Pennsylvania Real Estate Investment Trust (PEI) 2014 Q1 法說會逐字稿

Good morning and welcome to the PREIT First Quarter 2014 Earnings Conference Call. All participants will be in listen-only mode. (Operator Instructions) After today's presentation, there will be an opportunity to ask questions. (Operator Instructions) Please note this event is being recorded. I would now like to turn the conference over to Heather Crowell. Please go ahead.

Thank you and good morning everyone. Welcome to PREIT's first quarter 2014 conference call.

During this call, we will make certain forward-looking statements within the meaning of federal security 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, April 24th, 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, and good morning. I want to start out by thanking two of our board members for their contributions to the Company over the past several years, George Rubin and Ira Lubert. Most notably, George Rubin has been an instrumental member of the executive management team, driving our acquisition, disposition, and development efforts for most of the Company's history. He's been a leader in our industry and is a dear friend. We believe these changes, though, will help to strengthen our corporate governance position by reducing the size of the board and leaving us with an increased proportion of independent directors.

When we began our last call, we discussed being enthusiastic and optimist about 2014. I want to assure you that even the worst winter in 25 years and the second highest snowfall totals on record in our region have not dampened our enthusiasm. To be clear, excluding weather-related expenses, Same Store NOI was up over last year's first quarter.

The geographic concentration of our portfolio has amplified the impact of the unprecedented 2013, 2014 winter weather with record snow removal costs and utility expenses. But the winter is behind us. The business overall is performing well and conditions are positive. Demand for space in our portfolio remains strong and leasing activity is healthy. We're reconstituting our portfolio to one focused on high quality malls in the eastern United States that is well positioned to deliver NOI growth above our peers. We remain steadfast in the execution of this strategy and are excited about our future.

Same-store revenue grew by a healthy 3.8% this quarter. Our renewal spreads were 7.4%, highlighted by 12.8% in our premier assets and over 19% on transactions where the term was greater than 5 years, strong indicators for the future.

And we have over half a million square feet of new leases to take occupancy this year, including by the way, transactions executed late yesterday, which explains the difference between the release and the script today. These new leases will sharply enhance the quality and strength of our tenant roster, including Century 21, Forever 21, Ulta, The Buckle, Francesca's, Clarks and Dick's Sporting Goods among others.

The transformation of PREIT is well underway. The pending acquisition of Springfield Town Center, when coupled with the redevelopment of the Gallery with Century 21 as its anchor, the remerchandising of our core growth malls and our disposition program will ignite this transformation.

Regarding Springfield Town Center, whenever there's a sizable acquisition, there's always execution risk. However, we are unwavering in our confidence that the acquisition of Springfield Town Center is in the best long-term interest of the Company. The strategic location, superior demographics, quality of the renovation, and demonstrated tenant interest confirms the potential of this property.

The property has it all. It's accessible to mass transit at the confluence of three major interstate highways. It's located in one of the densest, highest income, well educated, under retail trade areas with unemployment levels significantly below the national average. It has it all. Historically, anchor sales were at the high end of expectations and several of the anchors have either completed or in the process of remodeling in anticipation of the grand opening. Additionally, the current lineup of tenants including a luxury cinema, upscale fitness center, new-to-market dining experience and top tier retailers is driving significant tenant interest. Leasing progress is strong with approximately 65% of the inline space committed and with a robust queue of prospective tenants and progress meeting our expectations.

When Springfield Town Center is added to our portfolio and our non-core malls have sold, upon stabilization our premier and core property portfolios are expected to generate in excess of 89% of company mall NOI. That is transformative.

Company demographics will also be transformed. On a pro forma basis, the weighted average number of households in the Company's trade areas with incomes greater than $75,000 would increase by approximately 3.75%. The weighted average with incomes greater than $100,000 would increase by approximately 5.5%. The median home value within their respective trade areas will increase by approximately 6%.

We look forward to taking you through this stellar property and sharing our progress in the months to come. We're also psyched to announce Century 21 department store to anchor the eastern end of the Gallery and approximately 100,000 square feet of the former Strawbridge's building. The iconic brand chose the Gallery for their first store outside of New York metro area, which is testimony to the quality of the location, with its access to mass transit, tourism, the office population, and the residential neighborhoods of Philadelphia.

Century 21, with its affordable luxury merchandise, is serving as a catalyst for other retailers, restaurants, and entertainment use. The tenant is a perfect match to the new demographics of the Philadelphia CBD and is consistent with our vision of creating Philadelphia's only transit-oriented, multiuse property offering accessible luxury retailing and artisan food experiences. We are creating a new retail corridor for Philadelphia that will be anchored by a very successful Macy's on one end and a similarly successful Century 21 on the east end.

As the project has become more defined, we expect to discuss costs and return projections during our second quarter call. We are focused on a more streamlined project that is sensitive to our capital investment without compromise to our high single digit return expectations for this asset. We continue to pursue public financing and discussions with potential JV partners and we believe this transaction enhances our ability to accomplish both.

Recent sales trends are not impacting tenant demand at our premier and core growth properties, giving limited supply and improving economic conditions. Leasing has been strong in our portfolio as we implement our property remerchandising plans. These plans were designed to improve the performance of key properties through selective tenant replacements. At Viewmont Mall, a mall that has historically over 95% occupied, we are successfully right sizing tenants and selectively closing underperforming stores. We have executed a lease with Forever 21 and are at lease with several other impact transactions that will drive rents NOI. The results are expected to deliver stronger sales and ultimately move the property into our premier group.

A similar story can be told at Jacksonville Mall, where Forever 21 will strengthen the property's draw as their only store within 50 miles. A testament to the improving economic conditions can be seen in the changing retail lineup at Washington Crown Center, one of our opportunistic properties. We're pleased to announce that we have signed leases with Ulta and Joann Fabric will join Ross and Marshall's, solidifying the retail hub in this market and dramatically improving the credit profile and performance of our tenant base.

In sum, we concur with the view expressed by most sale-side analysts that it is essential to have a high-quality asset base and are executing accordingly. We have improved our portfolio and are recasting our demographic profile and the strength and quality of our earnings.

As we discussed previously, we are intent on maintaining a strong balance sheet with leverage below 50% and ample liquidity. Toward this end, we are under way with a number of transactions. We've begun the process of selling our interest in Red Rose Commons and are exploring opportunities to sell the remainder of our Power Center portfolio and are marketing are non-income producing assets. We're also advancing discussions to joint venture better quality assets including the Gallery. South Mall is under contract with a nonrefundable $1 million deposit and is expected to close in the second quarter of this year. There is interest and we're making progress on the sale of Nittany and North Hanover Malls. We expect the marketing process for North Hanover Mall will be improved when Burlington Coat Factory opens in May. At this time, we're not looking at any additional acquisition candidates and are focused on executing on the major projects we have underway.

With that, I'll turn the call over to Bob McCadden to give you more color on the Company's operating performance.

Thanks, Joe.

As Joe mentioned, an otherwise solid quarter was overshadowed by some unusual weather-related expenses. Let me cover the operating highlights and then drill into the expense variances in a bit more detail.

From an operating perspective, we continue to track our 2014 business plan objectives. Non-anchor occupancy at our same-store retail properties rose by 20 basis points. If we were to exclude our non-core assets, non-anchor occupancy increased by 50 basis points. We saw an 80 basis point increase in occupancy at our premier properties and a 30 basis point increase at our core growth malls and a 60 basis point increase at our opportunistic malls, despite several malls being impacted by planned store closings early in the year to accommodate second half 2014 store openings. Rents per square foot were up 4.8% from the same period last year with increases noted in all of the property tiers.

Looking deeper at our renewal spreads for the quarter, which outpaced any other quarter since the recession, we are happy to report that for transactions over five years, we generated renewal spreads of over 19%. When you break it down further by property tier that underscores the relevance of our focus on quality properties. Our premier malls generated spreads of approximately 13%. Core growth spreads were up 8%. Opportunistic mall spreads increased 6% while non-core mall spreads declined 22%.

The quality of new deals we executed is also something we're proud of. We often don't talk about Dick's Sporting Goods as an anchor but they really are a traffic driver. This quarter we signed a new lease with Dick's at Valley View Mall in LaCrosse, Wisconsin and are under construction with another store at Francis Scott Key Mall in Frederick, Maryland. In addition to these deals, we signed a number of tenants that we believe will help us drive sales increases at our properties where we previously were focused on maintaining occupancy.

Sales per square foot were down modestly, taking into account the shift in the Easter holiday from March 2013 to April 2014 and mall closings due to snow and ice conditions. Let me share some facts about the impact of snow on our wholly-owned operations. In the first quarter, we plowed approximately 390 times and we estimated that we salted over 700 times. In total, the hours our wholly-owned malls were closed due to weather it equates to about 66 days. In very simple terms, each of our malls was plowed on average 12 times, salted over 20 times, and closed for 2 days.

Same store NOI for the quarter, excluding lease terminations, was $62.4 million, a $3.8 million or 5% decrease over the 2013 period. The increase of snow removal expenses and utilities, net of tenant reimbursements, were $4.5 million. If we normalize for these items, same store NOI would have increased by $700,000 or about 1.1%. We also experienced a decrease in percentage rents and rents from paying a percentage of their revenues in lieu of minimum rent of approximately $560,000 from amounts expected to be received in the first quarter, also weather related.

Interest expense decreased $7.9 million primarily from lower average debt balances and lower interest rates. In the first quarter, our average balance was $259 million lower than a year ago and the average interest rate of 4.99% was 79 basis points lower than in the first quarter of 2013.

G&A costs were up about 2.5% for the quarter, reflecting higher compensation expenses. We expect our full year of 2014 G&A to be approximately $35.5 million, down from our original guidance amount.

From a balance sheet perspective, we expect the remaining part of 2014 to be relatively quiet. We have one mortgage loan on Logan Valley Mall with a 2014 maturity, but that loan contains an available one-year extension option.

Our liquidity position remains strong with approximately $533 million of liquidity at the end of the quarter, including $495 million of available borrowing capacity.

Regarding our outlook for 2014, we expect that GAAP earnings per diluted share will be a net loss between $0.14 and $0.20. We expect FFO as adjusted to be in the range of $2.00 to $2.04 per share and FFO per diluted share to be in the range of $1.92 to $1.96. We expect same store NOI growth of 2.0% to 2.4%, excluding lease termination fees reflecting the impact of the extraordinary weather-related expenses in the first quarter. We will incur approximately $0.06 per share of accounting charges related to the employee separation expenses in the second quarter. We incurred approximately $0.02 per share of acquisition expenses related to Springfield Town Center. Under current GAAP rules, these costs are expensed. If you remember previously, such costs were capitalized as part of the purchase price of an asset.

While we have a deposit for the sale of South Mall, our guidance does not contemplate the dilutive effect of such sale. If we close midyear, the sale would dilute 2014's FFO per share by approximately $0.02.

Finally, our guidance does not contemplate any other material property dispositions or acquisitions. 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.

Thank you. (Operator Instructions) Christy McElroy from Citi.

Hi, good morning. Just to follow-up on your comments on your disposition program and reconstituting the portfolio. On two other mall conference calls this week, we've heard of sort of a strengthening of private market demand and financing for malls sort at the mid to lower end of the quality spectrum. Many of your mall peers have undertaken or are embarking on sort of very aggressive asset disposition programs. Can you provide your thoughts on whether or not you would think about a much more aggressive disposition strategy in this market, sort of beyond the non-core malls that you've identified and power centers, maybe testing the waters on more of your opportunistic malls?

We think -- Hi, Christy. It's Joe Coradino. We think that initially we want to sell these three properties. We think that's key at this point. One we have under agreement with hard money up and the other two significant interest. By the way, part of that interest is coming from buyers who are looking to put together portfolios by acquiring malls from some of our peers. As we sell those three, as those become real, we'll certainly look beyond that. But we also have a number of properties in our opportunistic group that we think we're improving and harvesting value out of. The discussion I just had about Washington Crown where we've recently added Ulta and Joann Fabrics to Marshall's and Ross. I mean that was a property that probably two years ago we couldn't give away. Today, we saw -- we've really harvested significant value. We like the approach of selling what's on the shelf, if you will, and then continue to improve the value of some of our other assets and bringing them to market, if and when appropriate.

Joe, just to follow up on that, in your remark -- in your opening remarks, you said sales per square foot trends are not impacting tenant demand at premier and core growth properties. Maybe I'm reading too much into that. But can you comment sort of on the opportunistic malls and how retailers are looking at sales trends and approach to leasing? Bob, I think you mentioned 6% releasing spreads in that bucket. But I'm just wondering how the conversations on those malls sort of differ from those on your premier and core growth malls.

Well, for one, if you look at the example of Washington Crown, it's an example where we're really bringing what I would call power center tenants or strip center tenants to an enclosed mall environment. And that's one of the opportunities I think that exists with the opportunistic property to bring in what I would consider atypical retailers, although also national credit retailers. You know the rest of your leasing for the most part in that group of properties is more local and alternative uses. And so certainly it is more of a challenge at the lower end.

Okay and then just lastly, Bob, to follow up on your comment on percentage rents, how much do you think of the decline in percentage rents year over year was weather related? Sorry, if I missed this in the disclosure, can you comment on trends and bad debt expense in Q1?

Yeah, as it relates to the percentage rents and percentage sales, typically we're estimating that for budgeting purposes. We're really looking at the rolling 12 performance so we would expect, taking the first quarter that our actual numbers should track very closely to our budget, but we off by about $560,000 in those two categories. It's hard to separate the, just the general weakness in apparel from the weather-related but we think a large part of that decline was clearly weather related given the fact that we had a number of store closings, days that the malls were closed. In addition, even if the malls weren't closed, people weren't necessarily interested in going out to the malls. We've actually seen a bit of an increase in April since the weather's gotten a little bit better. In fact, we got a report just before this call of traffic being up at many of the properties.

Christy, I would also add one thing to the comment I made about the opportunistic malls and that's Marcellus Shale. One has to keep in mind that we have a number of properties, a half a dozen, in the Marcellus Shale region where there is a great deal of activity around shale and we're seeing some indications that those properties that there is economic development occurring as a result of that. Again, we had Beaver on the market. We took it off the market. We're starting to see some positive trends there. We think there's an opportunity to harvest value before and if we take those markets -- those properties to market.

Then just to close the loop on your bad debt question, I think our bad debt expense is tracking -- again our expectations, which for the last few periods have been below our long-term historical average. So we don't necessarily see any negative surprises in the bad debt area this year.

Thanks, guys.

Nathan Isbee from Stifel.

Hi, good morning. Just focusing on the same store NOI for a second. Can you give us a sense of how the costs flowed through in the quarter in light of the expectations for flat same store NOI when you -- on the last conference call in mid to late February?

Sure. When we the arguments where we had closed the month of January and if we look at the composition of energy versus snowfall, we had obviously a pretty good handle on where we were with snowfall expenses. We actually continue to see the higher energy costs, quite frankly, in February and March compared to the same period last year. That was probably snowfall earlier in the first quarter and later it was the energy-related expenses.

Okay, so, but in the release you referenced I think $3.5 million increase over last year. I assume that was all snow costs versus energy or that was --?

That was a combination of the two.

Okay, all right and then on the Century 21 announcement, I understand it's a little premature to talk about other tenants, but could you give us a sense of Century can go both ways. That they're in Jersey Gardens, which is more of an outlet center as well as street retail. So they're really defined in where they go. Would you say that your visions for the property are more discount, perhaps layering in some outlets there? What would you say you're pursuing right now?

First off, let me just -- first off, hi Nate.

Morning.

Good morning. Let me give you a little sense of their configuration. They're going to take 16,000 square feet on the first floor at 8th and Market and the entire second floor of 801 Market, if you will. So in essence, they will be an anchor to the mall primarily. So it's one piece of it and I think it's important to keep in mind and we would envision that remember we have two levels below that. We have both a street level and a concourse level, both of which are high traffic areas. So we would envision that there be two additional, let's call them impact tenants, anchor tenants below them as well. So that that would in essence anchor the eastern end of the property. We see from here, you know we might mix in a number of outlet centers, outlet tenants. But that's not going to be necessarily the primary focus if we end up doing it, we think they're -- and we've done this sort of thing by the way at our other properties, we just put J. Crew outlet in Plymouth Meeting and it's more of a hybrid. So I would not see it as being again as we move forward with the Gallery being a pure outlet center.

Okay, does Macy's have any say in that?

No, Macy's is not our tenant. When I talked about Macy's I meant that they are across the street. I kind of see the East Market retail corridor as almost functioning like a mall. So you have a Macy's at 13th and Market and a Century 21 at 8th and Market. If you're asking whether Macy's would have an impact on our ability to do this by impacting retailers making decisions, I don't know the answer to that question. But they would not have a direct say in what we do.

Right, understood. Okay. Then just focusing on Springfield, can you give us any sense, I know it's only been a short three weeks or so since you made that announcement, but can you talk maybe about some of the leasing progress that's going on there and I know that there's one spot there for an anchor, an additional anchor on that property, what you perhaps envision there?

Well, I mean the leasing interest in Springfield is -- I mean I don't want to overuse the word but it is the appropriate word, is robust. We have -- we're working on that space that you're talking about. We actually have several tenants interested in that space and we're going to need to make a decision in the near term as to where we go with that. So, to the extent we're able to bring that to closure, that would take a sizeable chunk of space, put it in the lease category, take it off the market and make a big difference in terms of our ability to lease the balance of the mall.

So, in short, we're making progress. We're making progress both in terms of that space and bringing in some what I would call bridge, aspirational tenants to the property as well. So, again, Springfield is something that I think as we get closer to grand opening in October and you get to see the property and you get -- and we get to share more with you of the tenant roster, I think our belief in this property will become a belief of yours.

I look forward to that.

Thank you.

Ki Bin Kim, SunTrust.

Thanks. Just a couple quick questions on your FFO guidance. You decreased it by $0.015. Just curious, given that (inaudible) costs were probably about $0.05 of that miss in this quarter, and you also have additional item related to the severance costs of $2.6 million. Where do you expect to make up the difference?

I think the -- we've actually shared FFO and FFO is adjusted. So we've actually added back the severance cost of the FFO or adjustment, adjusted line.

Okay.

Then with respect to the guidance, I think some folks have alluded to when we made our initial earnings guidance estimate for the year back in February, we did have some inclination as to the impact of weather-related expenses from our experience from January to mid-February. We did include that in our original guidance. What we didn't anticipate was the continuation of the severe weather through the balance of February and into March. So we had been aware and had taken it into account for a portion of the quarterly results that we just reported. But again not the full impact when we made our initial estimates.

Okay and on the Gallery, with Century 21, was this the original fast fashion, this retailer that you were talking about for the past year or so or was there any kind of change in terms of the tenant you were targeting for the center?

Well, first off, we've been trying to get Century 21 to come to Philadelphia for at least 5 years. They're a fantastic retailer. The volumes that they do are almost mind boggling and I mean that. Probably would meet or exceed the volume that any luxury department store does in most day malls in this country. So we've been trying to get Century 21 to come to the Gallery for a while.

We really see it as a tenant that really is kind of in sync with the new customer in Philadelphia, if you will. All of those customers that we want to bring to the Gallery, the new residents of Center City, the commuters, the conventioneers, the visitors to historic district, the office workers. We think Century 21 will be a huge draw. It's almost a cult following. It's a very iconic brand.

I mean the -- so yeah, it was clearly one of our first choices. They have been very hesitant to make a move out of New York. So we're pretty excited that we got them to move out of the New York metro, particularly excited that the Gallery's going to be the choice. Cause we think it is really the perfect beginning.

Maybe it's a little too early, but could you talk a little bit about the CapEx that would be required and what kind of rent you would be getting for this particular lease?

Yeah, we really can't talk about the particular transaction that we did with them at this point, the specifics of it.

Okay and I mean given that you were at least last quarter talking about bringing a partner for this project, does this maybe throw a wrench into the process?

No, quite -- actually quite to the contrary. We think that this will help us to accomplish that.

Okay, thank you.

Think it will help us to accomplish that. We think it makes a project that was a story and somewhat amorphous, real. Particularly again, there are -- there are other transactions that will follow this. So we think it's a -- it is a real positive.

Let me ask another related question. So I know on the other side of the project you were looking at possibly bringing a higher -- a movie theater into Philly, which there is none of. Do you have any update on that and does this -- does this lease really accelerate some of the other conversations that you had with other retailers or -- any kind of color you could provide on some other incremental lease initiatives, obviously the success with this project?

Well, again, it's a positive for potentially bringing in other tenants including a potential theater. Again, with respect to the theater, we want to do the right kind of theater. We want it to be a -- I don't know quite how to characterize it other than a, more of an upper end, upscale theater if you will, wider seats, reclining seats, serving food in the theater, etc. That's the direction that we're heading.

Okay, thank you, guys.

Craig Schmidt, Bank of America.

Thank you. Do you know when Century 21 wants to open the store?

Yes, their plan is to open up in October of this year.

Great. Then the -- given the 65% inline commitments at Springfield, do you have a better sense of when that might close, that transaction?

Probably I think probably in the first quarter.

Okay, great. Thank you.

Thank you, Craig.

Ben Yang, Evercore.

Hi, thanks. Maybe going back to the guidance question, you guys have previously talked about how your internal (inaudible) growth would ramp this year. Kind of given where you guys sit after the first quarter, it does seem like you could your miss your downsize guidance. So I was just wondering if there's anything new, maybe positive, that kind of offsets that first quarter decline so you can actually hit the new guidance?

I think Joe talked a lot about it already on the call. Century 21 as well as we have 500,000 square feet of signed retailers that will take occupancy in the balance of the year and we still have a pipeline of other transactions we're currently working on. I think we said at our guidance we -- I think we're pretty clear in saying that we thought the first half was going to be rather flattish and then as we accelerate into the third and fourth quarter, we would see a much more -- to use Joe's words, more robust growth. We still have those expectations for the second half of 2014.

Well I think you said second quarter up 1% to 2% and the third and the fourth quarter up 3% and 4%. So are those numbers higher and I was wondering if you'd commit to quantify how much higher your expectations are for those particular quarters?

I would say they're modestly higher. I'm not sure if I'm prepared to give a specific percentage. I think some issues that were unclear three months ago are now more clear. We've also obviously been very aggressive in looking at our costs for the rest of the year and have taken steps to try to mitigate the negative impact of the first quarter on our [CAM] expenses. So we're, again, being much more aggressive in trying to manage our costs in the latter part of the year.

So based on kind of Century 21 being kind of a new positive, I mean are they paying kind of an inline rent or are they paying more of an anchor rent when they come online later this year?

I would say that they're paying higher than what is a typical anchor rent.

Okay and then maybe final question, what's the cap rate on South Mall?

It's in the ten range.

Great. Thank you.

Cedrik Lachance, Green Street Advisors.

Thank you. Joe, you made the couple of street retail acquisitions in downtown Philly on the Walnut and Chestnut Street, I believe. Could you give us some details as to what the strategy is there and how much capital has been spent and will be spent?

Well, it was really one acquisition and they were combined in sort of one deal. There was -- the acquisition was in the $19 million range, $19.5 million. And it is very -- the strategy behind it was it was quality retail and literally when you walk out our front door, you just about trip over it. It was very -- it's in terrible -- it's got terrible tenants in there today. Rents on Walnut Street have now eclipsed $200 a foot. Across the street from this property, there's a major redevelopment going on. Cheesecake Factory is about to occupy the space. We acquired it and we've got a queue of tenants that want to move into the space. I mean a queue and we're kind of picking and choosing here. So it really -- it's something that was a quick acquisition. It'll be occupied, fully occupied in the near term and nothing that we're going to spend a lot of time on or be a distraction.

Where do you expect the stabilized yields will be?

What was the question? I'm sorry, Cedrik.

Where do you expect the stabilized yield will be once you have new tenants in there?

My sense is it'll be 8% to 9%.

Okay. Do you expect to do any more street retail acquisitions or is it just a one-off here?

It was just a one-off deal.

Okay. Just looking at your tenant sales and I recognize this is a short period of time, but what's surprising I think in your tenant sales is that the upper end of your portfolio actually has a greater sales decline than the rest of the portfolio. I'd be intrigued as to what are the reasons for that? In particular, I'd love to hear your sense as to what's happened to Cherry Hill sales versus other properties?

Well, first off and I'm not one to ever make excuses, we had a really, really bad winter. I mean people have not been able to get out to shop. It's interesting, the malls in the -- our malls are absolutely packed right now. The weather is -- has broken and we're seeing preliminary, very positive sort of trends, people carrying bags. Don't have the direct sales information at this point, obviously, but I mean again weather was a big factor. Well, everybody was really impacted by the timing of Easter, but weather was certainly a big factor.

Okay, all right. Thank you.

Michael Mueller, JPMorgan.

Yeah, hi. I apologize if I missed this, but if everything goes okay and you roll up all the asset sales, what you could be working on in the joint venture side, about how much do you think you could have in 2014 in dispositions or affected dispositions?

Yeah, Mike, given the fact that a lot of these transactions are still in the early stages, I think it would be highly speculative for us to put numbers on all that -- I mean we could go through asset by asset, but quite honestly when you try to wait -- we don't have a dollar plan that we're trying to execute. We're trying to execute the best plan in the long-term interest of the Company. So, to give information I think would not be -- not very meaningful to our investors.

Okay, I mean do you have a sense, a rough sense of how much of it, thinking of a split could come from sales versus joint venture, capital raising that way? If you're thinking of that overall bucket.

I think we're like any other business operation, when looking at multiple opportunities and we'll kind of pick and choose from them that provide the best result for the Company. So to the extent that we can make progress on the non-core sales, we'll certainly pursue that. But we're looking at all these avenues at the same time.

I guess where you're really looking and your question is, is as it relates to our goal of maintaining leverage below 50% given what we've got going on. I think it's important to note that as Bob said we are looking at a number of different avenues not just disposition of our non-core assets, the three malls, but JVs with -- in some of our power centers, non-incoming producing land as well as potential JVs with call it higher quality assets. I think it would be and all of which is geared towards having enough capital to keep that leverage where we want it to be to maintain a strong balance sheet. To kind of lay out what we're going to get from each is difficult at this point cause there's a number of discussions going on right now.

Yeah, that's fair. That's why just trying to get the size of the overall bucket, what you think was achievable this year. But okay, thank you.

Linda Tsai from Barclays.

Hi, it's Linda Tsai. I appreciate that you're transforming the quality of the entire portfolio, but as it relates to say the premier and opportunistic malls, what are the major differences in how you're going about accomplishing this?

Between the premier and opportunistic malls, I mean essentially the premier malls have already achieved the objective and obviously one of the things we want to do with the premier assets is to continue to improve the tenancy, to improve the quality of the tenancy. There is significant demand in those spaces -- in those centers, add better tenants that are going to drive sales and NOI. So I'm going to guess that's the -- that's sort of the typical real estate enclosed mall business.

If you look at the opportunistic assets, that's more of an adventurous process. As I mentioned earlier in the call, part of it is bringing non-traditional retailers, more power center kind of tenants to the properties. You also have a number of inline retailers that play more in that property type, the Charlotte Russe's, the Body Central's, etc. to bring those and also to add to it, local regional retailers as well as non-traditional uses. We've gone to social security offices, junior colleges, etc, so a little bit more creative energy at the opportunistic end. Some cases, we've done that at the properties where we have on the market for sale. In some cases, that's a work in progress.

Thanks for that. Then, I think it was mentioned that releasing spreads of the non-core malls were down 22%. What drove this and did this have much of an impact on your overall releasing spread?

Well, what's happened over the last few years is I'd characterize them as churn spaces. You have a number of tenants that might be national tenants that we've continued to renew. In some cases at the non-core malls decreases each time they come up for renewal. In a lot of cases, they're still paying more than what we would otherwise get from a local or regional tenant. So this is one of the reasons why we're so focused on disposing of this segment of our portfolio because they don't necessarily see it as a opportunity to reposition any of these assets for the same type of growth we expect from the balance of our assets.

Then did it have much of an impact on your overall releasing spread?

Obviously, it did and to the extent that the overall average was in the mid 7's and we saw leasing spreads above that for the top two tiers. So it's a higher volume of transactions. So it did have an impact. I don't have the numbers. I can get them to you later in terms of what the spreads would be excluding that. But certainly, as I gave you the tiers, they were all evenly opportunistic were north of 6%. So clearly had an impact on the overall averages.

Right, thank you.

Christy McElroy from Citi.

Yeah, it's actually Michael Bilerman here. So, Joe, I wanted to sort of go into the Springfield transaction. So since you've announced that transaction, your stock is down 12%. You've lost almost $160 million in equity market cap. REITs over that time were up a percent. Malls were up 3%. I guess do you step back and sort of say, maybe the market's telling us something?

No, I think the market is telling us something. They're telling us that they don't feel the way we feel about the acquisition of Springfield Town Center. But we do think that over time that the market will and by the way and that's going to mean that we need to execute on the leasing, which is really the key job in front of us. There is no construction risk. Execute on the leasing of the property and deliver the kind of tenancy that we know we can deliver and demonstrate that at the end of the day that Springfield is going to be another premier asset in our portfolio and that Springfield Town Center is going to really be a -- enhance the value of PREIT as opposed to be a detractor of the value or reduction in value.

So it's kind of look at it at this point as it's a marathon. It's not a sprint. The belief isn't blind faith at this point. It's important that you get that. I mean the kind of tenant interest in negotiations that we're in at Springfield Town Center clearly tell us that this was the right thing to do and that the -- what we believed we could achieve there is achievable and will be achieved.

The question or the job for us right now is one, to execute, and two to communicate that to the market. We'll be doing that on a regular basis as we finish this call and go to Vegas and they read etc. on non-deal road shows. Because we believe that if you think about this Company, Michael, and you think about this Company with Springfield Town Center as a premier property and you think about this Company adding the Gallery to that mix. The Gallery right now as a bad property is doing in the $400 a square foot range. Imagine with a Century 21, with a beast like that as an anchor, with additional sort of exciting new first-to-market anchors and that property performing at that level and our having disposed of the lower quality assets and are having taken a number of the core properties up into the premier group, I think the market will respond very well to that PREIT, to that transformed PREIT. And that's what we're up to doing.

Right.

It's going to take us a little bit of time.

Right, look I'm not doubting the potential quality of what Springfield will potentially ultimately be and what it means for the addition to your existing portfolio, but at some point the structure of that transaction and the price that you're paying in addition to capping the upside to PREIT cause you got to pay the same cap rate on future upside on NOI, that in essence I think is really what the market is saying to you not that they, we don't mind. I think everyone wants to have a better quality portfolio, but the entry fee, the cost of doing it is what the market is effectively saying was, it's too much. You have a 40 -- I think a $46 million, $46.5 million break fee. You've lost over three times of that in your stock that effectively, I mean are you -- are you even contemplating going to Vornado and saying, you know what, you're going to be a 10% shareholder in our Company. I think we got to restructure this deal for the benefit of both of us. Cause it doesn't benefit you for our stock to be below $17 and it doesn't benefit us as we're trying to execute our strategy?

The answer to that question is, no we're not contemplating that.

No restructuring, no walk away, nothing?

No.

So how do you get the stock up? Do you buy back shares? What, I mean there's a big disconnect between sort of current value or potential value of the assets you own and where the stock is trading. So how do you narrow that gap?

We execute.

No other, sort of thoughts coming out? Stock buybacks? Potentially looking at selling more assets? Selling the Company? Other--

No, we talked about. Michael, we did talk about the fact that we're looking at selling quality -- some of our or higher quality assets in the form of JVs. So we are looking at those kinds of things to maintain the financial -- the strength of our balance sheet, to maintain leverage below 50% in the face of the acquisition of Springfield and the work to be done on the Gallery, looking at a JV for the Gallery. So it's not -- we're not doing nothing. It's that at this point, we're not considering reneging on the Springfield deal and we're not, at least at this point, thinking about a stock buyback.

Okay, thank you.

This concludes our question and answer session. I would like to turn the conference back to Mr. Joe Coradino for any closing remarks.

Thank you. The accomplishments we've outlined on this call signal a major step in the transformation of PREIT. The new PREIT will have solid operational performance including renewal spreads and earnings growth driven by stronger tenancy and enhanced portfolio quality. The pending acquisition of Springfield Town Center, with its superior demographic profile, exciting tenant roster and the Gallery with Century 21, a premier retailer located in the most dynamic corridor in Philadelphia will drive our future performance, particularly when coupled with the successful repositioning of several of our core properties. Our disposition efforts are progressing as are our JV discussions for certain assets that will allow us to execute our strategy while maintaining a healthy balance sheet. To reiterate, the goal is to have a portfolio focused on high quality malls in the eastern United States that is well positioned to deliver NOI growth above our peers.

We look forward to seeing many of you at ICSC and many REIT events in the next few months. Thank you very much.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.