Pennsylvania Real Estate Investment Trust (PEI) 2013 Q4 法說會逐字稿

Good morning, and welcome to the PREIT fourth-quarter 2013 results conference call.

(Operator Instructions)

Please note this event is being recorded.

I would now like to turn the conference over to Heather Crowell, Vice President of Communications and Investor Relations. Please go ahead.

Thank you, and good morning, everyone. Welcome to PREIT's fourth-quarter 2013 conference call.

During this call, we will make certain forward-look statements within the meaning of federal securities laws. These statements relate to beliefs, expectations, 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, February 19, 2014. 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. Good morning, and welcome to our call.

2013 was a standout year, marking a metamorphosis of the Company into a performance-driven culture. We're proud of our accomplishments in 2013, and we enter 2014 with confidence, optimism, keenly aware of the challenges facing our industry, yet laser-focused on the execution of our strategy and the path forward.

Our balance sheet is strong and fundamentally different than it was 18 months ago. We have lower leverage than we've had since 2005, and more liquidity than we've had in recent memory.

We've achieved record occupancy levels, with 95% Total and 93.5% Non-Anchor Occupancy. And 2.6% Same Store NOI growth, the highest in a decade. We've substantially improved the quality of our portfolio, with a disposition of three non-core malls that were averaging sales of $227 per foot and occupancy of 75.5% at this time last year.

FFO is adjusted, increased to $1.92 per share, an increase of 5% from last year. We increased our dividend 25% since last December. We're pleased the market has begun to recognize that our strategy is sound, and we are delivering results.

As we reflect on the strategic objectives we outlined for you at our last Investor Day 16 months ago, let's review some of the highlights. Our balance sheet, which previously caused concern for many investors, has been a keen focus of ours. And as a result of the great strides we made, is rarely a topic for discussion at this point.

We've reduced our debt by over $0.5 billion in the past two years, and reduced our bank leverage to 48.4%, the lowest since 2005. In April, we renegotiated a $400 million credit facility, moving from secured to unsecured, increasing our borrowing capacity, extending term and reducing our interest rate.

In May, we launched an equity offering at our 52-week high, generating $220 million in proceeds. During the year, we paid off or refinanced $510 million of mortgage loans, leaving us with a growing pool of unencumbered assets.

In January of this year, we entered into term loans to take advantage of favorable pricing and bank credit markets, achieving a rate on a five-year term loan that is 25 basis points lower than our credit facility. Tying this all together, our interest costs have been substantially reduced, and we have returned much of those savings to our investors in higher dividends. We also have significant liquidity, at $540 million.

On the operations side, we delivered strong results this year, and expect further improvement in 2014. Same Store NOI improved 2.6% this year, in line with our guidance. Occupancy is at record highs, with our Same Store mall portfolio standing at 93.5%.

Renewal spreads were strong at 4.3% for small shop leases. Average in-place gross rents in our Same Store mall portfolio are up 3.1%, led by a 4.7% increase in our premier malls.

In key transactions, we opened Harrisburg, PA's first DSW; the only H&M in Grand Rapids, Michigan market. Executed new leases with Marshalls, Ross Dress for Less, Jo-Ann Fabrics at Washington Crown Center, opened Ulta at Cumberland Mall, signed Dick's Sporting Goods at Francis Scott Key Mall. Opened several key new restaurants in our portfolio, including BJ's Brewhouse at FSK, Red Robin at Valley Mall, Iron Hill Brewery, Elena Wu and Burger 21 at Voorhees Town Center, Burger Monger at Willow Grove Park. And grew occupancy by 620 basis points at Plymouth Meeting Mall.

Evidencing the favorable supply-demand environment in our sector, at the end of the year, we had 212,000 square feet of leases, executed to take occupancy in 2014. We currently have twice as many new deals in our legal pipeline as we did last year.

The composition of our portfolio has changed substantially this year as we disposed the lower-quality malls. We are continuing our efforts on the disposition front, and also evaluating the retail sales environment to make adjustments to our property-level strategies in the face of a changing retail landscape.

We sold six properties this year. Three of those were low-productivity malls, which not only improves our metrics, but also improves our leasing leverage. We have three malls on the market at this time: North Hanover Mall, South Mall and Nittany Mall. We recently executed a lease with Burlington Coat Factory to fill the vacant anchor location in North Hanover, which we believe enhances the marketability and value of the asset.

Ten sales in our Same Store portfolio were relatively flat for the year, largely a function of the ever-important holiday season. Digging into why this was the case, the weather this winter has been no secret. Particularly on the East Coast, where you had the third-highest snowfall on record, compared to recent mild winters. This obviously has a considerable impact on our portfolio, given our geographic concentration.

Let's not forget the impact of the weather and the shortened holiday season had in driving sales to online merchants. I'll take a minute to talk a little bit about our perspective on online sales. We know the Internet and the variety and convenience it offers isn't going away. But we also know people need to socialize. So what we're focused on is the socialization of the shopping mall. This will be the mall's distinction when shoppers are making their decision on how and where to make a purchase.

How are we dealing with this? We believe that offering people experiences beyond simply shopping will make for a successful and vibrant mall environment.

Dining and entertainment are key components in today's shopping center. Early proof of this theory is the performance of this category. Sales, even during the snowy holiday season, were up 6% for the comparable restaurants in our portfolio.

This year, we opened 13 new restaurants, and have several more in the pipeline. We are continuing to also add amenities that will lead to increased mall dwell times and offer some in-home conveniences like soft-seating lounges, free wi-fi and play areas.

We're also keenly focused on new technology and ways to replicate the convenience and varieties shoppers are accustomed to online. And we're focused on adding retailers to our portfolio that understand the importance of the shoppers' experience, that are deploying the best omni-channel strategies. This is a brave new front, and we're looking forward to sharing some exciting new developments with you soon.

On the technology front, last quarter we spoke of our mall app that offers convenience by allowing them to search for a particular product from mall retailers. Since its launch in September, this feature has been utilized over 600,000 times.

At Moorestown Mall, we're demonstrating our ability to get creative in a competitive environment. This quarter our vision for this property started to become a reality with the opening of the new Regal RPX theater, and two of four anticipated restaurants: Celebrity Chef Marc Vetri's Osteria and Firebird's Wood Fired Grill.

In fact, one of the area's most respected food critics gave Vetri's Osteria a great review in this weekend's paper. We're eagerly anticipating the opening of Jose Garces Distrito, and Rosario's Salon and Spa later this year.

And the last piece to really distinguish this property will be the unveiling of Boutique Row, a collection of the area's finest boutiques, whose merchandise will cater to the high-end demographic in this area. Upon completion, the Moorestown Mall will be regarded as a beauty, fashion and culinary sanctuary. And the model is one we believe will be replicated in other areas of the country.

The final prong to our strategy was putting ourselves in a position to strategically grow our portfolio. With stability in our operations, we believe we have positioned ourselves to begin focusing on long-term growth.

One key element of our growth plan is reinvesting in our existing portfolio. We're currently reviewing several opportunities in our portfolio. Many of these opportunities stem from availability or anticipated availability of anchor space, which I'll address in a moment. But before I address that, let's talk a little bit about the gallery.

Last month, K-Mart announced they will be closing their store in the first half of 2014. It was always our intention to recapture this store upon expiration at the end of August. So this news doesn't impact our plans. We have spoken in the past about two potential directions for this asset. And while we have no specific news to share, we can tell you we have ruled out traditional fashion department stores. Further, we know that food will be an important component, and this will be a fashion destination.

The project is beginning to take an identity. We're working with two potential anchor tenants that would be new to the market, along with several other key tenants. While simultaneously seeking additional public financing and considering JV opportunities in order to preserve our capital and maintain our liquidity position, so that we can grow our portfolio.

Moving back to anchors for a moment and the question on everyone's minds: what about JCPenney and Sears? With respect to JCPenney, as you know, one of the 33 stores that the company plans to close is in our portfolio at Exton Square Mall. As noted in our press release, this market contains the best demographics in our portfolio. And we are optimistic about the opportunities this presents for us.

On to Sears. We have one former Sears location that's currently vacant in our portfolio. That's at New River Valley Mall. We have a letter of intent with a replacement anchor for this location that will allow us that additional small-shop space as well.

In terms of external growth, our partner is underway with pre-leasing Gloucester Premium Outlets, which will open in late Spring of 2015. With that, I'll turn the call over to Bob McCadden to give you more color on quarterly and year-to-date financial performance, and assumptions underlining our 2014 guidance.

Thank you, Joe.

As Joe mentioned, 2013 was a noteworthy year for PREIT. We achieved record occupancy, the highest Same Store NOI growth in a decade, and ended the year with a solid balance sheet.

Turning to our operating results, FFO as adjusted for the fourth quarter was $41.7 million or $0.59 per diluted share. Last year, we reported FFO as adjusted of $35.2 million or $0.60 per diluted share. 2013's per-share amounts include the impact of the 11.5 million share offering and the dilutive effective of our 2013 dispositions, while the 2012 quarterly results included add-back adjustments totalling $0.09 per share, comprised of $3.7 million of executive separation expenses and $1.9 million of non-cash charges related to the early repayment of debt.

Same Store NOI for the fourth quarter was $77 million, a $1.2 million or 1.6% increase over the 2012 period. Excluding lease termination revenue, Same Store NOI was $75.9 million, a 0.3% increase over the prior period. Same Store NOI results for the quarter were impacted by top-line growth. Increased revenues were driven by improvements in occupancy and higher-average rents.

At December 31, Non-Anchor Occupancy increased by 150 basis points to 93.5%, while Total Retail Occupancy increased by 60 basis points to 95%. Average gross rents for small-shop tenants at our same-mall properties were up 3.1%, as compared to in-place rents as of a year ago.

Revenues from the same-tenants percentage sales and percentage rent were approximately $300,000 lower than prior period, due to the weather-related effects on holiday sales. CAM expenses were also impacted by the weather, and increased by $1.5 million or 6.5% over last year, due to a combination of higher snow-removal expenses and energy costs in the quarter.

Insurance expense was higher, primarily due to a credit received in the prior-year period. Real estate taxes were up by $1.4 million or 10.8%, primarily at our New Jersey properties, due to a combination of higher assessments and higher tax rates.

Our bad expense -- bad debt expense for the quarter was 0. However, in last year's quarter, we actually recorded a $500,000 credit in bad debt expense due to the collection of previously reserved amounts.

Interest expense for the quarter was $23 million, compared to $34.6 million last year, reflecting lower-average borrowings at lower-average rates. Average borrowings were $385 million lower than last year. And the effective interest rate on our borrowings during the quarter of 5.08% was 85 basis points lower than last year. At the end of the year, our average borrowing rate was 4.82%, and our weighted average times maturity on our mortgage loans was 5.5 years.

G&A expenses for the quarter were $10.4 million, a $1.7 million increase from last year's fourth quarter, reflecting higher incentive compensation accruals for the quarter. Outstanding debt at the end of 2013, including our share of partnership debt, was $1.8 billion, a decrease of $271 million from the end of 2012. Our bank leverage ratio stood at 48.4%, compared to a ratio of 62.4% a year ago.

Since the end of the year, we have continued to make improvements to our balance sheet. In January, we entered into two unsecured term loans for an aggregate of $250 million. And made initial borrowings under the term loans to repay a $130 million amount, then outstanding under our resolving facility.

Our maturity schedule is very manageable, with a $51 million mortgage loan on Logan Valley Mall, the only borrowing with a 2014 maturity. By its the terms, the maturity date of this loan can be extended for another year.

In 2015 we have mortgage loans maturing on a number of high-quality performing properties: Willow Grove Park, Patrick Henry Mall and Springfield Mall, among others. The average rate on the 2015 maturities is 5.69%. We will have an opportunity with these upcoming maturities to make further improvements to our balance sheet.

Regarding our outlook for 2014, we expect that GAAP earnings per diluted share will be a net loss between $0.01 and $0.09. We expect FFO per diluted share to be in the range of $2.01 to $2.06 per share. The midpoint of our FFO guidance represents a 12.2% increase of 2013's FFO, and 6.3% over last year's FFO as adjusted.

Let me bridge the gap from 2013's results. Same Store NOI, excluding lease termination revenues, was just north of $272 million in 2013. We expect Same Store NOI growth of 2.6% to 3.2%, excluding lease termination fees. In 2013, we recorded lease termination fees of $1.7 million. Our guidance range assumes termination fees of $1.5 million on the lower end and $2 million on the higher end.

The assets we sold this year generated approximately $5.7 million of NOI in 2013. We incurred or will save about $3.1 million of interest expense related to these assets. The sale of these properties is about $0.04 per share dilutive to next year's results.

The G&A run rate is assumed to be approximately $36 million at the midpoint of our range. We typically have higher G&A expenses in the second quarter due to the ICSC Convention.

Like 2013, 2014's third quarter will include approximately $2.5 million of revenue from historic tax credits. Interest expense will be favorably impacted by a full year of lower interest rates on our bank borrowings, and mortgage loans that were refinanced. And the issuance of common shares and the sale of assets to repay debt.

Recurring capital expenditures and tenant allowances are estimated to be in the range of $45 million to $50 million, reflecting an expected increase in leasing activity. Redevelopment and development capital expenditures are expected to be in the range of $50 million to $60 million.

Regarding the sequencing of our Same Store NOI growth, we anticipate that growth will be back-ended with higher growth rates in the third and fourth quarters. The weather-related factors that impacted our fourth-quarter results have continued into the first quarter of 2014. The first quarter may look a lot like 2013's fourth quarter, with lots of noise around weather-related expenses, and significantly lower margins on our redistributed utilities.

The early part of the year will also include the disruption resulting from moving tenants around to accommodate our re-merchandising and re-development plans at properties such as Viewmont Mall and Washington Crown Center. Our guidance does not contemplate any other material property dispositions or acquisitions. But if you assume a midyear sale of all non-core assets, our estimate of FFO per share would be approximately $0.04 lower. In addition, our guidance does not assume any capital market transactions other than mortgage refinancings in the ordinary course of business.

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

(Operator Instructions)

Craig Schmidt of Bank of America.

Given the 0.02% Same Store NOI in fourth-quarter 2013, relative to your guidance for 2014 in the range of 2.6% to 3.2%, we were wondering, were some of the [Aleutian] deals moved form 2013 into 2014? Or what is giving you the confidence in such a lift sequentially?

Hi, Craig, this is Joe. I think a couple of things. One is, as we mentioned in the script, we signed a number of transactions late in the year, right? Over 200,000 square feet of transactions late in the year that are not going to move in until 2014 for the most part.

And we also had a number of November, December openings that also impacted -- we're going to get a full-year impact in 2014 from a very small tail, if you will, that we had in 2013.

Given Signet's acquisition of Zales, I was wondering -- obviously you have a number of malls that have both tenants. Is there a potential for store closings or rationalization of this space? Or do you think those two concepts can coexist?

Well, they do coexist right now, and quite well, actually. And our perspective on it is that they will continue to coexist. But the reciprocal to that is that both of them are in phenomenal locations in our properties.

So if one were going to get a store back, wouldn't you like to have it on the 50-yard line in a corner location? Which is typically where the jewelry stores are located. So I think in either event, we're comfortable with the acquisition. And by the way, editorially, I think Signet is a great operator.

Okay, thanks.

Christine McElroy of Citi.

In regards to the $50 million to $60 million of redevelopment spend you expect in 2014, can you talk about where those dollars are being spent? So what properties, how much of that do you expect to come online in 2014?

And what kind of returns are you expecting on that capital? I'm just trying to get a sense for projects and timing.

The largest part of that amount, Christy, is that the Gloucester Premium Outlets is basically our share of the development of that property. As Joe mentioned, that won't come on stream until 2015.

The balance of those dollars relates to -- we're opening a couple of large-format retailers, again, later in the year. And returns on those incremental dollars are typically in the high single-digits.

Okay. And then just following up on your comments about adding restaurants and other experiences to the mall. How many new restaurants would you expect to open in 2014?

And of the 13 that you opened in 2013, how many of those were restaurant replacements? Or is it just repositioning of space that was previously anchor or small shop?

Of the 13 openings, the overwhelming majority were new openings. I'm sitting here -- I can't think of a replacement as I sit here. Although there could be one or two I'm not recalling.

As it relates to 2014, I don't think we have a count, as we sit here, on the number of restaurants. But we certainly can get back to you.

Okay. And then just lastly, your Same Store NOI guidance for the year, you commented on it a bit. Just trying to get a sense for -- you said it would be weighted a little bit more towards the second half in terms of timing of expenses in the first quarter and re-merchandising in the first half. Can you give us a sense of what the progression should look like through the year in terms of the growth rate?

You're probably going to be close to flat for the first quarter, as we sit here today. And that's going to be largely driven by what happens with weather between now and the end of March. We'll probably see in the 1% to 2% range in the second quarter, and then 3% to 4% ranges in the third and fourth quarters.

Okay, that's helpful. Thank you.

Ben Yang of Evercore.

Maybe for Joe, and sorry to ask another question on the 2.6% to 3.2% Same Store guidance. But I saw we got the recent leasing deal that's going to help the 2014 numbers.

Would you say that -- is this driven primarily by a handful of your better malls? Given that it looks like more than half of your portfolio still is experiencing the slowing sales.

Can you repeat the question, Ben?

Yes. What's driving that Same Store -- is it the better malls? Is it across the portfolio?

And I ask because it just seems like -- and I brought this up before in the past. But it just seems like there is this persistent and broad decline in sales throughout the portfolio. So I'm wondering what's driving that number for 2014.

I think a couple things driving it. I mentioned that we signed a bunch of deals at the end of the year. We had a lot of late openings.

I think in terms of property type, it's driven primarily by what I'll characterize as the A and B malls, right? As opposed to the C malls. It's driven by our premier and our core growth properties, not so much by the opportunistic group.

The reality is that you're seeing a number of tenants move to the B mall space. So it's a relatively robust list of tenants who are looking at the B mall space.

And in some cases, by the way, there are typical power center tenants or open-air tenants that are moving to those centers. Like the Marshalls, the TJXs, the Rosses, Dress Barn, Ulta, et cetera. So that's driving it to an extent.

There are also in-line tenants there -- Body Central, Charlotte Russe, et cetera, who are focused on that B mall space. So I think it's the As and Bs, or the premier and the core-growth properties that are driving it.

To your comment around sales, though, by the way you didn't ask the question, but I will answer it anyhow. To your comment around sales, we think weather has been a big problem for us. We typically -- winters here get 15 inches of snow, and we're approaching 60.

We got 13 storms and it's been difficult to get out to shop. It's been difficult to get out. And so we think that's had a big impact on our sales performance. And I try and convince Bob McCadden that it is going to stop snowing.

So given your comments on weather and the impact on sales, do you expect that comp sales will stay flat, maybe fall into 2014? Is that part of the budget as well?

Yes, we believe the consumer -- who has been on ice, by the way -- will come out and shop once the weather improves. It was great to go to a mall yesterday. There was a lot of traffic at the malls yesterday. It was in the 40s. We need no snow and some shoppable weather.

Got it. And just final question from me. Maybe just comment on the BC sales market. You guys have been very active.

Do you intend to continue to sell malls? What's the market look like this year?

Are there more buyers? Are there more malls for sale? Any cap rate expectations, how that's changed from last year to this year?

Ben, this is Bob. With respect to property sales, I think Joe has always characterized this as, it's very challenging dealing with some of the entrepreneurial buyers. Let me ask him to comment a little bit more on this.

It's adventurous, there's no question about that. We had Hanover under agreement with earnest money that fell out of agreement. We signed an agreement with South Mall this morning, so we now have that under agreement of sale.

It's adventurous. I was asked the question -- I think at the last call -- is financing an issue? I said no. I think I now reverse my answer to that question and say, yes, it is.

But we are focused on disposing of those three assets. And we're confident we're going to get it done.

Got it. And why did these previous deals fall out? It sounds like financing might be an issue. Is there anything else in diligence that comes up?

No, actually, in the most recent one, it was a financing issue. In Hanover, we have improved the property, as I mentioned. We now have Burlington Coat moving into the last anchor position. And we think we will be able to successfully sell that asset.

Got it. Thanks, guys. p

Daniel Busch of Green Street Advisors.

With regards to the occupancy cost ratio, finishing the year at 12.7%, can you remind us what your target is for new deals?

Well, the target is going to vary by merchandise category. But our goal is to continue to increase that occupancy rate. I think the near-term goal for us is moving it up to 12.8% at the end of 2014.

Right. I just want a little more color on how the on-average occupancy cost ratio changes between your premier malls and then going down the quality spectrum. Can you sign new deals at your premier malls at 17%? Or is it more like 15%?

No, certainly we can. We actually do disclose in our supplemental the occupancy costs by tier. So I think it reflects what we would expect to see going forward. Certainly as you move up the quality spectrum, we're able to drive the occupancy cost at a higher level.

Right. But the premier malls is only slightly higher than the core growth from the occupancy cost ratio disclosed. My question is, do you see more embedded NOI or [ranker-up] opportunities in the premier mall compared to core growth? And then, looking at opportunistic being quite a bit lower than those tiers, is there actually a little more rent opportunity as leases expire in that piece of the portfolio, versus what we may see in the core growth?

I think the answer to your question is, we think one of the opportunities that we have as a Company is driving occupancy in both the premier and core growth assets. And I think we're beginning to accomplish that, and did in 2013, and will continue to do so.

One of our goals in the core growth portfolio is to begin to really move those assets. Some of those sit at $380, $390 a foot. To take those north of $400 through merchandising. And I think, in the end, that also presents an opportunity for us as the roll-overs occur, to drive those rents.

But in that premier group, your specific question. It sits at 13.2% right now. And we think there's significant opportunity to take that north of 15%.

Okay. Just switching gears, what's the strategy remaining in the strip center portfolio? Are you actively marketing those five remaining assets along with the three non-core malls?

That's a to-do for 2014. That is a joint venture with one partner. And we will begin and hope to execute on a number of those sales this year.

Okay. And then just one last question. Following up on Christy's question from earlier with regards to the $50 million to $60 million of redevelopment spend. As redevelopment ticks up, particularly with bigger projects at some of your better centers, are you guys planning on providing disclosure similar to your peers that outlines the potential spend and estimated deals?

Yes, I think we've done that historically. To be honest with you, most of the spending that we have in our budget, other than the Gloucester Premium Outlets -- a lot of it is one-off, adding boxes or finishing up. It's dollars allocated to finishing up leasing on some of the properties that made it through our last redevelopment cycle with still some vacancy.

For example, Voorhees Town Center and Plymouth Meeting Mall. So when we initiate new redevelopment projects, we'll include the disclosure that we've customarily provided to investors.

Okay, great. Thanks, guys.

Michael Mueller of JPMorgan.

First of all, it looks like you pulled Beaver Valley from to-be-sold bucket. So can you just talk a little bit about why now, and what was going on there?

Well, when we put that on the market, it existed in a market that we thought was challenged from a demographic and economic perspective. And with Marcellus Shale being an opportunity in that region of Pennsylvania, Shell has been close to announcing -- but not quite announcing -- building a $2 billion plant about a mile from the property that's anticipated to bring 10,000 jobs. And so given that, we thought the better of really bringing it to market right now.

And we have seen occupancy move in the right direction there, and we have interest from restaurants, hotels, et cetera, for out-parcel opportunities. So we're looking really to harvest the value, and will be a little bit more watchful in terms of what the opportunities really are there.

And by the way, that holds true for other assets in our portfolio as well. You have heard about Washington Crown. That's a property a couple of years ago we would have taken to the market.

Today it has an impressive list of tenants that either have recently moved in or are in the process of moving in. And we have a pipeline of transactions that we're anticipating executing. So again, either we're just being a bit more -- we want to make sure we harvest the value that's there.

So more likely you're still selling it, but it's just further down the road at this point.

We may sell it. We may not sell it.

Okay.

It remains to be seen. It depends on -- again, we always talked about that opportunistic bucket as either up into the core group or out. And we'll look at that same test for Beaver.

Okay. And a couple Bob questions. Is this the last year of that third-quarter tax credit that you get?

No, we still have a couple years left on this. There's actually two tax credits that we've received. And I can give you the details. But they're laid out in our 10-K filing, which we will make in another week or so.

But we have another couple years left on the larger balance. And there's some trailing mass that will come in the years following that.

Okay, got it. And then you mentioned the $0.04 dilution if you sold the malls that were currently being marketed midyear. What does that assume for redeployment of proceeds? Is that debt pay-down?

That's debt pay-down at our marginal cost of financing.

Got it, okay. That was it. Thanks.

(Operator Instructions)

Linda Tsai of Barclays.

In terms of bringing in more restaurants into your malls, is this a relevant strategy across your portfolio? In other words, is this equally true across the premier core-growth opportunistic malls?

Or would you still prefer a pair of retailers for certain mall types? I guess you touched upon it with your comment of bringing in restaurants to Beaver Valley.

Yes, I think, Linda, that it's a relevant strategy across our portfolio. I think as you move down the quality spectrum, the kinds of restaurant you put in become more local, if you will. When you move into that opportunistic group to the extent you are going to put a restaurant in, it's unlikely that some of the national theme restaurants would locate there.

But we think it has significant application across the portfolio. And really, Plymouth Meeting is a great example where, if you took the sales volume of all of the restaurants at Plymouth Meeting that we put in -- not including the newly-opened Uncle Julio's, by the way -- they exceed what the department stores are doing in terms of sales volumes.

So it has become a significant anchor at Plymouth Meeting. And we see that incrementally as we add one or two restaurants to other malls also.

Thanks, that's helpful. Just a follow up -- what's your expectation for renewal spreads in 2014? Can we expect a similar level to what we saw in 2013?

Well, I would add that we were -- through November, we were plus-4% in renewal spreads. And we signed a couple of large floor mat international retailer to our portfolio, which really dragged us down. But it was the right deal to do. I think going forward as you look at 2014, we're going to want to be north of 4% in terms of our renewal spreads.

Thanks.

You're welcome.

Ki Bin Kim of SunTrust.

It looks like your occupancy picked up a lot in the fourth quarter. If you normalize -- I know this is probably hard to do. But if you had to normalize some of the shops that opened in the fourth quarter, what would your sales per square-foot number look like?

I would guess it's up. So maybe it would be actually a positive comp? Would that be a fair estimate?

Given the limited operating history of some of these stores, I think it's really very hard for us to project what the impact would be on our comp store sales. But suffice it to say, we're looking any time we're adding tenants that they overall be accretive to our portfolio metrics. But really we would just be guessing at this point, Ki.

Okay. And going back to The Gallery at Market East, I think you mentioned that you're looking at a JV partner. Would this potential partner -- well, first of all I should ask did you identify this partner?

And the second, would a partner be just a pure financial partner? Or someone with development experience?

Well, I said that we're considering a JV partner in my remarks, and we are. I think we're primarily looking to find ways to be more -- given the size of that project and the potential capital spend, we're just looking for opportunities to be able to make a decision that's driven by being very careful in our deployment of capital.

Okay. And in your opening remarks, Joe, you mentioned that you're -- I think, if I heard correctly -- you're looking at twice as many deals this time around versus last year.

I did say that.

You did say that?

That's correct. I said that.

So I was wondering if you could just maybe provide a little more color on that in terms of, what does that mean in terms of square footage? And how much -- putting that comment in totality, what does that mean for -- is that representing 50 basis points of occupancy or 100 basis points? I was wondering if you could provide a little more -- some more parameters around that.

Well, I mentioned two things in my remarks. One is, over 200,000 square feet of deals signed in December -- or late in the year, more accurately. They're going to move in, in 2014.

And I mentioned twice the volume. We have over 300,000 square feet of leases in lease negotiations right now. So combined, you're talking about somewhere between 500,000 and 600,000 square feet in transactions. That represents -- Bob, do the math.

Well, if you boil it down to -- we expect our occupancy to go -- we were at 93.5, we would expect to see 100-plus basis point improvement by the end of 2014.

Okay. And just last question. Going back to Sears and JCPenney. I'm sure this probably ranges widely. But if you had to re-tenant that to another anchor of similar size, typically how much should we expect that you have to put in terms of redevelopment or CapEx dollars does that involve? That kind of re-tenanting for a box like that?

I don't think we know the answer to that question. Because when you frame the question, it is a situation by situation.

We're doing a deal right now where we're replacing a Sears box, and the unique situation is that Sears also occupied mall space, in addition to box. They had about a 48,000-square foot store, plus a mall space. So the uniqueness of that is we're taking back the 48,000 square feet, expanding that box, but yet taking back mall space.

Again, each one is unique. So it would be a difficult question to answer. I think it's safe to assume that, given the rents that the anchors are paying -- which is typically low single-digits, that there is an opportunity to make an investment in the box and deliver a return that's accretive to us.

Okay. That's it for me. Thank you, guys.

Ladies and gentlemen, that will conclude our question-and-answer session. I would like to turn the conference back over to Joe Coradino for his closing remarks.

First of all, thank you all for participating and for your questions. I'd just like to close by saying the year ahead holds many challenges and opportunities for PREIT.

We believe that among those are key priorities. We need to execute on our disposition strategy, drive our operations through the introduction of more high-productivity and experiential tenants that are winning the battle for the consumer dollar, and finalize our redevelopment plans for The Gallery. Doing all of this without compromising our balance sheet or NOI growth. Thank you all very much for participating.

Ladies and gentlemen, the conference has now concluded. We thank you for attending today's presentation. You may disconnect your lines.