Pennsylvania Real Estate Investment Trust (PEI) 2013 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Pennsylvania Real Estate Investment Trust second-quarter 2013 earnings conference call. During today's presentation, the lines will be in a listen-only mode. Following the presentation the conference will be open for questions. (Operator Instructions).

I would now like to turn the call over to Heather Crowell, VP, Corporate Communications and Investor Relations. Please go ahead.

Thank you. and good morning, everyone. Welcome to PREIT's second-quarter 2013 conference call. During this call we will make certain forward-looking statements within the meaning of Federal securities laws. These statements relate to expectations, beliefs, projections, trends and other matters that are not historical facts and are subject to risks and uncertainties that might affect future events or results.

Descriptions of these risks are set forth in the Company's SEC filings. Statements that PREIT makes today might be accurate only as of today, July 24, 2013, and PREIT makes no undertaking to update any such statements. Also, certain non-GAAP measures will be discussed. PREIT has included reconciliations of such measures to the comparable GAAP measures in its earnings release and other documents filed with the SEC.

Members of management on the call today are Joe Coradino, PREIT's CEO; and Bob McCadden, our CFO.

It is now my pleasure to turn the call over to Joe Coradino.

Thank you, Heather. We had a good quarter. And following our reorganization and the re-energizing of the Company, we have the right team in place; a team that is galvanized and producing results. A year ago, we told you that our priorities were clear -- consistent operational excellence, improving our balance sheet, and elevating the quality of our portfolio.

These priorities have remained paramount. Today we are a healthier Company with solid growth in same-store NOI, occupancy, and rents. Our strong, flexible balance sheet resulting from asset sales, refinancing efforts, and our recent common equity offering, and a higher quality portfolio for successful and ongoing dispositions and re-merchandising efforts.

As we continue to make progress on our strategic objectives, we are now turning our attention toward expanding our platform through organic opportunities, as well as identifying external growth prospects. First I'll walk you through some of the highlights from the quarter, and then review our plans for growing the Company.

On the balance sheet front, our bank leverage, or debt to gross asset value, is now below 50% for the first time since 2005. Earlier in the quarter, our common equity offering generated net proceeds of over $220 million, with a number of REIT-dedicated investors reentering the Company's stock. The proceeds were used to pay down outstanding debt.

We also closed our new unsecured credit facility during the quarter that provides for additional liquidity and lower interest rates. And now, substantially all of our debt is fixed, or swapped to fixed, as of June 30, 2013. With respect to our operational performance, we continue to show improvement in our metrics. Same-store NOI improved by 3.8% for the quarter, and 3.2% year date. Same-store NOI, excluding lease termination revenue, improved by 4.9% for the quarter and 4.2% year to date. Same-store mall occupancy increased to 93.2%, an increase of 150 basis points over last year.

Non-anchor occupancy was 89.6%, an increase of 200 basis points, driven largely by a 330 basis point improvement in our premier malls. Gross rents for the quarter were up 2.5% at our mall properties, driven by a weighted average 4% increase at our premier and core growth assets. Renewal spreads were 5.2% for the quarter, and stand at 5.1% year-to-date.

Our sales of $384 per square foot reflect progress toward our goal of having a $400 per square foot portfolio. We're obviously not thrilled with our tenant sales growth, but also aren't overly concerned. Sales growth has moderated in certain categories. But as we introduce new tenants to our portfolio and upgrade our tenant mix, we are replacing short-term tenants whose sales performance or contribution to the merchandise mix at our properties is not consistent with our emphasis on improving the quality of our portfolio.

We do continue to make progress on improving the quality of our portfolio through dispositions, asset repositioning, and the addition of first-to-market retailers. Our assets disposition program progresses, with two additional properties -- South Mall and Commons at Magnolia placed under contract during the quarter. In addition, Christiana Center continues to move toward closing, having received approval from the special servicer. We are currently concluding the marketing process for Beaver Valley and North Hanover, and anticipate receipt of bids over the course of the next few weeks.

Interest has been robust, having received over 100 NDAs, and we remain optimistic that we will move to closing. We continue to generate over 80% of our same-store NOI from our premier and core growth properties, which generated sales of $422 per square foot. During the quarter, we opened stores or signed leases with noteworthy first-to-market tenants as a way to further differentiate the shopping experience at our property.

Two examples of these are -- Canadian retailer Dynamite opened one of its first three US locations at Cherry Hill Mall. H&M and Soma will be opening their first Western Michigan stores at Woodland Mall. The Children's Place opened its only store within 50 miles at Valley View Mall in Wisconsin.

We are in the process of growing our business, executing on opportunities for organic growth and pursuing avenues for external growth. Organically, we continue to advance opportunities to redeploy capital at properties where we can add significant value.

We are executing the Moorestown redevelopment, where we are bringing dining, entertaining, and first-to-market retailers to differentiate the property from our nearby Cherry Hill Mall. We're working toward a pre-holiday opening of Regal Premium theater experience, and Mark Vetri's Osteria, and Firebirds Wood Fired Grill. We're also excited to announce the execution of a lease for Jose Garces' Distrito, a Mexican concept which operates in three other locations, including its popular Philadelphia venue. We are thrilled to welcome this Iron Chef and James Beard Award Winner to utilize the third of four liquor licenses obtained by PREIT. Alongside Mark Vetri's Osteria, having two acclaimed celebrity chefs opening locations at this suburban Philadelphia mall, are serving as a magnet to attract other best-of-breed regional retailers to further differentiate the property.

We also continue to make progress on furthering the plans for the Gallery project in downtown Philadelphia; and, during the quarter, closed on the acquisition of the building at Ninth and Market streets. Earlier in the year, we launched an intensive leasing effort, taking us down two distinct paths. One highlighted by food and fast fashion, and the other a luxury department store-anchored center. This was our focus at Las Vegas ICSC, and we are now engaged in meaningful discussions with a number of impact retailers as we work to define the project.

We are also pursuing other projects at our higher-quality productivity properties, including repositioning anchor boxes which will generate the best return on our investment capital. Beyond this, we are advancing re-merchandising efforts at a number of our core growth properties, with several leases in active negotiation. While this is a more modest capital investment, we expect these efforts to result in higher tenant sales productivity and NOI growth at these properties.

Externally, we are reviewing all opportunities that we identify within our core competencies and that are accretive to our metrics. And we are seeking out selected off-market assets that are a strategic fit for our portfolio. We have finalized our partnership with Simon Property Group on Gloucester Premium Outlets in Gloucester, New Jersey. This project came about as a result of our position as the dominant retail landlord in the greater Philadelphia marketplace.

The partnership shouldn't come as a surprise to anyone, given our pre-existing relationship with Simon, which we feel is a means to mitigate our risk as we benefit from their industry-leading experience in the outlet arena. We look forward to sharing a more defined growth plan as we review all of our opportunities within the context of our capital allocation strategy.

And with that, I'll turn that call over to Bob McCadden to give you more color on quarterly and year-to-date financial performance and our revised earning guidance. Bob?

Thank you, Joe. We are focused on continuing to deliver strong results as evidenced by our second-quarter numbers and our upward revision to 2013's FFO guidance, which I will touch on later. With that as a backdrop, let me review our second-quarter results. FFO as adjusted was $28.3 million, or $0.42 per diluted share for the quarter ended June 2013, reflecting net adjustments of $4.3 million from employee separation expenses, accelerated amortization of financing costs, and interest rate hedging losses. This compares to $21.6 million, or $0.37 per diluted share last year.

Same-store NOI for the second quarter was $66.7 million, a $2.5 million increase as compared to 2012's second quarter. Excluding lease termination revenue, same-store NOI was $66.6 million, which was a $3.1 million increase over the prior-year's quarter. The improvement in same-store NOI resulted primarily from increased rental revenues, driven by improvements in occupancy and higher average rates.

A number of factors impacting our overall operating results, including the sale of three properties in the first quarter. The sold properties in Christiana Center generated $3.4 million of NOI in this year's second quarter, and $1.3 million -- I'm sorry, last year's second-quarter -- and $1.3 million in the June 2013 quarter. The newly acquired 907 Market Street property contributed $1 million of NOI in the second quarter. As of June 30, 2013, non-anchor occupancy at our same-store retail properties increased by 180 basis points to 89.9%; while total retail occupancy increased by 140 basis points, to 93.3%.

Average gross rents for small shop tenants at our same-store mall properties were up 2.5% as compared to in-place rents as of year ago. In the quarter, we recorded employee separation costs of $1 million; accelerated the amortization of $100,000 of deferred financing costs; and had hedge ineffectiveness of $3.1 million. The net impact of these items was $0.065 per share.

Interest expense for the quarter, excluding various charges, was $28 million, or $7.2 million lower than last year's quarter. This improvement reflects lower average borrowings and lower average rate. Average borrowings were $320 million lower than last year. And the effective interest rate on our borrowings during the quarter was 5.62%, a decrease of 46 basis points from last year's quarter.

As a result of our lower leverage ratio, pricing on credit facility borrowings will be reduced to LIBOR plus 170 basis points, from 185 basis points as of today. Outstanding debt at the end of the second quarter, and including our proportionate share of partnership debt, was $1.9 billion, a decrease of $350 million from June of 2012. This year's quarter included dividends on preferred shares of $4 million related to the 2012 preferred share issuances, as compared to $1.8 million in last year's second quarter.

In May, we repaid the $56.3 million mortgage loan in Jacksonville Mall, and this asset currently remains unencumbered. In connection with this payoff, we recorded non-cash interest charges of $2.9 million, related to [slot] costs that hadn't been deferred and other comprehensive income. We also exercised the first of two extension options on the Logan Valley mortgage loan pending an updated appraisal. We are currently evaluating proposals to refinance the mortgage loan on Wyoming Valley Mall, which expires in September.

Finally, we notified the lenders on the mortgage loan at Exton Square Mall of our intent to repay the loan on October 1. In the near-term, following the repayment of this mortgage, this property will become unencumbered, increasing the pool of unencumbered assets in our portfolio to over 20.

G&A expenses for the quarter were $9.6 million, which represented a $600,000 reduction from last year's second quarter. The lower level of G&A expenses reflects reduced executive headcount and other corporate cost saving. On the leasing front, we executed 144,000 square feet of new, non-anchored transactions, and renewed 249,000 square feet. With these renewals, we generated an increase of 5.2% compared to expiring gross rent.

On the anchor and large-format front, we executed five renewals for 395,000 square feet, with a combined uplift of 1.7% for the quarter. Sears has closed their store at New River Valley Mall in Christiansburg, Virginia, where we have a signed letter of intent with a notable national anchor to replace them. In July, we renewed our final anchor tenant with a 2013 expiration.

Comp store sales continues to improve, and were $384 per square foot at the end of the quarter. If we exclude the four non-core mall properties which are being marketed, sales per square foot would have averaged $394. We are adjusting our earnings guidance for 2013 by raising the lower end of our range by $0.04 per share; and the midpoint by $0.02 per share; to get us back to our continued NOI growth, and greater visibility into our operating results for the balance of the year.

We expect GAAP earnings per diluted share will be between $0.70 and $0.76, including an expected gain on the sale of Christiana Center. We expect FFO per diluted share to be in the range of $1.78 to $1.82; and FFO, as adjusted, to be in the range of $1.87 to $1.91. The assumptions underlying our revised earnings guidance are generally consistent with those set forth at the end of the last quarter. Aside from the completed 2013 sales, the purchase of 907 Market Street, and the pending sale of Christiana Center, our guidance does not contemplate any other material property dispositions or acquisitions. In addition, our guidance does not assume any additional capital market transactions for the balance of the year.

With that, we'll open it up for questions.

(Operator Instructions). Kevin Kim, SunTrust.

This is Ki Bin Kim, thank you. Quick question on the joint venture potential with Simon for the outlet center. What is the strategic rationale for them to plan out with you, given that you guys don't own the land?

Well, I think the strategic rationale is a couple things. One, we have an obvious dominance in the Philadelphia market, with eight of the 20 malls in the marketplace. Number two, we saw it as an opportunity where someone was going to develop an outlet center there. Given our position in the market, we were able to, let's say, insert ourselves in that process and bring it to Simon. And they obviously are interested, and are proceeding with us in the development of that property.

Did it have to do -- anything with radius restrictions that are in your leases with certain retailers, that made it restrictive for Simon to do an outlet in that area?

No, actually, I saw your comment regarding that. It really didn't. It was not related to that at all.

Okay. And I know it's early, but maybe a broad sense I -- do you -- maybe could give a little detail on size or scope of that project. And, like I say, I know it's early. But would the yield be in line with what Simon has been getting so far on their outlet developments, which are close to 10%?

Well, first off, it's going to be a couple hundred thousand square-foot center, but we're still working through the pro forma, et cetera. And it would be premature to get into any detail beyond that.

All right. And just last question, you have several assets out there in the market for dispositions, and you said demand looks robust. Have the increase in Treasury rates -- how has that changed IR expectations for a lot of these buyers, which I'm guessing are financial buyers, whether it be as a [capper] for going in. Could you maybe discuss a little bit of that change in demand at all? Or you, with expectations.

No. As I mentioned on the call, the interest in those properties are quite robust; I think, driven to a certain extent by perceived redevelopment opportunities. And we have not seen a significant reduction in buyer interest at this point. Clearly, there's more to an acquisition and redevelopment or reuse play than interest rates. But at this time, we feel good and have not seen a drop-off in interest. Part of that is interest rate increase.

Okay. One follow-up on that. So, you did mention that you had a lot of plans to redevelop -- well, I guess reposition certain retailers near malls. You went through kind of a long list of ones that you highlighted. But in totality, what are these older retailers that you are going to try to push out -- what are they generating in sales per square foot? And for the ones that you've identified that are going to come in, what is that spread of what you expect new sales per square foot to look like? And I guess from a dollar standpoint or square footage, what is the scope of that program?

I'm sorry. I heard the end of your question. I apologize. I missed the beginning. Are you asking about existing assets for sale, or properties where we're going -- we're looking to acquire anchor boxes? That's where I got a little confused.

I was talking about when you mentioned in the opening remarks about repositioning certain retailers; so maybe kicking out a lower productive retailer and bringing in someone that's better suited for that mall, or a tenant mix. I was wondering if you could provide some details around what that previous sales per square foot would look like on average, and what a new retailer that's positioned correctly could look like in your malls. And maybe you could apply some kind of square footage for a dollar value to the total program.

I don't think we could provide a dollar amount for the program at this point. But I can answer your question. We're not necessarily looking at properties where they are poor performers. It may involve situations where anchors are oversized. It may involve situations where there's an opportunity to develop based on getting some level of approval from anchors, et cetera. But I would say, that aside, those opportunities aside, other instances where we're looking at taking back anchor positions, they are typically performing in the $200 a foot range; not at a high level. And we think we can add tenants in those spaces that will outperform that.

Okay. All right. Thank you.

Daniel Busch, Green Street Advisors.

Thank you. Just a couple follow-ups on the outlet development. A couple of the articles referred to the partnership with PREIT-Rubin. Is there a reason that the language was such -- or a reason why that joint venture is going to be done in the offshoot of the PREIT-Rubin subsidiary?

I think I can answer that. The reference to PREIT-Rubin was -- typically, as we go into a development project, we use our taxable REIT subsidiary as a place to park the deal before we make a final determination as to the structure. So it will be an asset that's owned -- essentially will be owned by PREIT itself; PREIT Associates, the operating partnership.

Okay, okay.

(Multiple speakers). It's not very good branding idea. I was not happy to see PREIT-Rubin in the article, either.

I know it's too early to talk about the size and the scope, but is the partnership going to be a traditional 50-50 joint venture? Or is it going to be some sort of preferred interest?

No, it's going to be 25 to PREIT, 75 to Simon will hold.

Okay. And switching gears -- I know you paid off the Jacksonville Mall loan. Forgive me if I missed it, but are you planning to refinance Jacksonville Mall? And just looking at some of the operating metrics for that mall, it looks like sales have been struggling there. And, given that it's one of your premier properties, can you give us a little color on what's going on at that property in specific?

Well, it will continue to be a premier property. Part of what's going on there is cyclical. It's happened before; it will happen again. And that is troop deployment. We lost about 11,000 customers. And they will be back in October and November. So I think that's just a blip on the screen, if you will. So we have every confidence that Jacksonville will continue to be one of our top performers.

And as far as we re-levering that property?

No, I think what our plan was -- this is a good asset. And we -- our plan currently is to leave it unencumbered.

Okay. One last question on rent growth. It looks like the rent growth, particularly at the premier malls, has picked up. At the opportunistic malls, I guess, it's still flat or nonexistent. Can you talk about the ability to push rents at the higher quality properties versus, call it, the B properties? What are you seeing there?

I think it's clearly of reflection of the -- it's a function of demand. If you look at our occupancy metrics at the premier assets, they are clearly at the mid- to upper-90s. I think we have always said all along, our ability to push rents is going to be a function of driving occupancy. So we're taking a number of steps at the middle part of our portfolio and lower end. And you've seen, I think, increases in occupancy pretty consistently over the last year or so. So we're going to continue to push occupancy. And once we reach a certain level, I think we'll have a better ability to push rents, as well.

What is that stabilized occupancy that you guys are targeting for the portfolio?

For the portfolio, I think we have set a longer-term goal of around 95%.

Okay. Great. Thank you, guys.

Ben Yang, Evercore Partners.

Hi, thanks. Joe, you mentioned not being overly concerned about the slowdown in 10 in sales growth. But it seems like every quarter, about half of your malls report increasing sales and the other half report declining sales. Even if you focused on your premier and core malls, more than half of those malls had declining sales. And I guess I would've expected at some point we'd see a majority of your properties report increasing sales. Is that a fair expectation, that there should be a more broad-based increase? Or would you maybe characterize about half of your portfolio being perpetually challenged, maybe given the markets that they're in, or the competitive position?

There's not a single, simple answer to that question. So let me take a shot at simplifying a complex answer. Number one, we have a number of larger format tenants -- drugstores -- who typically underperform, that are included in our sales category. Over time, we are going to be rolling them out of those centers and bringing a higher productivity retailers into those spaces. Number two, we have a number of cell phone operators who were not reporting all of their sales. So, they report equipment and not service contracts, so we're not getting a complete count.

That is something that, over time, we need to rectify; or reconsider, at least, how we are reporting that. And I would add to that that there are a number of short-term, general-manager-generated transactions that came online since we began that program. And, as a result -- and they report on permanent leases and home site license agreements might have been a better solution, so that they would not have been calculated in sales.

And finally, personal service, uses, such as haircutting, et cetera, are in our calculation. And part of this, by the way, is the fact that there is no standardized way to record sales in our industry. And so that's really been what I allude to when I say we are not concerned about it. We're not concerned about it because we understand the problem and understand the solution. It's not a question of that we're obviously seeing the renewal growth. So clearly it's not impacting our ability to increase our rents on renewals. So, bottom line is we're really not concerned about it, and it's a solvable problem.

Okay. So I understand that maybe some of the malls have an explanation. But are there any premier or core malls that you maybe should consider selling, given that despite the higher sales maybe they don't offer any meaningful kind of upside in same-store NOI, if you can't take that drugstore and put in a higher rent-paying tenant? Are there any malls that fall into that bucket, that you might consider selling at this point?

Not at this time. We've obviously segmented our portfolio. And we have a number of opportunistic assets on the market. I think what we want to do is finish what we started, which is to sell what's on the market. And we'll obviously continue to look at opportunities to further prune the portfolio. Because, again, one of our key business objectives is improving the quality of the portfolio. And if we have an asset that doesn't meet that qualification, it's something we'll look to dispose of. But at this time, we want to finish what we started.

Okay. And then just final question, any thoughts on when we might see on more broad-based increase in sales throughout the portfolio?

That would be difficult to guess. We're obviously -- NRF just re-forecasted their back-to-school numbers downward from last year. So we've got an interesting back-to-school season in front of us. And the economy tends to be -- and this is not a financial word -- a little squishy. And so we're not terribly optimistic about the balance of this year. But we're taking many measures to drive traffic -- social media, contests for back-to-school, et cetera. But, again, we're a little cautious as we move into back-to-school and holiday.

Okay, great. Thanks, Joe.

Quentin Velleley, Citigroup.

Hi, good morning. Joe, it sounded like you are more positive on acquisitions. So could you maybe talk a little bit more about that? How should we be thinking about some of the opportunities? And also how would you be thinking about funding acquisitions?

Well, obviously, as we have begun to improve ourselves operationally, gotten our leverage better positioned, and improved our portfolio quality, we are turning our attention to opportunities to grow our platform. We are looking at situations where we can find them. And clearly we are in a mature industry; we understand that. But we're looking for opportunities -- one off, privately owned, et cetera -- where we could find opportunities that could be -- where we would essentially recycle some of the proceeds from the sale of our non-core assets.

And, again, the assets that we would buy, we're not looking to add to our opportunistic bin, if you will. We're looking to acquire assets that are either accretive to our metrics -- which is, again, that 90% in-line occupancy, and $400 per square foot sales metrics -- or ones that we can see a path to getting there in the relative near-term. It's a challenging effort, but one that we have begun to embark on.

Okay. And then with the three mall sales, you've got Allentown; it sounds like North Hanover and Beaver Valley are close. Just from a modeling perspective -- I know you don't have those sales in guidance -- but how should we be thinking about average cap rates and the total value of those three assets, if you can speak broadly about that?

Yes, Quentin, this is Bob. I guess with respect to the -- we're still waiting for the bids from the prospective buyers. We don't want to influence their pricing. And we'll have more to talk about this, I guess, in the next-quarter call. But it's premature to talk about pricing at this stage.

Okay, thanks.

Michael Mueller, JPMorgan.

Thanks, hi. Just kind of a follow-up to the prior question. Did you mention, Joe, in your comments, about the timing for Christiana? I missed that.

I didn't. I don't think I mentioned it specifically, Michael. But the we finally have gotten special servicer approval. This stuff must seem like it's becoming our life's work here. We finally got special servicer approval. We're looking at an August close; end of August, early September close. The ducks are now in a row.

Got it, got it. And then going to Quentin's question, the three assets where it seems like -- the comments were you had bids on three assets, or interest in three of the four, correct?

Well, the bids for two of the properties -- North Hanover and Beaver -- are expected in the next 2 to 3 weeks.

Okay. And do you think there's a likelihood that you see a transaction in 2013 on those?

We are optimistic that that will be the case.

Okay. And last question -- Bob, I think you talked about the 917 Market (sic - see press release, "907 Market Street") NOI of about $1 million in the quarter. That's a pretty decent run rate considering it closed in April. Is that correct?

Yes, it's $1 million for the quarter.

$1 million. And that pretty much captures almost a full-quarter impact though, right?

Right. Just understand, too, that as we've mentioned in the past, their Kmart lease that's in that building expires in 2014. So we're not at the point where we are getting ready to talk about the Gallery redevelopment. But that would be an integral part of our decision and -- the economic decision on the Gallery. So if we were in position to move forward, that lease would likely not be renewed next year.

Got it. Okay, thank you.

Craig Schmidt, Bank of America.

Yes, I guess I have a question with The Gallery at Market East -- what is the potential for the redevelopment dollars at that project? And what kind of returns are you thinking of? And maybe just an overall vision of what the retail is going to look like in that project.

Craig, what we've been talking about -- and I mentioned a little bit in my script -- is we're really approaching the Gallery from two distinct directions. From a -- let's call it a leasing, but more accurately a vision perspective. So on the one hand, we are meeting with all of the fashion anchor department stores to look at a potential redevelopment of the Gallery that will be a very high-end, fashion-oriented development that would, we believe, be consistent with the new Center City population in Philadelphia.

In the converse, we are, at the same time, working on a vision for the Gallery that we call fast fashion and food, which is essentially to work with some of the fast fashion retailers that you know of -- from the H&Ms to the Forever 21s to the Uniqlos, et cetera -- and include with that some exciting restaurants and prepared-food operations for the property. A little bit of a different direction.

But, again, if you think about that new Center City population; its location between the convention center, historic district, on the Market East station -- that both of those visions are workable. And we had targeted, late this year, for making an announcement as to the direction we're going to head. And we're in pretty deep discussions with retailers in either category.

From a capital expenditure perspective, I think it is -- it'd be premature to give you a number. Again, as we move forward to find the vision and start to finalize transactions, we'll be in a better position to determine the size, scope, cost, and return of the project.

Great, thanks. And also thanks for the department store lease expiration charts that you've included in the supplemental for a while. I just wondered, given the store closing at New River, do you also have the potential replacements at Nittany and Washington Crown Center, given that lease expiration coming up in 2014 and 2015?

No, nor do we have any indication that those anchors will close there.

Okay, so they are doing, as you can tell, reasonably well; and most likely, they will renew?

Yes. As a matter of fact, Craig, Bon-Ton just renewed at Washington Crown.

Okay. Thanks a lot.

Washington Crown is actually quite a good story, by the way, in terms of what is going on there. We've got a number of stores, medium-format boxes under construction in an asset that could have been on the list to be disposed of. It seems to be in the middle of a resurgence.

Thank you.

David Wigginton, DISCERN.

Thank you. Good morning, guys. I wanted to circle back to your long-term in-line occupancy target of 95%. You are just under 90% right now. So I believe you've mentioned previously that your goal is to achieve that objective by 2015. So it's a little over 500 basis points of occupancy increase between now and then, which doesn't seem like it's too far away at this point, now that we're halfway through 2013. I was wondering how much of visibility you have into that. And how, just from a modeling perspective, how we should think about that in the sense of -- is it going to be very back-end weighted to 2014 and early 2015? Or is it going to be ratably spread out over the time between now and then?

Well, if you look at where we have big chunks of vacancy, based on what we have in the books today, if you will, we probably have 150 basis points of leased space for 2013 openings that's not reflected in our occupancy yet. That would include the theater at Moorestown; that includes some of the Moorestown redevelopment. That will continue into 2014 with the completion of Moorestown.

Again, some of the other retailers that Joe alluded to, not by name, but strong regional retailers will also taking occupancy at Moorestown in 2014. And we continue to make progress at Plymouth Meeting Mall, where we have had historically high vacancy rates. And the Gallery is another large project where we have lower-than-portfolio average occupancy, where we think there's a great opportunity to move those occupancy levels up.

So I don't know if it's going to be all back-ended. I think it's going to come over time, over that period. But the back-ending -- because some of the numbers that we talked about also include -- the 95% would probably be at our peak holiday period. So we have, also, the benefit of the temporary leasing during the holidays.

Okay. So the 150 that you mentioned, is that it expected to start this year? Or is it spilling over into 2014?

No, the 150 basis points, we should see in 2013.

And then, how much -- you mentioned there was something else I guess at Moorestown that's going to spill over into 2014. Do you have any sense of how much of that is?

He's just talking about a couple of restaurants.

Okay, okay. So, if you're at 150, that gets you to about 91. And then you've got another 400 to go. So I guess at those other properties, how are the leasing efforts going? And are you getting any traction at this point to where you could comfortably -- obviously, you put the target out there of 95%. I'm just wondering how the progress is going at the properties you mentioned, Bob.

And Washington Crown is another one that Joe alluded to. We have a number of boxes that are teed up to take occupancy in the next 12 to 18 months. So, again, I think it's really across the portfolio. We're achieving high occupancy rates at our premier malls. The core growth occupancy rates are adjusted out at the 90% level today. We see those moving into the low- to mid-90s over the next couple of years.

And then if we take out the non-core malls out of the numbers, and make some progress in the opportunistic, I think it's a game plan that gets us close to that number.

And, by the way, (technical difficulty) puts us in a very good position (technical difficulty). Ultimately it will allow us to put better tenants and (technical difficulty). It's all part of that same formula.

Right. So, I guess just looking at a couple of specific properties in the quarter, Prince Georges and Palmer Park saw some pretty dramatic declines in occupancy from the first quarter. Are those just temporary? And are you going to be able to get those back up? Or what specifically happened at those individual properties?

Yes, at The Mall of Prince Georges, we're actually opening up a T.J. Maxx.

There are two new anchors going to be opening up in there, prior to year-end. Palmer Parks --

Is that part of the 150 basis points that you mentioned, Bob?

Yes.

Okay. And then, I guess -- Palmer Park?

I guess we had a tenant that was actually teed up to open; it didn't open this year.

So, will they open next year?

Yes, they will open in 2014.

Okay. And then the last question -- I was looking at your lease spreads and your anchor renewals in the quarter. They were down quite a bit. Can you maybe talk about what the decline was? Is that a trend that's going to continue? Or are you having to cut rents to keep them there? And what is behind that fall, in the quarter?

That was actually one anchor tenant where we -- again, when you look at the percentage, the dollar amounts are relatively small that you're talking about. There was between $3.23 and $3.59. So we don't think it's a material change. And all the other anchors that renewed were renewed at the same rental rate. So we don't think that's indicative of a trend.

Okay, thank you.

Ki Bin Kim, SunTrust.

Thank you. Just a couple quick follow-ups. The 150 basis points of additional occupancy, how would you categorize those rents in terms of where it is relative to your current portfolio rent?

It's a mix of small shop and large-format tenants. Without doing more analysis, I don't know if I could give you a --

Well, maybe on the small shop space?

Small shop space, I think it's reflective of the -- again, depending upon where the property is, I think the rents are comparable to what we would see in the respective property.

So you're basically saying at flat lease spreads, then?

No, these are new leases.

Okay.

Right.

New releases where you would expect to see some upside. But, again, we don't have the specific information.

And by the way, Joe, you are kind of cut cutting in and out. I'm not sure I can hear you.

I said they are new leases, so you would expect to get upside. But we do not have the specific information to be able to answer the question precisely.

All right, thank you. And on same-store NOI, did you guys -- I might've missed it -- provide same-store NOI guidance for this year? (technical difficulty)

Can you slow down a bit maybe?

You're breaking up on us, as well.

Same-store NOI guidance for the year? Did you guys already talk about that? I might've missed it.

No. I think we didn't specifically talk about it, other than refer to our last-quarter guidance. We'll probably be -- I think we originally guided to kind of the 2% to 3% range. We'll be probably at the upper end of that range for lease full year, even though we're above it for the first six months. We had some pretty strong additions last year. In June, we have the Philadelphia Media Network open at the Gallery. So when you look at the second half, comps will be a little bit more challenging, if you will. So we're still holding to our original range, but we'll toward the upper end of it, NOI guidance.

Okay, thanks. That's helpful. And just last question, it seems like you have quite a few Sears locations, and a couple of JCPenneys, coming due in 2014. I'm guessing a lot of the redevelopment plans that you talked about are for those boxes. But could you maybe give us a sense of how that would impact, or disrupt temporarily, same-store NOI or sales? I'm not sure how much rent those anchors were paying, but maybe provide a little more color on if -- how we should think about same-store NOI growth, and maybe some upside.

Yes, at this point, we don't have any specific plans to recapture any anchor boxes. So, again, it's premature to talk about what the potential upside is. Until we reach a determination otherwise, we're making the assumption that those anchors are going to renew in 2014.

And we're pleased with what we're hearing out of JCPenney right now. I think they are moving in the right direction. We're obviously be anxious to hear their earnings call in about a month and see how they perform. But right now, we're seeing more traffic in the stores, more people in the stores. It's very different than it was several months ago. There's more of an opportunity with Sears right now, in terms of taking back stores, and we're working through that. But it's early, and it would be premature to talk about the impact on the Center. But we will certainly factor that in through any transaction we might enter into.

Right. But so far, have you had any conversations coming from them that they indicated that they don't want to renew on any of those boxes?

No, we have not.

Okay, thanks.

(Operator Instructions). And I'm not showing any further questions at this time. Please continue.

Well, I'd just like to thank everyone for participating on the call. We enjoyed the questions. They were challenging. And we look forward to continuing to share our accomplishments and our path to growing the Company in the future. Thank you very much and enjoy the rest of the summer. We'll see you all in the fall.

Thank you. Ladies and gentlemen, that does conclude our conference call for today. Thank you for your participation. You may now disconnect.