Pennsylvania Real Estate Investment Trust (PEI) 2002 Q1 法說會逐字稿

Good morning, ladies and gentlemen. Welcome to the Pennsylvania Real Estate Investment Trust conference call. At this time, all participants are in a listen-only mode. Later we'll conduct a question and answer session. If anyone should require assistance, during the program, please press the star, then zero key on your telephone. If anyone should disconnect and need to rejoin, please dial this number. 1-888-792-1093. And this conference call is being recorded. I would now like to introduce your host for today's conference call -- the Financial Relations Board. Please go ahead, ma'am.

Thank you Good morning, everyone. And thank for joining us for Pennsylvania Real Estate Investment Trust's first quarter conference call. This morning, we did distribute a copy of the press release, and if you did not receive a copy, you may access online at the company's website, www.Preit.Com. Also, I would like to remind everyone we're hosting a live webcast of the call, and that may be accessed at www.Vcall.Com, or on the company website. At this time, management would like to inform you that certain statements made during this conference call and in the press release, which are not historical, may be deemed forward-looking statements within the meaning of the private securities litigation reform act of 1995. Although Pennsylvania Real Estate Investment Trust believes the expectations reflected in any forward-looking statements are based on reasonable assumptions, it can give no assurances its expectations will be obtained. Factors and risks that could cause actual results to differ materially from expectations are detailed in the press release and from time to time in the company's filings with the SEC. I would now like to introduce Mr. Ron Rubin, Chairman and Chief Executive Officer, and turn the call over to Mr. Rubin. Please go ahead, sir.

Thank you very much. Good morning, ladies and gentlemen. Pleased to participate with you in this call this morning. The company, as you've seen from the release, is doing quite well. And our quarterly results were above our expectations. The 7.7% increase in FFO and 5.8% increase in combined NOI reflects the positive performance from our retail and multi-family portfolios. And the effects of our development activity during 2001. In a minute, John Weller and Ed Glickman will fill you in on a number of issues and will be available to answer your questions. If John will give you the specifics about our latest acquisition and our development program going forward. I just want to mention to you that in addition to John and Ed, George Rubin as President of Rubin, Bruce Goldman our Vice President and General Counsel, Dave Bryant, treasurer of the company, and Ray Trost, Vice President in charge of Multifamily, as well as other members of the firm, are here today and are available to answer your questions. At this time I'd like to turn it over to John.

Good morning. FFO for the first quarter of 2002 increased by 7.7% to 10.6 million. Over the comparable period in 2001. Per share basis, that's a FFO decrease by 6.3%, to 60 cents per share from 64 cents per share in 2001. The per share figures for the first quarter were impacted by a 15.6% increase in weighted average shares, and OP units outstanding, primarily as a result of the company's 2 million share offering in July 2001. First quarter 2002 revenues increased by 4% to 34.5 million. Approximately 90% of the revenue increase came from the retail portfolio, including completed development projects and approximately 10% came from multi-family properties. Revenues were converted to net operating income at 66.9% margin for the 2002 first quarter, compared with 65.8% margin for the first quarter of 2001. NOI gross was 5.8% for the first quarter of 2002. Same story on the growth for the retail portfolio at 3.9% in the 2002 first quarter. Growth in the shopping center portfolio was a result of a 380 basis point increase in occupancy, to 94.3% in the first quarter, and increased rent on new and renewal visas. The company's retail portfolio has not been impacted by bankruptcies and store closings in 2002. Occupancy in the power centers increased to 97.6% and in our mall portfolio grew to 93.7%, at the end of first-quarter 2002. The company's multi-family portfolio had a good quarter in light of weaker demands, generally caused by the strength of the single-family home market. Same store NOI growth 3.5% for the 2002 first quarter. Revenues were up by 4%, and the quarter, while operate, expenses declined by 2.6% in the quarter. The first quarter. Utility costs fell in the first quarter, result of lowering costs, warmer weather, and the effect of utilities submetering companies in 2001. Insurance costs escalated as previously reported. And will impact growth in 2002. Occupancy in the multi-family portfolio fell by 140 basis points, finishing the first quarter 2002 at 94.3%. One property, Cocoa Paul in the West Boca Raton submarket, had a significant impact on our results. Occupancy fell by almost 700 basis points, compared with the 2001 first quarter, and this property represents our biggest challenge for 2002. As for the close of the first quarter we have completed the acquisition of Beaver Valley Mall from calpers for $61.3 million dollars. The mall located in Western Pennsylvania, 15 miles north of Pittsburgh international airport, is anchored by -- J.C. Penny's, Sears and Costco. Generated sales of -- in at $264 a square foot and 91.5% occupied. The acquisition was financed with a new 48 million dollar mortgage, and a 10 million bank low loan. This acquisition is consistent with the company's strategy to acquire a more dominant mall. Additional accusation opportunities with similar characteristics to be the mall are being actively pursued. In the first quarter of 2002, we completed a development at the shopping center in Warrington, Pennsylvania, with the opening of Bed Bath and Beyond and L.A. Fitness, and Town Center in Harrisburg, Pennsylvania, with the opening of Babies 'R' Us. Redevelopment shifts will pay an important role in 2002 growth. We are spending approximately $10 million on the redevelopment of the Magnolia, in South Carolina, joining our Magnolia mall. Target is under construction and the center is expected to reopen early in the third quarter, close to 100% occupied. We recently announced a lease with Pets at Magnolia Mall, opening in the fourth quarter of 2002, and a space previously leased to Roses Department Store. Our greater emphasis on acquisition in 2002 is in part due to the slower pace of development activity brought on by the difficulties in the process. In Delaware the second phase of our Christiana Power Central was ready to start -- construction with commitments to Target, Home Depot, Expo, and Bed Bath & Beyond we've had to file an action against the Delaware Department of Transportation, which makes the timing of this development difficult for this estimate. However, we would not have taken this step unless we thought our position was strong. We are actively pursuing a supermarket center in South Brunswick, New Jersey on the route one corridor. Our best estimate is that we will break ground at the end of 2002. The New Garden Township, Pennsylvania, we have plans for a 480,000-square-foot power center anchored by Home Depot. Construction will start in the third quarter of 2003. In addition to these projects, we continue to work closely with our relationships on several other projects in the greater Delaware Valley. At this time, I'd like to turn over the presentation to Ed Glickman.

Thank you, Tom. The company ends its first quarter at 2002 with investment and real estate of 837.1 million and increase of 29.8 million, or a 3.7% over 2001's level, 107.3 million. The 29.8 million increased in our investment account rents the net of 36.8 million in total new investments and the sale of property with the basis of 7 million. In the resale factor we made investments totaling 42.6 million and sold assets with a basis of 2.5 million, where net increase in retail investment of $40.1 million. The $22.6 million is comprised of $15.7 million in new investment and $26.9 million of complete projects that were previously classified as development. $33 million of the total retail increase can be attributed to major international investments in Metroplex Power Centers in the year. The remainder consists of spending on a number of smaller projects, including a total of $3.6 million on Dartmouth Mall in Prince George's Plaza. At the end of the first quarter of 2002, our invest and development projects had fallen to $34.2 million, from $49.2 million at the end of the first quarter of 2001. This 15 million dollar decrease in development invest was the net of $16.4 million of new investments, primarily in power center in willow borrow mall project, land sales with basis of $4.5 million, and previously mentioned, $26.9 million of completed resale properties, which were placed into service. During the last 12 months, $4.6 million was invested in the multi-family properties, focused towards improvement for portfolio assets. As a result of the above changes on a cross basis, the company's portfolio is now 33.9% multi-family, 61.7% retail, 4.1% retail development, 3 -- and .3% invest row. On the right side of the balance sheet, the company has the first quarter with capital of $513.1 million, down from $531 million at the end of the first quarter of last year. The decrease comes primarily as a result of the company applying a portion of the proceeds from its July 2001 equity offering to the repayment of construction debt and borrowings under our line of credit. During the last year, the composition of the company has remained heavily weighted towards long-term fixed rate liabilities. Of the $513.1 million total debt AFT of the end of the first quarter, $408.6 million or 80% was long-term fixed rate mortgage set. The remaining $112.5 million or 20% was drawn against the company's line of credit. After accounting for a $75 million dollars of interest rate swap, 94% of the company's outstanding debt was checked at a weighted average cost of 7.43%, and a weighted average maturity of the mortgage portfolio at 7.7-year. The other $29.5 million or 6% of our debt is floating at 165 basis points. Over the last four quarters, increased cap has increased 40.2% to $458.3 million, from the year-ago figure of $327 million. The rise in equity tax reflects both the summer 2001 offering as well as the increase in stock price from $21 to $25.50 in the last 12 months. As a result of the reduction in debt and increase in equity cap, our debt to market cap fell from 61.9% at the end of the first quarter of 2001 to 52.8% at the end of this quarter. During the same period, the company's liability to growth asset value as calculated for the line of credit fell from 56.And% down to -- from 56.3% down to 51.7%. Shortly after the close of 2002, first quarter -- Beaver Valley Mall for $61.3 million, finance purchase. We ended into a $48 million dollar 10-year mortgage at. .4%, the balance funded through the line of credit from cash on hand, and in addition during the second quarter we expect the formally close on Wilborough Park -- [INAUDIBLE] of that project at approximately $35 million. As a result of these transactions, we expect our leverage to increase during the second quarter 2002 to the high 50% range. To provide the company with additional liquidity in the first quarter the company successfully added shopping centers to the collateral pool of facilities. Similarly, we intend to add town centers to the pool during the second quarter. The resulting increase in our borrowing days under the line will provide the company with approximately $39 million dollars of liquidity to fund our development in redevelopment activities for the balance of the year. As always, we appreciate your continued interest in the company. At this time, John and I are available to answer any questions which you may have.

Thank you, sir. At this time, if you have a question, please press the 1 key. If your question has been answered or or you wish to remove yourself from the cue, please press the pound key. One moment for our first question. Our first question comes from Melissa South of L.O.O.E.P Lehman. You may proceed.

Good morning, everybody. Just a few questions here. First, on the Beaver Valley Mall acquisition. Do you see any significant releasing opportunities in that acquisition, either in big leases rolling over this year that might be below more celt or anything like that?

You were asking about leasing opportunities, that's the --

Beaver Valley Mall, right.

I didn't hear the entire question.

Okay. In terms of any significant leases rolling this year, that might be below market or any other changes you can make --

There are several large stories in the center where we see opportunities. For example, there's a furniture store, that is a single-store operation that we are trying to recapture and receive the opportunity to that space with some smaller tenants, at conservatively higher rent. In addition, some of the more traditional -- a few of the traditional in-line tenants, one comes to mind -- stores that are larger than they currently need. There's an opportunity to recapture that space. At higher rent. And lastly, we have part of the vacancy, as I mentioned, it's Sunday in .5%, and we have part -- -- it's Sunday in .5%, which we're working on in that pickup during the year. So like all situations -- we get involved in this the acquisition. As I mentioned, it's 91.5%. Part of the vacancy which we're working on, a net pickup this year. So like all situations that we typically get involved in the acquisition, we see near-term opportunities for growth.

Okay. And just also, on Beaver Valley Mall, the management fee that PREIT was getting on that, about half a million, annually, how is that being -- I mean, I'm assuming that PREIT is losing the management fee and then is it going to be reflect in increase in operating expenses? I was just --.

I mean, first of all, in terms of our underwritings, that fee was always part of our -- it was part of the expenses. That fee will now go to PREIT services, PREIT Rubin being our third- management company when we were managing for calpers.

Okay. Great. Quick question on the multi-family portfolio.

Sure.

Do you have any expectations for the rest of the year in terms of same-store NOI? There's a lot of savings, as we mentioned, on the expense related to utilities. How do you see that playing out for the rest of the year? And also, could you comment on the turnover for the quarter?

Well, as we noted, our -- in terms of the last question, our vacancy and concession numbers did go up, offsetting the good -- [ not understandable ] at 4% level. So we definitely have had increased turnover in the portfolio. But I highlighted the Cocoa Palms property because it had very dramatic portion of that turnover. In terms of our projections for the year, this quarter's results in the three and a half -- at 3.5% same store NOI are consistent with our expectations for the year.

Okay. Great. And just one final question on the development side. It looked like the -- I know there's been some progress with the develop [INAUDIBLE] looked like some of the station duties on a couple -- was South Brunswick and New Garden, developments were pushed out a couple quarters. But the expected yields stayed unchanged. Can you comment on any other assumption changes on proforma basis that might have been adjusted?

I think with that reflects a conservative view towards the timing in the case of New Garden. For example, entitlement issues we assume will take -- you know, that comes to again resolved. But we still -- we still estimate that the income and costs are the same as what we had previously provided. So those assumptions are young changed -- unchanged but the timing assumptions were put back -- reflective of the comments made in the last couple quarters.

Great. Thank you.

Melissa, I just wanted to add other specific comment on the turnover in the multi-family.

Okay. Great.

I just wanted to run through some quick numbers, which you'll find the supplemental report. But in terms of multi-family turnover, previously leased we had 228 turnover, they turned over 793, that's net effective rent per month against 767, which was the previous rent, for a 3.3% increase. Previously, vacant units turned over at 767, against 759. Which was their last recorded rent or 1.1% increase and renewals up 3.Of% -- at 3.6% at 775. We had 447 renewals against 748, which was prior rent. So we're still paying rent growth in multi-family. The equivalent numbers for resale previously leased, we had 7 spaces. They turned over at 30.79 against prior rents of 24.50. For increase of $6.29 a foot. We rented 23,000 feet of vacant space at $12.58, and we turned over renewals 24,264 feet in 11 renewals. The turnaround was 27.92 against prior rents of 24.32, or $3.60 a foot increase. So we're getting a great rent increases in both portfolios.

Okay. Great. Thank you.

Thank you, ma'am. Once again, if you have a question, please press the 1 key on your telephone. Our next question comes from Diane Wade of Clairon.

Hi. Diane Wade with Clairon. Just a question on the okay upon I for the multi-family and -- occupancy for both the multifamily and the retail. Can you provide detail on what the occupancy looked luke on a sequential basis versus fourth quarter of last year? And I apologize if it's in the supplemental. I haven't received it yet.

Sure. Fourth or versus first quarter.

Fourth quarter of '01.

Yeah. For the multi-family, it was 94.7% occupied, at $749. And we'll get you the first quarter. First quarter of '02 is 94.3%, at $754.

Okay. And then the same for the retail occupancy?

I don't have the fourth quarter here. Do you have it?

Yeah. Okay. We're reporting retail occupancy by portfolios now, retail portfolio was 94.3%. And let me great -- in the end of the first quarter of '02. And occupancy was 92.0%, fourth quarter '01.

230 basis points.

Okay. That's a big pickup.

It is.

We're now breaking out -- we've made a bunch of changes to the supplemental to try to make it disclosure easier to follow,, and the retail portfolio we've broken out malls, power centers, and strips on different tables. So you'll see that change when you get the new supplemental.

Okay. Good. And my other question had to do with the Boca Palms. Is this more of an asset, specific problem? Because I thought South Florida was still doing fairly well.

It is. We have three other projects in Broward and Palm Beach counties, which are doing fine. So this is really a submarket problem. And we have really been spending a lot of time on this particular asset. There's definitely some softness in this market. We have as of today, we have -- you know, we've been -- we've made improvements in the -- in occupancy, but which we hopefully reflected in the results for the second quarter. But so we consider it -- as we go through our portfolio asset by asset, we consider this one the one where we're putting all of our extra resources in our marketing talents to bear to find solutions and improve the occupancy here. And we're confident we'll get -- improve it. We think this is a isolated problem.

Okay. And then my last question, you said the debt ratio would be in the high 50s, in the second quarter, is that correct?

Yes, ma'am.

Is that debt to market cap, I mean I guess you don't know --

We don't know what the market cap will land up at but we know we had added 48 million when we took on Beaver Valley. And assuming we formally close on Willow Grove, that will be another $34.5 million dollars of debt. So yes, that is the 513, outstanding at the end of the quarter, plus any marginal changes in redevelopment projects, working capital, largely that our debt will push 600 at the end of the first quarter. Assuming -- I'm sorry, at the end of the second quarter.

Right.

And depending on how much stock you buy, that will determine whether the market -- [ laughter ]

My question was going to be what is your target level of leverage and what are you planning on doing to reduce it, if it's lower than that?

Well, we have an operating within the range of 50 to 60%. We don't have any immediate plans to change the -- address the level of leverage. We did our offering last year, and we told the world we would put the money to work, and effectively now we have. So we still have approximately $40 million of liquidity on the line of credit. And depending on what kinds of acquisition opportunities we see in our development portfolio plays out, we'll have to reconsider our funding requirements in the future. But we're in no immediate need to address it because we're comfortable in this band of leverage, between 50 and 60%.

Okay. Great. Thank you.

Thank you, ma'am. Once again, if you have a question, please press the 1 key on your telephone. At this time, sir, there are no questions in cue.

Okay. Thank you. This is John Weller. Thank you for listening today. I think most of you know how to reach us if you have any further questions. We'll be happy to talk but and we look forward to seeing some of you at the conferences coming up in New York. Thank you very much.

Ladies and gentlemen, that does conclude the conference call for today. Again, thank you for participating and you may all disconnect. Good-bye.