Pennsylvania Real Estate Investment Trust (PEI) 2014 Q4 法說會逐字稿

Welcome to the PREIT's fourth quarter 2014 earnings conference call.

(Operator Instructions)

Please note that this event is being recorded. I would now like to turn the conference over to Heather Crowell, PREIT's Vice President of Investor Relations and Corporate communications.

Good morning and thank you all for joining us for PREIT's fourth quarter 2014 earnings 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, February 18, 2015, 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 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. Our 2014 accomplishments evidence PREIT's continued evolution into a higher quality mall REIT, indicated by record sales, occupancy and Same Store NOI growth. Also distinguishing us are peer leading non-core asset sales, record low leverage and ample liquidity. These achievements coupled by the planned acquisition of Springfield Town Center and the redevelopment of The Gallery have been recognized by our shareholders. We are evolving from a company that has been burdened with lower quality assets to one driven by its higher quality assets.

The proportion of NOI from our premier assets has grown from 30.9% at the end of 2012 to 34.3% at the end of 2014, an 11% increase resulting from our portfolio transformation efforts. Think about it. When Springfield Town Center stabilizes and The Gallery is redeveloped, over 90% of our NOI will be generated from premier and core-growth assets, and sales will significantly eclipse $400 per square foot, assuming all else remains equal.

We are particularly pleased with the market's validation of the execution of our strategy resulting in multiple expansions that distinguishes us from our peers. This is particularly noteworthy considering that not long ago we had the lowest multiple among our peers demonstrating our successful and expeditious execution. We started 2014 facing a substantial hurdle resulting from last year's harsh winter. We overcame this obstacle and were able to establish record same-store NOI growth and exceed expectations for the year. Not only do we hold the line on expense growth, but we delivered 3.2% same-store revenue growth to achieving record high non-anchor occupancy of 94.5%.

We also delivered comp sales growth of 3.7% ending the year at $394 per square foot just shy of getting to the $400 per square foot mark--another historic high. Sales for comp tenants of our premier properties were particularly strong with tenants reporting increases of 5.4%. When the non-core assets are sold, we will exceed the $400 square-foot milestone. In the fourth quarter, sales from all reporting tenants, regardless of size, were up 3.1%.

In our leasing accomplishments, we executed new deals for 51% more space than we did in 2013, confirming that demand remained strong in our portfolio. Renewal spreads for leases with terms in excess of five years exceeded 15%, and we had a stellar year in improving and replacing anchor positions as well. We signed a lease and opened Century 21 at The Gallery this year. Not only was this translation first to market, it was the first store the retailer opened outside of the New York Metro, a significant accomplishment towards our redevelopment efforts and fills a vacant anchor position.

Now just this week we executed a lease with Kohl's, a New River Valley Mall in Christiansburg, Virginia and we're thrilled with this transaction to replace a former Sears location. This is clearly an enhancement to the fashion offerings at this Center located just three miles from Virginia Tech's 31,000 students. It's also a perfect example of what makes a property opportunistic in our portfolio. In this case, we have the opportunity to create a more compelling shopping environment for consumers that will lead to a more dynamic, small stop tenants and increased sales.

Earlier this year, Sears announced that it had subleased a portion of their space to Primemarket Woodrow Park one of our premier assets in the Philly market. We are excited to be part of the early rollout in the US for this tenant and view this as another indication of the high quality of our portfolio. These accomplishments are further evidence of our continuing ability to replace anchor stores and leave us just one vacant anchor existing in our portfolio today.

We've also been successful in introducing first to market in expanding new retailers to our portfolio. We introduced Uniglow, a growing international retailer, to our portfolio in two locations. Lou and Lemon at Cherry Hill, this our first transaction with this discerning tenant, evidencing the strength of our top- performing asset. Dave and Busters at Springfield Town Center rounding out the entertainment offerings at this property. Since the end of 2014, we've signed over 48,000 square feet of new leases at Springfield Town Center. Garage and Walt Whitman, another first to market Canadian retailer.

For with the re-merchandising front of our core growth assets we've made tremendous progress. At Moorestown we've best of grade local boutiques along with two new restaurants that complement the existing offerings. This has resulted in a 590 basis point improvement and 9-acre occupancy and a substantial improvement in our NOI. At Viewmont Mall a comprehensive program of right-sizing and relocating existing performing tenants to make way for Forever 21, Ulta and Buffalo Wild Wings and similarly resulting in a projected 15% growth in NOI at this property.

As is usual and expected in our industry, a number of tenants announced bankruptcies and their store closing. This year the quantity exceeds previous years but presents itself as an opportunity to recycle space to upgrade merchandise, increase sales productivity and improve rents at our centers. We view this short-term impact as one that will yield positive long-term benefits. These tenants generated an average sales of just $168 per square foot in our portfolio, less than half of our portfolio average.

We started the year with 280,000 square feet of tenants generating $8.5 million of annualized gross rent that have recently filed for bankruptcy. These names will come as no surprise -- Body Central, Wet Seal, RadioShack, Deb Shops and Cache. You can see also that we've made tremendous progress in our mission to improve the quality of our portfolio. Almost a year ago we announced the pending acquisition of Springfield Town Center which, we noted on the last call, opened to great fanfare that continued through the holiday season.

In addition to the Dave and Buster lease noted earlier, we've executed a lease within Zinburger finalizing the restaurant component. We also have 52,000 square feet of tenants opening up in Q2. Among them are Wood Ranch Barbeque, Nordstrom Rack and Regis Jewelers. We have a healthy pipeline of prospective tenants and expect to be 90% leased by year end. As it relates to The Gallery, the other tremendous opportunity that, when completed, will yield a significant quality improvements. Let us give you a brief status update.

Finalizing public financing is taking longer than anticipated although we remain on course with productive, positive discussions with public agencies. As these discussions proceed we've continued preparation for the redevelopment through detenanting and finalizing architectural plans and preparation for approval and commencement of demolition. The majority of the tenants in The Gallery will be closing in the near term. We're working with a number of anchor and impact tenant LOI's and expect The Marketing Center at The Gallery to open in mid-March. At the time we receive final approval from the city, we'll be in a better position to outline costs and returns on the project.

The other source of improved quality has been our robust and successful disposition effort. In 2014 we've sold eight properties for $192 million including three malls generating average sales of $239 a square foot at the time of their disposition. We are clearly outperforming our peer group in effectively disposing the C-quality malls. We're motivated sellers, keenly focused on disposing the five assets we have listed. We have identified a buyer pool, understand the motivations, and are currently working on agreements of sale for two of the properties. We expect to have executed agreements for these two assets in the near future. We've also received requests for confidentiality agreements on another and are marketing the remaining two.

Our balance sheet remains strong with leverage at 47.6%, the lowest point in six years and enough liquidity to satisfy our near-term capital needs. We have several upcoming debt maturities in 2015 which we're in the process of placing and will provide an opportunity to further strengthen our balance sheet.

Now, before I turn the call over to Bob, I want to take a minute to discuss our 2015 guidance given the higher expectation set forth on The Street. We believe that many of the factors impacting our 2015 Outlook will be a net positive for the company. First, we are experiencing and have already discussed bankruptcies. Let me put it in perspective. that the impact of these bankruptcies is significantly greater than we've experienced in the past few years and represents a drag on NOI of approximately 125 to 150 basis points.

We're well on our way to replacing these tenants with numerous prospects. At a time where occupancy is at record high, we're happy to be getting back spaces for tenants who are significantly underperforming portfolio averages in terms of both sales productivity and rent-paying ability. We view this short-term impact to have positive medium-term implications. And then we have dilution from asset sales. Not sure if this an area of discrepancy, but it is certainly a contributing factor compared to prior years. But we all know that selling the assets as we've been doing is the right thing to do.

And then there's The Gallery. We began an active de-tenanting process in 2014 and it will have a notable impact on our 2015 guidance. This expeditious de-tenanting will allow us to accelerate the transformation of that asset which is a significant contributor to the company's transformation and valuation.

In light of our 2014 results, we feel strongly that we'll overcome these hurdles and emerge with our transformation complete, putting us in a position to deliver strong results for our shareholders. And with that I'll turn it over to Bob for some color on our quarterly and annual results as well as a more detailed explanation of our 2015 guidance assumptions.

Thank you Joe. After a difficult start for 2014, we recovered and finished strong with solid occupancy gains and top-line revenue growth in the second half of the year. Let me go through the details.

FFO, as adjusted for the fourth quarter was $43.3 million or $0.61 per diluted share. Last year reported FFO as adjusted of $41.7 million or $0.59 per diluted share. 2014's results were achieved despite the diluted effect of asset sales that were completed this year. Same-store NOI for the fourth quarter was $75.4 million, a $4.1 million or 5.8% increase over the 2013 period. Excluding lease termination revenue, same store NOI was $74.1 million, a 5.5% increase over the prior-year period.

Results for the quarter were impacted by the following-- increased revenues were driven by improvements in occupancy and higher average rents. At December 31, 2014, non-anchor occupancy at our same-store malls increased by 20 basis points to 94.5% while total retail occupancy increased to 96.7%. Average gross rent for small stop tenants in our same store properties were up 3.9% as compared to in-place rent as of the year ago. This translated into a 3.6% increase in same-store revenues in the fourth quarter of 2014 compared to a year ago. On a combined basis, CAM real estate tax expenses were up 1.3% compared to last year. Real estate taxes were up by 11.9% while CAM expenses were down by 5.2%. If you remember the 2013 quarter was impacted adversely by higher weather-related expenses such as snow removal and utilities.

Our bad debt expense was about $150,000 better than last year's quarter. While we experienced a number of bankruptcies in December and after year-end, for the most part those tenants were not delinquent when they filed at year-end. We will however record the $600,000 bad debt charge in the first quarter of 2015 with it some balances that were unpaid at the time of the respective bankruptcy filings.

Our interest expense for the quarter was $22.7 million compared to $23 million last year reflecting lower average borrowings, lower capitalized interest and a slightly higher average rate. Average borrowings were $94 million lower than last year and the effective interest rate on our borrowings during the quarter of 5.24% was 16 basis points higher than last year.

At the end of the year, our average borrowing rate was 5.02% and our weighted average time to maturity on our mortgage loans was 4.7 years. G&A expenses for the quarter were $8.5 million, a $1.1 million decrease from last year's fourth quarter reflecting lower incentive compensation expenses for the period and other expense savings. We are pleased to have been successful in reducing G&A over the past few years as we have sold assets. And after we close Springfield Town Center and The Gallery comes back online our G&A as a percentage of revenue will benefit from the increased scale of the company.

Outstanding debt at the end of 2014, including our share partnership that was $1.7 billion a decrease of $133 million from the end of 2013. Our bank leverage ratio stood at 47.6% an 80 basis point reduction from a year ago. Our maturity schedule is very manageable in 2015 with just over $300 million of mortgage loans maturing on four high-quality malls-- Willow Grove Park, Patrick Henry, Springfield Mall and Magnolia Mall. The average rate on these 2015 maturities is 5.69%. Will have an opportunity with these upcoming maturities to make further reductions in our average cost of debt. Since the loans mature in the latter part of the year, we'll realize some benefit in 2015 but more of the benefit will be realized next year.

Regarding our Outlook for 2015, we expect that GAAP earnings per diluted share will be a net loss between $0.14 and $0.20. We expect FFO per diluted share to be in the range of $1.82 to $1.87 per share. And FFO as adjusted will be in the range of $1.87 to $1.92.

Let me take you and bridge the gap from our 2014 operating results. We included a reconciling table in our earnings release issued last evening to assist you in understanding the impact of the changes to our portfolio to arrive at our 2015 guidance. Our guidance incorporates the following assumptions, among others. Same store NOI, excluding lease termination revenues, was approximately $258 million in 2014. We expect same-store NOI growth of 1.7% to 2.7%, excluding lease termination fees.

As I mentioned previously, while tenant bankruptcies had a minimal impact on our 2004 operating results, we expect the impact to be more significant in 2015 due to bad debt charges and lost revenues as a result of downtimes following announced store closings. Our share of annualized revenues from Body Central, Cache, Deb Shops, RadioShack and Wet Seal totaled approximately $8.5 million in 2014. These tenants occupied 280,000 square feet at an average rental rate of $33. 30% below the company average. While we had anticipated many of these store closings, we anticipate our revenue in 2015 from the stores occupied by these tenants to be approximately 4% to 4.5% lower in 2015 due to downtime.

Non-Same Store NOI will be lower from the sale of non-core retail properties exclusive of The Gallery. Our share of NOI for The Gallery will be lower. For the first seven months of 2014, The Gallery was wholly-owned by PREIT. For the last five months of 2014, and all of 2015, PREIT will own 50% of The Gallery. The lower NOI results from our ongoing efforts to terminate leases and vacate tenant spaces in preparation for the planned redevelopment.

NOI from acquisitions and redevelopment activities will be higher as a result of a full year of ownership of two Street retail properties in Philadelphia, the planned acquisition of Springfield Town Center at the end of the first quarter of 2015, and the opening Luster premium outlets in August of this year. We expect a $4.7 million increase in the weighted average share count to give effect to the anticipated issuance of 6,250,000 operating partnership units in connection with the planned acquisition of Springfield Town Center and other normal share activity. We expect recurring capital expenditures in the range of $45 million to $50 million. We anticipate redevelopment and development capital expenditures in the range $80 million to $110 million.

Our guidance does not contemplate any material property dispositions or acquisitions other than Springfield Town Center. As we've done in the past, our guidance for potential dispositions is adjusted until we know with a high degree certainty the price and closing date for a transaction. For those of you who want to model a hypothetical sale, the five assets targeted for sale generated approximately $17 million of NOI in 2014 and a similar amount of NOI is expected this year.

And finally, our guidance does not assume any Capital Market transactions other than mortgage refinancings in the ordinary course of business. Regarding the sequencing of our same-store NOI growth, given the soft results in the first quarter of 2014, we anticipate the rate of growth will be higher in the first quarter of 2015, falloff during the second quarter due to the normal leasing cycle compounded by bankruptcy related store closings, and then pick up again in the third and fourth quarters.

With that, we will open it up for questions.

Thank you. Ladies and gentlemen we will now begin the question-and-answer session.

(Operator instructions)

Craig Schmidt, Bank of America.

Thank you. I was wondering-- did the Philadelphia city Council consider the public financing project in December, or is that still waiting to occur?

That is still waiting to occur. We're navigating the political winds in Philadelphia, but we're highly optimistic and continue to work towards executing the redevelopment of The Gallery which we have a high degree of confidence that we will conclude the public financing and all the appropriate discussions and documentation with the city of Philadelphia.

And then what is the current occupancy of Springfield Town Center for the specialty small shop space?

It's about 70%.

Yes, it's just about 70%. As I mentioned in my script--with a significant amount coming online in Q2.

The lower guidance, the same-store NOI sounds like it's related to the bankruptcy. Is there anything else weighing on that number?

Yes, I think you have to look at a couple of pieces of this. One is certainly the bankruptcies. Two is the detenanting, or slow closing, of The Gallery. And three is asset sales. As you think about our guidance going forward, that's really what's weighing on it.

Ki Bin Kim, SunTrust Robinson Humphrey.

I'm trying to triangulate how you get to your same-store NOI numbers. Some of your comments regarding bankruptcy helps I'm just curious, the $33 per square foot rent that these tenants are paying, are these in the good malls, in premier malls, non-core, how does that split up in terms of quality of malls that the spaces are in?

I think we have stores across the portfolio spectrum in all of our asset classes. That $33 a square foot is an overall average that probably ranges from $17 in the opportunistic to in the $40s in some of our premier assets.

Is that bad net number in your same store NOI metric or it in other NOI?

No, bad debt is in our same store NOI metric. Our NOI is essentially, the discussion as to whether it's GAAP or cash, it's basically our GAAP revenues less our GAAP expenses, all-inclusive.

Bad debt. Okay. How much of this space have you preemptively started to release and how much of that releasing is in the 2015 guidance, if any?

I'll talk in terms of dollars. I mentioned in my remarks that about $8.5 million of revenue from those tenants in 2014. We're expecting about half that amount in 2015, so again we're going to have some downtime in the middle of the year and retenanting that takes place in the second half of 2015.

I would add to the response, that $33, think about it as the average of the tenants that declared. Think about it compared to our average rent in our portfolio of $47 per square foot. From that perspective, you can see that there is upside there.

In terms of prospects at this point, in terms of the space, we've identified prospects for about 90% of the space. As Bob pointed out, about half of that will get occupied, and obviously the balance shift into 2016.

I just want to clarify what Bob said. You said $8.5 million expected bad debt from these tenants?

No.

Oh bankruptcy, oh I see.

No, we took the bad debt charge already. The $600,000, that would have been taken in January. And then, in addition, we had $8.5 million of revenue from those tenants in 2014, and those same spaces, if you look at it on the same space basis, we would expect about half that amount in 2015. So you're looking at about a $4 million to $4.5 million hit from the bankruptcies this year.

And the remainder is the following year or will we need to assume it's just stabilizing?

No, we will lease that space. As Joe mentioned, again rent is at 30% lower than the mall average, we would expect to tenant that space in 2015 and some of it will obviously spill over into 2016. I think the opportunity there is significant given the rents that they were paying and the level of sales productivity that these tenants were performing at.

Okay. In your guidance numbers, what are you assuming for lease termination fees from these bankruptcies? And I realize that every deal is a little bit different, but on average are you just assuming zero lease cancellation fee income?

Yes, from the bankruptcies you're not going to get any. The tenant doesn't want the space. They'll reject the lease in the bankruptcy proceedings. So we won't get any lease termination revenues from the bankruptcy tenants.

Okay. I'll get back in the queue. Thank you.

Michael Mueller, JPMorgan.

I was just wondering--going to The Gallery for a second. If we think about your share of the NOI that you're receiving from The Gallery after the sell down of the stake, how much is that eroding in 2015? What's the magnitude of that from the leasing, where you're going to see the NOI drop-off?

The total impact 2014 to 2015 is $7.4 million. That's a function of having a lower ownership stake for a full year and also the de-leasing efforts.

If you segregate those two and just get rid of the list and look at the de-leasing, how significant is the de-leasing component in that?

The de-leasing component-- I don't know if I can give you that off the top of my head, but it's significant. We'll have a small retail component left as well as the office leasing at the end of this year, if you think about it.

Okay. All the retail.

All the retail will be vacated, or substantially all the retail will be vacated and we'll be left with the mall primed for construction.

Is it significant? More than half of it, do you think, just a rough stab?

Yes, I'll get back to you off-line.

D.J. Busch, Green Street Advisors.

Thank you. Just to quickly follow up on Michael's question there. Joe, I want to make sure I heard you correctly when you were answering Craig's question on the impact of same-store NOI. You mentioned The Gallery and the de-leasing there. Just following along with the guidance there, it looks like you're pulling The Gallery out.

You're right. That's not same-store. I misspoke

And I know the body statement you couldn't break it out now, but would you say that the magnitude, if it were still part of the same-store number it would probably similar to the bankruptcy, maybe 100 to 125 basis point?

Yes.

Joe, when I look at the supplemental in the opportunistic group versus the non-core group, the operating metrics and performance, it's very hard to differentiate the two. Why still keep those groups segregated and not label them all non-core?

That's a good question. We'll have to take a look at it.

DJ, I think the only reason we distinguished in this presentation is the non-core ones that we are actively marketing. And a better description would be appropriate.

You don't really look at them that much differently with the exception that the non-core are actually being marketed for sale?

Right. I think we've always kind of described the opportunistic of those that we -- much like Washington Crown Center which was an opportunistic property-- our view was that we would make a decision whether to after we did whatever we could do to the asset, in that case redevelop it-- we either want it to remain in our portfolio which would then move up to the core growth group or would move down and we would dispose of it.

So you think about the non-core compared to the opportunistic--the opportunistic assets Beaver Valley is, for instance, so is Marcella Shale. New River Valley we just mentioned--we just signed calls to replace a vacant Sears there. So the question at that point-- does that give it the ability to move up in the core or does it give it the ability to move into non-core?

Kind of think about it as a sort of a holding pen, if you will, as it relates to where these assets go to. Do we bring them to market for sale, but the point is that we don't believe we've harvested all the value. We think there's an opportunity to harvest more value from the opportunistic properties.

And then you guys have some of the best disclosure when it comes to supplemental. A couple years back when you had redevelopment going on the portfolio you had a page similar to what your peers have now. Are you planning to implement something like that so we can follow along with The Gallery as it gets going, and maybe even the premium outlet?

Yes, we expect do that when we make the announcement on The Gallery.

Nathan Isbee, Stifel.

Just following up on the guidance, you talked about the bankruptcies that have occurred and the store closures associated with that. I'm just curious, what is your view on further store closure activity and how much have you reserved for in your guidance?

I don't know if we can point to a specific number-- we don't have a bankruptcy reserve, if you will. When we do our budget, we basically look at each space, make an assessment as to the tenant's performance and viability in that space, and if we don't think the tenant will survive, we'll make a call on that. But we make closing calls all the time. Oftentimes, unrelated to bankruptcy but to re-merchandising of the space or our view that they're not appropriate for the property.

Not a reserve per se, but if you look at your tenant watch list and there are some other struggling tenants out there. In your bank's, your NOI guidance range, is there allowance for further store closure activity above normal?

There is, yes.

And I'm not sure if I missed this, have your yield expectations on Springfield changed at all?

No, no. (multiple speakers)

Still coming out around the [4.1%]?

Yes, the four one is really the first 12 months post-ownership. As Joe mentioned, we have a lot of activity coming on in the second quarter and it will continue to lease up to the 90% level by the end of the year. So we'll get the more full benefit of that in the first quarter 2016. So if you looked at it on a first-year run-rate run rate basis we would expect the yields around [4.1%]. And further improvement during 2016 to get to our more stabilized yield.

So for modeling purposes, as you look at it in the second quarter, where is it open?

Yes, I don't have that information off the top of my head on a quarter by quarter basis. I will say it will blend up to the [4.1%] a year from now. Starting at 2.5 or 2 or just some sort of ballpark? Yes, I just don't have that information at my fingertips.

Christy McElroy, Citi

I just wanted to follow-up on Mike Mueller's question on The Gallery, maybe ask it a little bit differently. You're projecting $3.3 million of NOI in 2015. So what was your share of NOI in Q4 of 2014 and as we think about that de-leasing trajectory, what should we expect your share of NOI to be by Q4 2015?

Yes, I'm not sure if I have the information at that granular level to give you a quarter by quarter at my fingertips. We'll have to get back to you on that.

Okay, that would be helpful. And then just in regards to the five properties you're looking to sell in 2015, we appreciate that it's the $17 million of NOI number. Can you give us a sense of potential proceeds on the sale and as we think about dilution-- how are you thinking about the use of proceeds should the sales occur?

So, if we gave you the NOI number and looking at the sales productivity of the malls, we'll leave the pricing to your own assumptions based on a cap rate. The proceeds would be used to effectively pay down debt.

And as we think about the Cap rate, would it be similar to the South Mall, Nittany, North Hanover sales that you had in 2014?

I think given the fact that we're in active negotiations right now, we'd probably not want to respond to where the Cap rate is going to end up at.

And then lastly, you have about $0.05 of acquisition cost embedded in your FY15 FFO guidance. Is that entirely related to Springfield and should we expect those costs to occur in Q1 or Q2?

All expect to be incurred in Q1 and that's already in Springfield.

Linda Tsai, Barclays.

Excluding Springfield Town and The Gallery, what would you consider a good long-term same-store NOI growth rate for the core mall group?

3% to 4%.

And then, just to follow up on the malls that you have for sale right now, are the buyers pretty similar to the buyers who bought the malls in 2014?

Somewhat. Yes, those buyers are out there, but as we move up the quality spectrum, in terms of our assets for sale, we're seeing more real estate people who have operated retail properties before. So you're getting a bit of a blend between the pure entrepreneur kind of cash flow buyer to ones that actually have operating experience. It's a little bit of a blend now.

Are you saying you're looking at public buyers too?

No, we've not seen public buyers emerge other than to get the packages. We're not seeing public buyers emerge for the properties we're holding for sale

You're saying, that maybe the pool of buyers has widened because the quality

Yes, the point I'm making is not with making a public buyer point. I was making a point that we're seeing buyers who have real estate operating experience, as opposed to a pure entrepreneur which is what were seeing in our earlier sales.

Ki Bin Kim, SunTrust Robinson Humphrey.

Just a couple of quick questions on The Gallery. Going back to the de-leasing efforts, I think what we're all trying to do is to capture how much of that is impacting our overall NOI numbers for 2015. Maybe if I could just ask it in a simpler way. On a growth basis, on 100% owned basis, what was The Gallery producing in NOI? If I look at it in 10-Q, it seems like $10 million, is that about right?

It was more than $10 million. It was probably closer to-- Well you had a lot of things going on in Q You had the opening of Century 21 that occurred in the last half of 2014, so you have to parse this out in a fair amount of detail to really give you a good answer.

Well, whatever is easier for you to answer. So including Century 21, what would the growth NOI have been approximately?

On 100% basis, it's probably like $12 million including Century 21 and Health Partners.

And now if you're de-leasing this mall small on a gross basis, what does that $12 million go down to, approximately, with the year 2015 guidance?

It goes down-- we've given our share of the guidance at $3.3 million, so on a 100% basis it'll be $6.6 million.

Okay, so the de-leasing is costing about a little less than $6 million of NOI loss for now, right?

Yes.

And in the second question-- you open mentioned in your opening remarks that your NOI or discussions for releasing space at The Gallery for new tenants. But just curious though because we've yet to see a real release from the public market standpoint a real plan shown to the public, to the public atmosphere.

But when you're talking to tenants, and you're obviously in negotiation with these spaces--I'm sure from their perspective they care about what the scope of the plan will be, what the project is going to look like at the end. At least a Case A or Case B. What is that message you're conveying to tenants?

Towards the end what is the message, did you say?

Yes, you said you're under leasing negotiations or LOI for more leasing at that mall. I would think that from a tenant's perspective they would care a lot about what the ultimate scope of that project would look like.

Yes, we have a generally outlined scope. The direction that that scope heads whether in the total investment in the project is, to a certain extent, subject to the transaction we end up concluding with the city of Philadelphia, which is why we have been the venturer. I should say, as opposed to, we PREIT have been a little bit quiet about it until we get that resolved. But at this point discussions with tenants include a discussion of a certain level of guaranteed scope, let's call it.

Right. So is there a certain amount of variability in the rent as well because if it doesn't go like you said, guaranteed scope. If it doesn't hit that target, is there a pretty clear clause that will say --

No, no.

Michael Mueller, JPMorgan.

You talked about, I think the number was $8.5 million of bankruptcy-related revenues that were in 2014. If you're just looking at Q4 2014, how much of the revenues were in the fourth quarter that you know are going to basically be there starting Q1 going forward?

Again, that's a fairly granular question. We're going to have some of the revenues while the tenants file for bankruptcy either in December or the first quarter of this year.

You have a number of tenants conducting going out of business sales, so we don't look at it on a quarterly basis. If you want that, you'll have to do a little bit more digging.

And ladies and gentlemen that will conclude our question and answer session. I would like to hand the conference back over to Mr. Coradino for his closing remarks.

Thank you all for being on the call today. 2014 was a pivotal year, a year where we transformed our portfolio and delivered strong operating results without sacrificing our balance sheet. At the same time these messages are being heard in the marketplace and our investor base is similarly transforming. We have underlying opportunities for outside growth in our portfolio and look forward with optimism to executing for our shareholders in 2015 and beyond. Thank you all, and have a great day.

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