identified the full dispo pool for 2016 that the drug stores at a minimum or the large majority of the drug stores will be monetized in '16.

I think looking forward, overall the quality of the dispo pool and certainly the cap rates assuming the macro holds up at or near where it is today, we'll continue to compress from a sale cap rate perspective..

Our next question comes from the line of Jay Carlington with Green Street Advisors. Please proceed with your questions..

Hey, guys, so maybe just to follow-up to Todd's question on the re-anchorings.

How flexible are the anchors in terms of us staying open up a bit longer than you expected maybe in delaying when you ultimately get control back?.

We haven't had a significant amount of overage in regards to that bucket. We've just been very focused on taking the space back. We've absolutely had great activity and have moved the comps now to low double digits for that group.

What's largely going to drive those going forward Jay is whether it's a single user or to the extent we split those boxes, which can be meaningful rent improvement and some of that we've obviously recognized to-date..

So that remerchandising plan in terms of what you're maybe splitting or not splitting, is that still flexible at this point? You're still kind of going through that process?.

Yeah, call it 10 boxes back right now and five addressed to which we're split. I think there's still two of those yet, we're not necessarily sure we're going to split or not, we're still doing that analysis based on demand..

Okay. And maybe on the recent dispositions that were subsequent to the quarter. Were those concentrated in a particular MSA.

Is there any cap rate difference on those versus kind of broader guidance?.

The broader guidance at the beginning of the year was 7, 7.5, I think we're very confident we'll run at the low end of that range for the year. For the quarter, we ran high sixes, call it 6.8 on the multi-tenant pool year-to-date, it's largely been power centers as we've discussed before.

But the bigger portfolio for the year is Las Vegas and that not traded yet, it is in the under contract to $450 million reference, three of those assets are a pool and the one remaining asset in Las Vegas will trade one-off..

Okay. And maybe just a quick follow-up.

Is the guidance increase on dispositions, is that a function of selling more or is it better pricing than what you thought?.

I think it's both and its necessarily just cap rate. In this environment it's all deal points and we've also seen an ability to get credit for on our pro forma basis for historical vacancy. So I think we're just seeing a broad ability to drive year one cap rates across the portfolio..

Okay. Thank you..

Our next question comes from the line of Vincent Chao with Deutsche Bank. Please proceed with your question..

Just on the spreads on the 15 anchor locations, low double digits on a comparable basis. I was just curious maybe looking at it different way. What is the average expected ABR on the 15 remerchandised spaces versus the what they were paying before, just to get a sense of what the upside is here..

I don't have that and again it depends on ultimately, how many boxes we split..

Right. Okay --.

Again I think comp basis is going to be low double digits but, we'll see at the end of the day..

Got it. Okay. And then on the store closings, it look like two of them slipped into the third quarter from the second quarter based on some of the expectations laid out on the last call. I mean, could you maybe just quantify, I mean, benefit that had on sort of the same-store outlook.

It just seems like the late closings would help, but then also have those two already closed now in the third quarter or are they still open?.

I don't think it was meaningful and they have closed now..

They have closed..

Yes..

Okay. And then just one sort of accounting clarifying question, the non-cash benefit that was outlined in the - is part of the guidance increase, or that just - there were some negative straight-line rent on some of the boxes that are closing that that goes away is that the crux of it..

Right, that's a good portion of it, then in addition there was one particular lease on the remerchandising activity that we had the reversal of a below market rent, as a result of an adjustment of the option term of sports authority lease and a combined total of those add to the penny..

Got it. Okay. Thanks guys..

Our next question comes from the line of Chris Lucas with Capital One. Please proceed with your question..

Good morning everyone. Just a couple of follow-up questions.

Shane I guess, listening to your comments on the Zurich building, does that suggests that an asset sale as an alternative is not a plan that you were looking at?.

Hi, Chris, good morning. Look we will remain open to any resolution as long as we think it makes monetary sense from a capitalization standpoint. We have been approached for obvious reasons. The suburbs have certainly taken off, not only in Chicago but in general.

From an office standpoint within everyone's aware generally of the lease expiration in the market. So we do continue to have conversations, but have not yet seen a compelling enough offer to sell it as is..

Okay. And then just kind of going back on the remerchandising effort a little bit. You described the sort of the weighted average expectedly lease spread to work out to in the low double digits.

So what's your base case as it relates to sort of splitting the boxes, is that no additional splits or is there some built into that? Then ultimately what are you defining as the weighted average square footage or ABR?.

Yeah, ABR is the weighted average, Chris to your second question. I think to the first question we assume one more box split at a minimum and again most of this activity has really been focused in Texas this year, which has been a very prolific leasing environment..

Okay. And Steve, last question for you, just on the additional disclosure on page 13, I appreciate that. I guess I just wanted to understand maybe a little bit more, you've got the 10 markets identified and laid out.

And then the rest you have labeled as non-target markets, but I am assuming that some of the assets are in actual markets that you would contemplate becoming target markets. So I guess, I was wondering if you could maybe provide some context for what the split is or if they're all really non-target markets in terms of the remaining assets..

Thanks, Chris. That's a fair question. I think with respect to what we've announced to-date obviously it's been the 10 markets and we've been very, very focused and obviously gaining a significant amount of traction in particular in those markets.

That being said, we have not identified 11 through 15 and we felt that it was safer to just you know as we were to say move a market into the target market bucket, just simply move that up above the line in that schedule.

But we felt that we were at the midpoint right now with respect to the number of assets that are in our top 10 markets that we've identified. But more importantly that we have 60% of our ABR by the end of the year in our target markets and we felt that it was the right time to transition to that type of disclosure..

Okay. Great. Thanks a lot guys. Appreciate it..

Our next question comes one of Michael Mueller with JPMorgan, please proceed with your question..

Yeah, hi, I apologize if I missed this earlier, but did you mention where you expect year-end occupancy and leased rates to end up.

I think it was 92.8% for occupancy and 94.4% at midyear?.

Yeah, on the same-store pool we expect to be about 95%, Mike. From an in-line standpoint on the same-store pool again, we expect to be 88% to 88.5%..

Got it and that's leased.

That's a leased number, correct?.

That's economic..

That's economic, okay.

Then also can you talk a little bit about in the process of whittling the markets down, how many markets do you think you'll be in by the end of '15? How many you think you will be in by the end of '16, just as you kind of progress towards that 10 to 15?.

Sure. So we expect to be in 60 markets by the end of this year. We have not identified the dispo pool for '16 and assuming that's call $150 million of the disposition pool is drug store single tenant, we won't see a big move or as big a move early at least in regards to geography on the multitenant side.

So I guess the short answer is we will see, but at the end of this year, again, we are at eight to nine states not MSAs, but states where we have one asset left. And I think we averaged just over one asset per non-core MSA at this point.

So I think we continue to - can continue to make market progress, but again the first, call it $150 million will be single tenant assets next year..

Got it. Okay. I think that was it. Thank you..

Mr. Grimes, it appears we have no further questions at this time. I would now like to turn the floor back over to you for additional or closing comments..

Great. Well, thank you everybody and thanks for your time today. Obviously, we took a bit of time with respect to the prepared remarks and I would assume that the transcript will provide a lot more detail for you all, should you have any questions.

But obviously, we're here and available for questions, so should anything, come up please feel free to reach out to us. Thanks again..

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day..