Pennsylvania Real Estate Investment Trust (PEI) 2016 Q2 法說會逐字稿

Welcome to the PREIT's Second Quarter 2016 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 conference is being recorded.

I would now like to turn the conference over to Heather Crowell, Ms. Crowell, please go ahead.

Good morning and thank you all for joining PREIT's Second Quarter 2016 Earnings Call. During this call we will make certain forward-looking statements within the meaning of Federal Securities laws. These statements relate to expectations, beliefs, projections, trends and other matters that are not historical facts and are subject to risks and uncertainties that might affect future events or results. Descriptions of these risks are set forth in the Company's SEC filings.

Statements that PREIT makes today might be accurate only as of today, July 27, 2016, 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's now my pleasure to turn the call over to Joe Coradino.

Thanks Heather and good morning everyone. We're coming to you today from Philadelphia, City on the rise. Over the past year, we've hosted major events including welcoming the Pope and this week, the Democratic National Convention. PREIT is not only -- Philadelphia is not only PREIT's headquarters city, but one of two concentrations of properties in top 10 MSAs and where our most transformative redevelopment project is underway.

Yesterday, we capitalized on having the DNC in town and proudly hosted a luncheon for DNC delegates and elected officials representing four districts in which we have properties in various stages of redevelopment that will contribute to the Company's growth in the coming years. It's an exciting time for us as we continue to build on the successful transformation we set in motion a few years ago by executing on our strategic plan to call the lower productivity assets and remerchandising our portfolio.

We've established a pattern of execution and are confident that our reshaped portfolio will continue to produce strong quarterly results. The formula is pretty simple. A robust leasing pipeline, driven by demand for quality space in a constrained supply environment, plus renewal spreads that exceed our historical performance driven by a stronger negotiating position, plus margin improvement driven by a focus on common area revenue growth, plus quality redevelopment projects generating yields of 8% to 10%. All equals continued NOI and NAV growth.

This morning we're pleased to outline for you the results we've achieved, our approach in a retail environment that is morphing quickly, and our expectations for the balance of the year including increasing the midpoint of our guidance range. Highlights of our results include achieving strong same-store NOI growth excluding lease terminations, averaging 4% for the first two quarters, when Springfield Town Center is included. We made a point to share our same-store NOI growth including this asset, because we thought it was important to give people a view of what they can expect from our improved portfolio going forward and highlight the strength of this property.

We also registered nearly double-digit growth in sales with over a third of this growth being organic. We delivered impressive 13.4% renewal spreads. We executed leases for 30% more spaces compared to last year. We improved lease space to 94.3% of non-anchor space excluding properties marketed and held for sale.

We closed on a highly profitable sale of street retail properties acquired two years ago, using the proceeds to reduce leverage and fund our growth initiatives. We expanded operating margins by 200 basis points through the portfolio and 100 basis points in our same-store properties. And the success of our disposition efforts continue with executed agreement of sale for Washington Crown Center and the office building we retained at Voorhees Town Center.

We have 375,000 square feet of exciting new anchor space under construction were recently opened, including two Dick's Sporting Goods, a Field & Stream, Round One Entertainment, Whole Foods, Saks OFF 5th and Legoland Discovery Center.

Last week, we attended the Primark grand opening at Willow Grove, only their fifth store in the US. This merchant's entry into the US is undoubtedly a game changer, the one we're very excited about. It's worth pointing out that none of the anchor replacement initiatives currently underway include a traditional department store, which is indicative of the evolution of our business and the opportunity it presents to us.

The mall industry is changing rapidly. And we are in a unique position where we can adapt with velocity. This includes repurposing department stores, adopting the retailtainment model, selectively introducing a mix of uses. If you go back several years we were one of the first to start introducing big box stores that had historically empowered center players into the mall environment. We're also one of the first to recognize the value adding restaurants and entertainment as a mall anchor.

We have or underway with replacing 15 department stores with 31 tenants, which include five department stores, 10 junior anchors, nine small shops, two restaurants, one entertainment use, two gourmet grocery stores and two office uses. Out of the completed department store reconfigurations, we are generating nearly 40% more sales, which is fueling retail demand.

Highlighting this robust retail demand, we have six new H&Ms under construction in 120,000 square feet, and during the quarter, we opened 18,000 square feet of space at Springfield Town Center with another 50,000 square feet of leases executed. We also signed three new to portfolio of tenants Dry Goods, Alex and Ani, and Mission Barbecue as well as a package of renewals and expansions with [Albrans]. Our top priority remains delivering on the pattern of excellence we've established in executing on our capital plan and driving growth through redevelopment and organic efforts.

Toward this end, I wanted to share some highlights of our progress on our capital plan. We announced that we put Beaver Valley Mall in the market. This reflects our commitment to portfolio optimization and balance sheet management. There is a near-term economic catalyst adjacent to the center. We made the decision to capitalize on this catalyst and to sell the asset and redeploy the capital elsewhere in our portfolio.

Prior to the formal marketing effort getting underway, we received an unsolicited offer on the property. In fact just yesterday, we closed on the sale of a contiguous two-acre parcel to a local office developer. We've also executed a new term loan, which increases our borrowing capacity by $150 million and reduces interest rates creating flexibility enhancing FFO. We have only one mortgage maturity coming due in the next 19 months.

Many of you know we are exploring the possibility of joint ventures in some of our B plus and A minus quality assets. We've identified several potential partners, which we will continue to evaluate as we move toward price discovery. We also have a binding letter of intent to sell our JV interest in one of the three power centers and are working to dispose of this asset by year end.

We continue to actively market the remaining two assets. These are all steps we are taking to reduce our leverage to be more in line with the higher quality mall REITs, consistent with the targets we outlined at our Investor Day. On the redevelopment front, just some project updates. At Viewmont Mall, Sears is closed and construction is set to begin on Monday for Dick's Sporting Goods and Field & Stream combo store.

At Exton Square, demolition of the former Kmart is complete. We are underway with Shell Construction for Whole Foods for a Fall 2017 opening. Work is underway in the former JCPenney store to open Round One Entertainment before the end of the year. At Plymouth Meeting work continues for the new LEGOLAND Discovery Center, scheduled to open in the spring of 2017.

At Fashion Outlets of Philadelphia, demolition is nearly complete, in the closed portion of the building. The majority of the balance of the property is set to close before the end of this summer. The project continues to be on track for a planned 2018 opening. We continue to move transactions through the leasing pipeline and work towards securing the remaining piece of public financing in the near term. We are hopeful, we will receive word on this before the end of this summer.

At Cumberland Mall construction continues on Dick's Sporting Goods replacing JCPenney, which is expected to open in December. At the Mall at Prince Georges work is underway and commitments for 51% of the space have been secured. We're pleased with our progress to date.

And now I'd like to turn it over to Bob McCadden, who will review our quarterly results and expectations for the balance of the year. Bob?

Thanks, Joe. I'm going to expand on Joe's comments with a little more detail on our performance for the quarter. We had another solid quarter and delivered strong results across all facets of the business. We made progress on our successful disposition program, achieved impressive renewal spreads, maintained a strong pipeline of leases, continued our G&A rationalization and maintained our balance sheet focus by executing and financing transactions this year that will reduce interest expense by over $4 million annually.

We generated 10.3% increase in FFO as adjusted for the quarter to $0.43 per share. The increase was driven by improved same-store operating results, contributions from new properties, lower interest and G&A expenses. These improvements were partially offset, by the dilution from non-core asset sales, which was approximately $0.06 per share for the quarter and $0.09 per share year-to-date.

Same-store NOI excluding lease terminations, increased by 4% reflecting improved operating results in our core portfolio and the addition of Springfield Town Center to the same-store pool, which contributed an incremental $1.5 million of NOI. Since, we acquired Springfield Town Center at the end of March 2015, it will be included in our quarterly same-store results going forward. Our year-to-date NOI performance is slightly ahead of our internal 2016 operating budget and in line with the guidance provided to the market earlier this year.

The second quarter included the impact of several tenant bankruptcies, the Easter Holiday shift, and a large amount of vacant space that is being readied for the opening of the six new H&M stores later this year. We are currently in negotiations with several of the bankrupt retailers and expect to recognize the impact from rent adjustments and store closings in the second half of 2016, which is reflected in our revised guidance.

We expect limited store closings assuming both Pac Sun and Aeropostale reorganize and emerge from bankruptcy. A number of factors contributed to the improved performance including a 3.3% increase in base rents from new store openings and higher average rents, an increase in common area revenues and a 240 basis point improvement in our operating margins during the quarter.

Margins increased to 61.3% from 58.9% last year, reflecting improved performance in the same-store portfolio and the impact of disposing of the lower productivity malls, which operate within our profit margins. Renewal spreads were strong with average rents up 13.4% for small shop tenants and up 8.6% on a cash basis for all non-anchor tenants.

We continue to deliver better than historical average renewal spreads with our new portfolio. This is an important area for us and it sets the foundation for our future income stream. Also embedded in our results our portfolio-wide renewals with key national tenants with the benefits of our transformed portfolio are visible. We added additional disclosure this quarter to present the percentage of our portfolio leased in addition to the percentage of our portfolio occupied. If we include signed leases not yet in occupancy, the total mall lease percentage increases by 200 basis points to 95.8% and our non-anchor lease percentage increases by 300 basis points to 93.3%.

Our malls were 93.8% occupied at the end of June, up 20 basis points from June 15 while non-anchor occupancy was 90.3%, up 30 basis points. G&A expenses were 2.7% lower in the second quarter of 2016 compared to last year and down 3.4% on a year-to-date basis, reflecting lower headcount. We continue to utilize the proceeds from asset sales to reduce debt and take advantage of favorable conditions in the credit markets.

The combination of lower outstanding debt balances and lower interest rates contributed to a $3 million reduction of interest expense for the quarter. Our weighted average debt balance was approximately $160 million lower than last year's quarter, while the average interest rate decreased by 37 basis points from a year ago to 4.17%.

FFO per diluted share for the quarter was $0.42 compared to $0.38 last year. FFO was adjusted this quarter for employee separation costs, while last year's quarter included costs related to the early repayment of debt and cost associated with Springfield Town Center acquisition. Net income available to PREIT common shareholders was $4.2 million or $0.06 per share compared to a net loss of $34.9 million or $0.51 per share in the 2015 quarter.

In addition to the factors described above, the 2015 quarter included a higher level of asset impairments, while the 2016 quarter included gains from the sale of our street level retail properties. During the second quarter, we completed the refinancing of the mortgage loan at Woodland Mall, when combined with the first quarter Viewmont Mall transaction, the new loans totaled $187 million dollars at an average interest rate of 3.16%, a decrease of 195 basis points from the previous rate.

At the end of the quarter, we amended our seven-year term loan to increase the borrowing capacity to $250 million. In addition, the interest rate was lowered by 55 basis points to LIBOR plus 160 basis points and the maturity date was extended by approximately one year to December 2021. The new agreement provides us the financial flexibility by incorporating a deferred draw feature, which gives us the flexibility to repay the loan at the Mall at Prince Georges when it matures in June of 2017 without the need to access the credit markets at that time.

At the end of June, we had approximately $252 million of liquidity. Our bank leverage ratio was 50.9%, 190 basis point reduction from the end of March. Our average interest rate excluding financing fee amortization decreased by 16 basis points since the end of last June to 4.01%. Our debt maturities are well laddered with 80% of our loans due after 2018.

At the end of the quarter, 93% of our debt was fixed or swapped leaving us well-positioned to mitigate the impact of any increases in short-term interest rates. For the balance of the year, we expect our redevelopment capital spending to be in the range of $55 million to $65 million. We are revising our previous estimates of net income available to PREIT's common shareholders, FFO and FFO as adjusted for the year ended December 31, 2016. Revisions give consideration to our results of operations for the first six months of the year completed and planned dispositions of assets, completed refinancing transactions and our outlook for the balance of the year.

We are maintaining the upper end of our FFO as adjusted guidance range and raising the midpoint of our guidance for 2016. The Company estimates FFO as adjusted will be between $1.84 and $1.87 per diluted share, FFO will be between $1.82 and $1.86 and net income available to common shareholders is estimated to be between $0.13 and $0.17 per share. For purposes of providing as guidance, we expect to close the sale of Washington Crown and the office building at Voorhees Town Center during the third quarter.

We are assuming that any Power Centers sales wouldn't close until at or near the end of the year and the sale of Beaver Valley Mall will not close until 2017. Our guidance does not assume any additional financings or capital markets activity for the balance of the year. We are still maintaining our same-store NOI growth target of 2.8% to 3.2% for the full year. Average quarterly same-store NOI growth rate is expected to be between 4% and 4.4%. We've made progress with several of the bankrupt tenants and are close to resolving the economic terms of our future relationship with these tenants, but that process remains fluid and subject to change. We hope to have these matters resolved by the end of the third quarter.

And with that, we'll open it up for questions.

We will now begin the question-and-answer session. (Operator Instructions) Karin Ford, MUFJ.

Just a question on the same-store NOI growth expectations, obviously Springfield is having a pretty big impact on that number. Can you talk about what your expected trajectory of growth is for Springfield and when you expect -- is same-store NOI growth there normalized and if not, when do you expect it to normalize?

We expect Springfield Town Center to continue to grow its NOI until its stabilization, probably in the early part of 2018. I think the trajectory is very similar to what we had laid out to investors at Investor Day earlier this year.

And then my other question is just on the restaurant side, there's been some mixed earnings results coming out of some of the public restaurant guys, potentially some weakness in some of their sales reports, any thoughts on adding additional restaurants to your centers on that strategy, are you looking to diversify more into more entertainment less restaurants, any thoughts on that?

I think generally what we're seeing is that restaurants are outperforming our sales of other tenants in our centers. I think our average restaurant sales exceed $500 a foot. And while one has to be careful in terms of the number of restaurants, they're not dependencies certainly and we are beginning to sort of blend that with entertainment with our -- now our second Dave & Buster's and the additional LEGOLAND Discovery at Plymouth. So I think still I'm positive and bullish on restaurants. But I do think that decision needs to be made carefully with a good amount of market knowledge and understanding of the performers versus -- there is a number of restaurant concepts out there that have been around a long time, that are tired, we're trying to stay away from that group and I won't identify them on the phone.

That's helpful. And can you just talk about what your shadow pipeline is on redevelopment and other anchor recapture projects?

Well, in terms of the shadow pipeline I mean we do have additional land deployments. We do have work underway at (inaudible) from a pre-development perspective and certainly the entitled land at Springfield Town Center that we continue to work on and that is -- again that's something that will come to the fore over the next few years. Today, the focus is again on FOP in Downtown Philadelphia, Mall at Prince Georges, that's what we're really working on today. I guess the last piece of that would be just the Plymouth with the LEGOLAND Discovery Center and the interior work on that.

What's your other question? Again, tell me your other question.

That was it, thanks.

Ki Bin, SunTrust.

First, to follow up on that previous question, what is the yield that you're capturing already from the Springfield Town Center, NOI yield, just so that we can easily model out what's to come?

We're probably yielding -- I guess, roughly about $20 million of NOI on the property. So, we're not yet at stabilization.

And I definitely appreciate the new disclosure on lease occupancy versus physical, it is about 300 basis point GAAP on the non-anchor portion of that --

Thank you for the suggestion.

Any time -- I think it definitely paints a better story. So, what is the normalized GAAP that we should expect because like -- it is probably unfair to give you 300 basis points of all that credit?

I think -- we've been thinking about this and clearly with the pipeline of transactions that we have today, it's probably higher than you would expect to see normally. So, I think we probably need a couple quarters under our belt because we haven't really tracked this historically at this level. I have to give you some visibility into that, but certainly we feel very good about the pipeline that we have. Because it not only covers assets that will impact 2016 openings, but also there's new GLA being added that effectively -- you don't really see the impact at the margin in the occupancy levels because you're adding both the numerator and denominator. So it's -- the pipeline that Joe talked about will kind of extend even beyond increases in your -- that gap between the leased and occupied.

And you guys mentioned about that the tenant bankruptcies that hit your second quarter numbers. Just curious -- roughly what does that look like from an NOI standpoint or occupancy, whichever is easier and how does that trail throughout the year?

But right now, we're still in negotiations with the representatives from the bankrupt tenants and so it would be imprudent for us to talk about that on the call, but certainly our expectations are baked into our numbers.

I guess what I mean is that did it hit -- how much did it impact your second quarter results?

Second quarter was probably about $0.005.

DJ Busch, Green Street Advisors.

Joe, just taking a look at the core growth mall, the two buckets there, major markets and market dominant both tend to do right around the same sales productivity, but there is a little bit of a gap in occupancy and certainly in occupancy cost ratio. I know some of that is impacted because the H&Ms are going to open in the coming months. But how do you -- just generally speaking, how do you think about those two buckets and the rent prospects of perhaps malls in the market dominant that may be sitting in better demographics or on better real estate, but have a lot more competition versus the market dominant bucket that may not have the same level of demographics, but may be the only game in town? How do you think about the rent prospects of those two buckets?

Well, generally, just to confirm, I think part of what you're saying in terms of occupancy is the H&M transactions that are going to come to fruition in a number of our core growth assets. That's number one. I think in terms of the core growth malls in high barrier to entry, but not a great deal of competition, secondary markets. I think the rent differential from them to the -- let's call it the stronger MSAs, is certainly not going to get as high a rent from those market. You're probably talking about a variance that's in the 10% range, one compared to the other. But I think to a certain extent, when you look at the highly competitive dense market, differentiation is also an important approach. I mean as for instance, if we look at Cherry Hill compared to Moorestown, we've been very careful to minimize duplication. Same thing we're doing with Plymouth Meeting when you look at it compared to both [our Mall] Willow Grove, which one has to consider as competitive and King of Prussia, which is down the road. So to a certain extent you responded to that issue by differentiation, focusing more in uses that aren't contained in the market, first to market transactions, restaurants, entertainment, et cetera more alternative uses, services, spas. I think that's the way we get at the solution to that problem in the major markets. In the secondary markets, when you look to put a tenant in those markets, there is going to be a rent variance.

And then looking at the redevelopment that's going on, the two Dick's Sporting Goods and Field & Stream, it looks like the rents there -- if you look at the yield and the cost, it looks like those rents are somewhere in the mid-teens, which seems pretty comparable to what a Dick's Sporting Goods would pay across the street at a strip center. What is the opportunity of introducing the same type of store growth strategy to other traditional strip center tenants whether it be some of the off-price retailers or even some of the pet supplies stores that haven't really come to the malls yet, but at similar rents and introducing them to a much higher traffic flow at middle productivity or higher productivity malls, seems like a pretty intriguing proposition. Have those conversations started to take place and is that an opportunity if you continue to get some space back in the department stores?

Well, first of let's talk about Dick's Sporting Goods as a for instance, because I think that is -- and Field & Stream. That combo store, we think is a great concept as a mall anchor and we think that because of the potential cross shopping. I mean, look, when you walk into a Dick's Sporting Goods, you probably have to get 60% through the store before you actually encounter sporting goods. And so we think from an apparel perspective they are an excellent mall anchor that will generate cross shopping. I think as you go and think more about you brought PetCo or PetSmart into the mix. We actually did do that at Crossroads Mall in Beckley, Virginia -- West Virginia and we experienced an uptick in sales, which was a little -- was a good R&D for us, a bit surprising. So not something that we would shy away.

Again, I think that's more of a secondary market mall solution than something I might do in the primary market, but again your TJX off price examples. TJX, Ross, Home Goods, we see those as -- Saks OFF 5th, Nordstrom Rack, I could go on, where we had introduced them or about to introduce them, their rents have been stronger than department store rents.

And you're correct, pretty consistent with what their rent structure would be in an open-air center and we've seen positive results in terms of cross shopping, utilizing them Nordstrom Rack in Willow Grove, Nordstrom Rack in Springfield Town Center, soon to have Saks in Springfield Town Center. So, we see them as positive, Mall at Prince Georges, TJX.

And one other things we think is important by the way is that they have a connection to the common area, right, that there is a way to move from the mall to that space as opposed to build them out as I've seen done in some malls, not ours, where they purely have an exterior entrance. And so -- I mean I think it's a real solution and I mentioned in the script that we -- the solutions that we have underway right now, the department stores we're working on, there are no traditional department stores replacing the department stores that are exiting. And again, you might be able to convince me in a while that [Dick's] becomes a traditional department store.

Christy McElroy, Citi.

So I realize you're still in discussions for the rent relief or the adjustments for some of these anchor tenants. But just in terms of understanding the mechanics, would the adjustments being made on just near term like 16 and 17 leases rolling. Are these like mid-lease portfolio-wide adjustment and would you expect to gain any recapture rates with the adjustment? I think that's usually pretty standard.

Well, I mean, first off, that is a -- that's kind of a work in progress, if you will. So, I don't want to negotiate our deal with those tenants on the conference call. But, I mean -- just generally speaking, we have about 16 locations with PacSun and 18 locations with Aero, total about 114,000 square feet -- that compares to the impact we had last year from Radio Shack, -- Wet Seal, Cache, Body Central about 217,000 square feet. We're making progress with Pac and Aero. To a certain extent, we saw this coming. This was not a surprise to us, but they were troubled tenants and we've moved over the past few years in negotiating the deals more right-sized occupancy costs. And I can't predict exactly what's going to happen. I think we are in better shape and certainly we were on a look back on the last group of bankruptcies we saw.

You mentioned it being in guidance. What impact could we potentially see on re-leasing spreads as a result of the adjustments in Q3 and Q4, and beyond Aero and PacSun, are there any other retailers that are requesting rent lease or that you're having discussions with?

With respect to guidance, again, I don't think we want to talk about that impact until we actually completed negotiations with the tenants, but right now we are not involved with negotiations with any other tenants regarding portfolio-wide rent relief or restructuring. The good news is that with the assets that we no longer own, and the ones we have on the market that we have a much stronger position in those negotiations with those tenants. And we have a higher degree of leverage, given the fact that we have a significant number of properties those tenants who want to be at. So, while no one likes to see a tenant not perform -- we feel pretty good, we're on our toes, not on our heels in those discussions.

And then just lastly, with regard to your decision to market Beaver Valley, you talked about the changing market trends in the area. Have you already had conversations on that asset and what could pricing potentially look like and are there any discussions internally, potentially do something yourself with that asset or with or without a partner?

I mean when -- essentially at Beaver the Shell decision had been up in the air for a long time. I guess about a month or so, they made the decision to proceed. We spent a good deal of time really analyzing, brought in outside consultants with respect to Beaver to really understand its impact and while we're talking about 6,000 to 10,000 jobs during construction, when that plant opens that number scales back a bit. So we thought in terms of the long-term prognosis for the asset given where we want our portfolio to go, that $500 a square feet goal, it was a, asset that had a future, a mall that had a future as a mall; b, one that we thought was better off being owned by others and really the sort of -- the crucial point to be made is we really prefer to allocate that capital to higher productivity assets. I rather invest those dollars in a Springfield or an FOP or an asset like that, [Woodland], where it's a better asset, better upside, better returns.

Michael Mueller, JPMorgan.

Few questions here. First of all, this may be kind of a dumb one, but looking at the guidance, 2016 same-store NOI guidance is (inaudible) you did 4% in the first half of the year and in the release it also says the average quarterly same-store NOI growth is expected to be 4% to 4.4%. What am I missing there? How do you get 4% in the first half of the year, 4% as an average of the quarters and the full year is 3%.

. So, Mike, it's not a silly question, because I think it's one that's difficult to get your head around, because we are actually -- given the nature of our portfolio, things are kind of moving mostly out in some cases into our same-store pool. As an example in the first quarter we had the street level retail on the same-store pool, but they were sold in the second quarter and there out, but since Springfield Town Center was included in the second quarter having been in the portfolio for more than a year, that came in. So we thought it would be helpful to kind of show the portfolio as it changes, so we kind of introduced that additional presentation of quarterly same-store. So essentially, it's just taking the same-store results that we report and averaging them. The lower guidance number that you're citing relates solely to the portfolio as it comprise today excluding Springfield Town Center. So, Springfield Town Center has that additional 120 basis points of growth for the year as well as the benefit we received in the first quarter from the street level retail. I can walk you through offline the details, if you'd like, but essentially, you really have a changing same-store pool and we're trying to represent the changing portfolio as it changes rather than wait a year or two from now till all those changes are implemented.

Floris Van Dijkum, Boenning.

Question on the -- Joe, on the potential joint venture of properties that you had alluded to on the call. Do you have in mind a number that you want get for proceeds or is it a -- what percentage would you typically look to sell in those properties?

Well, first off, we've identified several properties that would be of interest to us to include in that kind of a transaction. Secondly, it is still early, the group was in last week looking at some of our assets and I think for us it's important that we retain control of the asset. So, the interest would be certainly nothing greater than 50% and possibly lower than that because we're talking about a number of different structures. I think in terms of an amount, again that's a bit of a work in progress right now -- and amount of equity we'd like to get out of it.

Right, I was just thinking about potential proceeds that you could use for deleveraging or pay for the -- your investment plans. But you don't have a specific amount in mind though, it sounds like?

Not that we'd like to talk about at this point.

And in terms of the (inaudible) operating GAAP, I know there was a question asked earlier, presumably you will be including that into your supplemental data every quarter from here on, so we'll be able to track that over time?

That's correct, yes.

That's great. Nice piece of information. So, I think that's it for now.

Michael Mueller, JPMorgan.

I'll try not to hang up on you this time when you're answering a question. So, I heard it was a mix issue. So, I'll get the details on that, but one other question on the JVs, where you're talking about raising the capital and delevering, have you provided or can you give us any color just on a rough dollar amount that you're looking to raise and do you think the timing is 2017 event or it could just be, it's more of a longer term conceptual thing.

Actually, Mike, when you're off the line, I think we were just answering that question, but I don't think at this point we're in a position to describe the target amount of proceeds. I think as we've characterize all along we see this as opportunistic, not necessarily critical to our strategic objective of reducing leverage. So I don't know that this is a 2016 event, so we are going to continue to test the market and see if it makes sense for us in light of other opportunities that we have.

Ki Bin, SunTrust.

Just on the same line of questioning, is the asset sales you're talking about or JV interest sales, is that in addition to your plan that you've outlined on your Investor Day for 200 or 225 of malls, although I know that number is going to adjust on pricing and 145 to 155 in power center. So, it is what you're contemplating on JVing mall, is that additive to that or is that just replacement from other things.

No, that would be additive.

So ignoring the potential of JVing of malls in the future, just if you could help us walk through what the [decision] program looks like with the current plan outlined, that you previously outlined for the second half of the year. So what should we expect in 3Q, 4Q roughly?

So, based on what we have, we expect -- again we have Washington Crown under contract. We expect to close that as well as the office building at Voorhees call it mid-third quarter. And at this point in our guidance, we don't have any other asset sales other than perhaps one of the power centers that again we have a binding letter of intent. We expect that to close -- that would be toward the end of the year.

And for the 3Q, can you comment on the dollar amount and cap rate?

Not at this point. I think traditionally we've always withheld that information until the asset transactions have closed.

And so, as you comment on the jump in tenant recoveries, it was pretty sizable. Should we expect that to be the run rate going forward or is there more that you can squeeze out of that line item?

No, I think part of what you see in the recovery this year, again it's the culling of the lower productivity assets. But even if you look at our same-store portfolio, you're seeing marginal improvement. We would expect to see that continue as we talked about in the past, enhancing common area revenues, converting many leases to fixed CAM, obviously managing our expenses. So, all those elements are things that are part of our ongoing operating program and we still think we have plenty of room to run in improving our margins.

And then just last question and I know I've asked you this before, you do have quite a bit of preferred equity -- high cost preferred equity coming due next year. What's your current thinking on how to refinance that?

I think -- yes, we've been talking about those upcoming accrual dates for some period time. We continue to look at the preferred market. We continue to look at alternatives to that. So, all other things being equal, that we would like to take those high cost preferreds out, a year from now.

I guess what I meant, is preferred equity still a part of the -- is this still part of the equation for how you want your Company to be structured or at this low interest rate environment, do you think it just makes a lot more sense to go on just regular debt?

No, I think it's something that we consider that -- it's a part of our capital stack, how much, again we'll determine based on market conditions when we can call it, but we're not uncomfortable with it, but we don't see ourselves doing a significant amount more.

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

Thank you all for joining us this morning. While we're pleased with the results we've been able to achieve with the improved portfolio, we recognize that we have continued room to grow, more improvement in front of us. So we look forward to continuing to create value and driving our NOI. Thank you very much and enjoy the rest of your summer.

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