Pennsylvania Real Estate Investment Trust (PEI) 2017 Q1 法說會逐字稿

Good morning, my name is Amy, and I will be your conference operator today. At this time, I would like to welcome everyone to the PREIT's First Quarter 2017 Earnings Call. (Operator Instructions)

I would now like to turn the call over to Ms. Heather Crowell, you may begin.

Good morning, and thank you all for joining us for PREIT's first quarter 2017 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, April 26, 2017 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 Chairman and CEO; and Bob McCadden, our CFO.

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

Thanks, Heather, and good morning, everyone, and thanks for taking the time to join us today. Our first quarter results were disappointing, but anticipated and necessary. They were necessary in order to ensure the continued strengthening of the portfolio to enhance long-term shareholder value. We've been in front of the rapidly evolving retail business, as evidenced by our record leasing volume for the past 2 quarters, our anchor replacement track record and our pipeline of tenants for future occupancy. We've executed 5 anchor leases since the beginning of the year, with 3 being traditional department stores in the past 2 months, highlighted by the execution of a lease with Belks last night for Valley Mall.

As we have the honor of kicking off earnings season for the mall REITs, we thought we would start with a provocative statement. We agree that the historic view of the mall, one that relies heavily on apparel and accessories really is dead, and a new model is rising. We also agree that there's too much retail in this country. But we're alive and well with a bright future and continue to execute on achieving the anticipated growth outlined in the multiyear plan we issued last quarter. Here is why. We sold a significant amount of underperforming properties, nearly 40% of our portfolio, in markets retailers will ultimately vacate. Prior to 2012, we operated in 13 states, 20 markets, 33 million square feet, with sales of $365 a foot. Today, we boast a portfolio of quality properties in compelling markets where more than half of our NOI is generated from high-barrier-to-entry major markets. And in properties, we continue to own and improve, we have dramatically differentiated our tenant base, and are responding to consumer preferences. On a same-store basis, we have nearly 1 million square feet more space dedicated to dining, entertainment, fast fashion, off-price, big box and health and wellness than we did 5 years ago.

Today's consumer craves a variety of offerings, and is agnostic as to where they shop. They want it all and a personalized social experience in one place. We're taking a consumer-driven approach to crafting our tenant mix. We've long been transforming the traditional mall model. Our first Marshalls opened at Cumberland Mall in 2002, our first Whole Foods opened at Plymouth Meeting Mall in 2010, and our first Dick's Sporting Goods at a -- as a mall anchor opened at Patrick Henry in 2006.

Since 2012, PREIT's been successful in transforming the company and improving the quality of our portfolio, our financial flexibility, our people and our relationships, positioning the company for the growth cycle we're in. We've been refining the retail real estate experience by proactively replacing department stores and diversifying our tenant mix to enhance the consumer experience and reflect our visitors' aspirations. The detoxing -- yes, detoxing -- we're in the midst of, provides the freedom to craft this -- craft this special mix of tenants that reflect the mall experience today. We understand that the shareholders and the media are captivated by the department store closings that have taken place as well as the in-line bankruptcies. As a result, we believe our current share price reflects an overreaction to a retail cycle and fails the value of the underlying real estate or the value-creation opportunities. All businesses evolve over time and we believe we have a unique opportunity to continue to diversify our tenant base.

Traditional department stores have grown over the years primarily through consolidation. They've spent little effort rationalizing your store basis or investing in a store experience. In fact, the department store is not as relevant to the consumer as it once was. In well-located real estate, the closure of these stores is a positive. There are significant consumer dollars, some $2.5 billion, up for grabs for retailers who capture this shopper. As it relates to in-line store closures, there is a strong link between the retailers currently filing or considering filing in private equity investment. These retailers frequently took on significant debt, capitalizing on a low interest rate environment, lost focus, took money out of the entities and did not invest sufficiently in their core business. This outcome was predictable. So the in-line and anchor vacancies together create supply, and the demand comes from a variety of venues. There has been a real blurring of the lines between real estate formats, power centers, malls, strip centers. It's not the format, it's about the location, the market positioning and the demographics. Dining, entertainment, outlets, off-price, boxes that were traditionally power center players, grocers, health and wellness, these are all tenants that weren't historically part of a mall arsenal, but their presence has been growing and continues to expand in our portfolio of properties, that in nearly a million feet of these sought-after-tenant store properties in the last 5 years and we have an additional 200,000 square feet of space in these segments currently in our pipeline. Every business evolves and innovators often get criticized. We executed a disposition program that was questioned. We bought Springfield Town Center, we're questioned, and we've embarked on a proactive redevelopment in anchor replacement program, that's being questioned. Our viewpoint, that quality is paramount, led us to take these steps. To put it in perspective, we often talk about selling 16 malls, but these properties represented more than that. Prior to 2012, we operated in 13 states, 20 markets, with 33 million square feet of space and sales at $365 a foot. Today, we boast a portfolio of quality properties in compelling markets where more than half of our NOI is generating from properties in major metropolitan markets where the opportunity is to find locations as Central as ours are scarce.

Let's define quality. So quality doesn't have to mean luxury. We've been on the road and talking with over a dozen new investors in the past few weeks and touring them through our portfolio. It has been beyond refreshing to watch them take in the scenes in the heart of our portfolio, and not just our top assets or what you would label as B+ assets. It's provided an opportunity to take the wind out of the sales of the notion that only trophy malls will survive. These are properties that are at the core of their community where people are out shopping on Wednesday afternoon and where retailers have recently invested in upgrading their stores. The interested parties have included a number of pure value investors to rededicate it so they've not previously taking a hard -- as harder look as they're taking now. So we encourage you to come tour our properties with us, any of them and see it for yourself that people really do still enjoy a quality mall experience. There is ample evidence that our move to quality was effective, including our limited exposure following the 2017 store closing announcements with only 15 locations impacted. By way of example, we had no stores on the Payless closing list. We now have 17% of our portfolio dedicated to dining and entertainment, and we're seeing a real impact from these efforts. Earlier this month, LEGO Discovery Center opened at Plymouth. This will be their only location in the market. It has more than replaced the traffic generated by the former Macy's, with evidence of increased cross shopping. Next, our ability to replace department stores is also a testament to the quality of our locations. Of 11 closed locations since the beginning of '16, we've executed leases for 9 replacements, fully executed leases, and have executed LOIs on the balance. We've executed 5 leases with replacement anchors just since the beginning of 2017. The continued improvement in sales, occupancy and NOI at Springfield Town Center issued another validation. Sales are at $525 per square foot without an Apple, and we have 5 new tenants under construction. We are maturing densification opportunities of Plymouth Meeting in Exton, with Springfield Town Center to follow, highlighting the underlying value of the real estate we own. Ancillary revenues continue to grow. We have signed new deals with major players that previously haven't consummated transactions with us, are executing an Expanded Solar Array program, new charging stations and growing our Easter photo sales and transactions. Over 40% of our same-store NOI is generated by our top 5 assets that produce sales of $588 per foot. We're introducing a dozen new to portfolio tenants with our first Zara under construction at Cherry Hill. On an absolute basis, we have very limited exposure to Sears, one of the top credit risk tenants. This is the result of our swift disposition program and our ability to consummate deals to replace them before taking back their stores. And one last, and probably most important point, on the evidence of our effective move to quality, is the top-notch team we've created. We've secured a deep bench of highly capable, experienced professionals that rise to the occasion, to stand out in a smaller, more nimble organization, bringing new relationships and a fiercely competitive spirit. More than 50% of our corporate office employees joined the company within the past 4 years. We also think it's worth discussing tenant sales performance this quarter, while we acknowledge that certain retailer sales have softened, we want to point out a few unique characteristics of this quarter.

There were Macy's liquidation sales going on, which drove traffic to these stores. As we all know, Easter shifted back into April this year and we did see sales move with it. But perhaps most important in our portfolio is the 8 department stores in transition. Over the long-term replacing these stores is an absolute positive, we expect there'll be short-term deterioration in traffic and sales. We continue to make progress on our redevelopment in anchor replacements with several of our projects being delivered early. We're excited about the anchor boxes we're gaining control of, as we have continued ability to drive NOI through parcel reconfiguration in the addition of our parcel. As we mentioned last night, we executed a new lease with Belk at Valley Mall, a very exciting addition. Earlier in the month, we executed a lease with Herberger's to relocate and expand into the former Macy's space at Valley View Mall, a transaction that requires only a limited capital investment beyond acquiring the parcel, and demolition will begin this summer to make way for Von Maur Mall. We believe the execution of 3 leases with expanding traditional department stores in a 2-month time frame distinguishes us from our peers and speaks to the quality of our portfolio and our team.

With that, I'll turn it over to Bob to further update you on our redevelopment progress and discuss our quarterly results. Bob?

Thanks, Joe. It's been an active quarter on the redevelopment front. Construction is underway at Capital City Mall for Dick's Sporting Goods; at Magnolia Mall for Burlington; and at Viewmont Mall for Dick's Field & Stream and Home Goods, all of which will open this fall in former Sears locations. I want to point out that we took possession of 2 of these stores late in the first quarter, and we'll have the new stores opened and operating by holiday 2017. Every step of the anchor box turnaround process has been carefully planned as is the process of being executed. The Fashion Outlets of Philadelphia, construction and leasing progress continues in this transformative project in Downtown Philadelphia. At the Mall at Prince Georges, we are well along with construction on this cosmetic refresh and executing the re-merchandising plan that will bring new and exciting tenants to this well-located property. At Summit meeting, as Joe mentioned, we opened a 33,000 square-foot LEGOLAND Discovery Center to great fanfare. This unique to the market attraction has been selling out regularly, has driven traffic to levels that exceeded a now closed department store. Summit meeting is a great example of how we can effectively differentiate our properties. Over 45% of the properties comp store sales are generated from dining and entertainment tenants. We just signed another entertainment concept that will bring additional traffic to the property. Our Macy's plans continued to evolve, based on the property's bullseye location, we are running parallel paths with multiple tenant replacement options. Stay tuned for more exciting news.

At Moorestown Mall, we have executed LOIs for our Macy's replacement that we're also really excited about. Replacement tenants will be first-to-market and among the very first in the country. From a capital spending perspective, we invested $33 million in our redevelopment and anchor replacement projects this quarter. For the remainder of the year, we anticipate spending an incremental $160 million to $180 million, as our construction and tenant fit-out work ramps up.

Turning to operations. In face of the headwinds from department store closings, in-line tenant bankruptcies and negative sentiment in the press about our sector, we performed in line with our internal expectations for the quarter. We reported FFO of $0.35 a share. After taking into account the $0.07 of dilution from asset sales, our earnings were up a $0.01 from last year's quarter. Since the beginning of 2016, we sold 8 low-productivity malls, including Beaver Valley and Crossroads Mall, which closed in the first quarter, as part of our strategic move to quality.

Same-store NOI of $59.1 million is flat to last year's first quarter. Some key factors impacting the results include, top line revenues, which were impacted by approximately $1.5 million from tenants filing for bankruptcy in 2016 and 2017. The financial impact includes unsold vacancies or restructured rents for certain tenants, who remain in occupancy. In total, we had 89 stores impacted and we have seen 39 of these stores close over the past 15 months. At the end of the quarter, approximately 75% of the impacted stores were covered. Results were also impacted by lower cotenancy rents at properties with closed anchors. The cotenancy impact for the quarter was approximately $300,000. But the new -- the retail news isn't all grim. Since the beginning of 2016, we have executed new or renewal leases with expanding tenants such as L-Brands, H&M, Footlocker, Capital and American Eagle with its airy concept and 344,000 square feet. Incremental revenues from these expanding tenants contributed to our performance. We'll see a positive contribution from our re-merchandising in anchor replacement efforts later this year, when the first phase of the Mall at Prince Georges redevelopment comes online and tenants filling 5 currently vacant anchor boxes begin paying rent in the fourth quarter. Physical occupancy for our same-store malls finished the quarter at 92.9%, which was down 90 basis points compared to last year's quarter reflecting the impact of closed anchors. When taking into account signed leases, our lease to occupancy increases by 190 basis points to 94.8%. We have a 725,000 square-foot pipeline of leases for future openings. When these tenants open over the next few years, they will contribute over $13 million of incremental revenues to our top line. From a timing perspective, we'll open 516,000 square feet this year, with an annualized rental stream of $9.7 million at our share. The rest will open in 2018 except for Von Maur, which is scheduled to open in 2019. We expect to add to the pipeline as we move a number of anchor replacement transactions from LOI to lease. Renewal spreads were positive, reflecting the benefits of an improved portfolio.

Looking forward, we expect spreads to be in the same ballpark for the next few quarters. Average rent for small-shop mall tenants at our same-store malls increased by 1.6% to over $58 per square foot. Our sales growth continued as we closed the quarter with sales of $465 per square foot, up $8 from $457 a foot reported at the end of last year. Operating margins at our same-store properties increased by 40 basis points to 60.4%, reflecting continued emphasis on cost management and a mild winter across Mid-Atlantic region where we have a significant presence. We did see significant increase within real estate taxes at a number of properties this year. While most of the increases were anticipated, we intend to appeal the unexpected increases consistent with our tax appeal program. From a GAAP perspective, net income attributable to PREIT common shareholders was $6.6 million or $0.10 a share compared to a loss of $0.03 per share in the prior year's quarter. The difference is due to dilution from asset sales and a gain on sale of real estate, which occurred in the first quarter of 2016.

Turning to the balance sheet. We have utilized the proceeds from asset sales and a January 2017 preferred share offering to fund our redevelopment spending and reduce debt balances by $167 million since the end of last year. The combination of lower outstanding debt balances and lower rates contributed to a $3.9 million interest expense savings for the quarter.

Next week, we expect to borrow a $150 million under our 7-year term loan and repay all amounts outstanding under our line of credit. At the end of the quarter, we had approximately $243 million of borrowing capacity available under our bank facilities. Our average interest rate, excluding noncash amortization, was 3.75%, a 36 basis point reduction from the year ago. Our debt maturities are well laddered, with approximately 85% of our loans maturing after 2018. We ended the quarter with 88% of our debt carrying either fixed rates or swap, in connection with the planned term loan draw next week, we entered into additional swaps that will result in 96% of our debt effectively being fixed leaving us well-positioned to mitigate the impact of any increases in short-term interest rates.

With respect to guidance, we are reaffirming our current year FFO guidance and revising our estimate of GAAP earnings to give effect to higher expected depreciation expense. FFO for the year is expected to be between $1.64 and $1.74 per diluted share, while net loss is expected to be between $0.15 and $0.05. As we discussed previously, NOI in the first half of the year is expected to be relatively flat. So you can expect the second quarter's performance to look similar to the first quarter. We'll continue to be negatively impacted by the bankruptcies before revenues from tenants and our leasing pipeline kick-in during the second half of the year. We're still in discussions with a number of these tenants and our guidance reflects our best estimate of the outcome with these discussions, at this point in time.

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

(Operator Instructions) Your first question today comes from the line of DJ Busch of Green Street Advisors.

You talked a lot about the change in the landscape of retail, the department store issues that are out there. But you also are signing 3 department store or new department store leases at some of the vacancies that have cropped up. Just curious, why not take this as an opportunity to reduce your exposure to department stores further if you do think that's, that industry is going to continue to shrink, Joe?

Well, first off, keep in mind that we have about a dozen department store boxes, right? And we announced 3 of them. Those 3 that we announced in one -- in all cases, the -- Belks we see as a great retailer, and an opportunity to bring them into a market, Valley Mall in Maryland, where the -- you have a higher income consumer that was the sort of star for fashion. We think it was the right decision, and we think that they're a good solid retailer with a solid future in front of them. I think in the case of Von Maur, again, small company -- small company with 40 some stores. It was the #1 requested department store in the Grand Rapids markets. So we're really meeting a consumer need. Herberger's at Valley View was a tenant that is already in the mall and is a high performer unable to expand. This provided an opportunity to really jump from the 40,000 foot box to a 100,000 foot box with a little investment on our part. But generally, to answer your question, we are reducing reliance and exposure to department stores, right? And much of what we'll be doing in the balance of those boxes is bringing in off-price discounters, sporting goods, first-to-market concepts, et cetera, dining, entertainment. So for the most part, I think we're consistent with your statement at the beginning. We saw those 3 instances as exceptions where we could really meet the need of a consumer in the market that was being unmet by a department store that we think is a performing department store that has a -- has some runway in front of them.

Okay. And then when we're looking at the 8 anchor replacement summary, and your discussions with potential new tenants to take some of these vacancies. Are the discussions different or the demand different for when you are trying to court new tenants to take a vacated Sears, just given that Sears has probably larger issues versus someone like a Macy's, where it's going through its own struggles but probably is of going concern for the foreseeable future. Are the conversations or demand different for those boxes just given the dynamics of the 2 different 8 department stores?

I'm not sure I'm clear on your question. But I'll try and answer what I think you asked around demand. Given that the -- a number of our properties where we have department stores are well located. There is fairly robust demand, in fact, with Plymouth Meeting right now -- and at Moorestown, we did finally make a decision, we had probably double or triple the tenants that we needed to be able to fill the boxes. So there is demand out there. I think, as I said in my script, I think that where are all of the sudden seeing tenants that might have before looked at open-air concepts or power centers or outlet centers, be relatively agnostic as it relates to property type. And they've become prospects for the vacant department store boxes. So the demand is certainly there. I wasn't quite sure what you meant about the Sears part versus the Macy's?

Yes my point was when tenants are looking to take some of these spaces, they're going to look at Sears and think of it as, that's a business issue, Sears is struggling and it may not be an indication of how that center is doing, whereas if its Macy's, it could potentially be an indication that, that property is not something that they want to invest in longer term or be in longer term, that's kind of what I meant between the differences of...

I understand. I understand. If it's got a Sears in it and the Sears is closing or had a Macy's and the Macy's is closing, why should we go there, right?

Right.

What's wrong with it? We -- I'll tell you. We have not encountered that. We are -- you saw our Q4 '16, Q1 '17, I mean, record leasing. I mean, we've got people on planes flying all over the United States. I'll be on the plane in about 3 hours actually to meet with a tenant. The demand is pretty robust and again we like to think that part of that is the fact that most -- Macy's is closing in markets where they're over -- we're oversaturated with Macy's. I mean, do we need a Macy's in Cherry Hill and Moorestown, I doubt it or Plymouth Meeting and Willow Grove, I doubt, it, right? And so it really provided an opportunity for retailers that couldn't find, pick Plymouth Meeting, a location where 92 million cars a year traverse the road network around there. So we have not seen retailers who have been negative based on the current tenancy. I think most retailers recognize that Sears problems are Sears problems, all right? Macy's on the other hand, to a certain extent JCPenney, was really about store rationalization in light of Macy's case having acquired other store chains for years and never rationalizing, finally doing that, impacted to a certain extent by online shopping and the ability to have somewhat of a reduced store count. So it's been a net gain for us. And we're actually pretty psyched. If we look out 18 months from now, it's a pretty powerful portfolio. And obviously, there are some things we can't announce or haven't announced, but stay tuned for more exciting news.

Your next question today comes from the line of Ki Bin Kim of SunTrust.

Joe, when you're signing these new leases recently, are the actual terms in the lease changing at all? Is there a more favorable lease termination language or anything of that sort?

Are you asking on the new leases, once they're signed, what's the nature of the terms? Are they different and better than the previous ones?

Yes. And because I know a lot of times we just focus on renewal rates and things like that. But I was wondering if the actual lease structure is changing?

No, I understand. I understand, I mean, look, obviously these department store leases were signed during the ice age. And between the cotenancy language to control, the cross-easements, et cetera, et cetera. All those points that end up being expensive to you, as you look down the line to potentially the redevelopment [rad]. We're certainly making changes from cotenancy language to how one participates in the easement agreement and making a lot of progress in that arena and doing better. I think if you did a comparison to what the prior documents have to what they are today, you'd see a net positive.

But how about for the tenant? Is there -- what is the typical lease terminations language look like today?

Lease termination language, meaning, putting an anchor in and giving the right to terminate?

Or if they (inaudible) comes in. I'm sure there is a lease term to it, right. So is there -- what is the kind of penalty for them if they want to leave early -- earlier than the lease duration?

That's a default, I mean, I don't -- we're -- if you're asking, if we're doing deals with anchors where they have a right to vacate under certain conditions, that's not been part of any of our -- any of the deals that we've signed.

Okay. Yes, and the aero, I mean, the American Eagle, I'm sorry, Aeropostale the lease negotiation. Any of the -- are those in the renewal stats, the kind of decreased rents?

Yes, they were in the fourth quarter of 2016's lease activity summary in our supplemental.

Okay. And just going to your balance sheet, you guys have a pretty significant capital deployment plan, $400 million to $500 million for the next couple of years. Just curious about how you're going to fund that all? I know, you've kept the preferred equity alive, so that's part of it. But just curious where are the sources and uses. And if you can also comment on the $150 million loan at Mall at Prince Georges that's coming due (inaudible) everything?

So let's cover. We laid out in February our capital plan, which I would keep and just kind of point you back to. In terms of the sources and uses, I think it includes a number of items, including construction loans, sales of assets, et cetera. We actually paid off the Mall at Prince Georges loan earlier in the year with the line of credit. I think we cover that on our fourth quarter earnings call.

Okay. I'm looking at the wrong, little bit old data. Got it. So how about the asset sales portion of it. You still have a bunch of strip centers or a couple of strip centers that, I know that at one point you were looking to sell, not much news has come out of it, anything new?

Well, first off, as it relates to asset sales, we are continuing to work on the sale of our joint venture interest in our power centers, #1. Number two, we've engaged the broker, we're in the initial stages of looking at a JV for some of our higher quality assets and putting that in with a package of some core assets, that's a second effort. A third effort is that we have opportunities to exit some of our office properties, which we are engaged in currently. And our land sales, we are working on sales of land as well, which we are making progress on. So all of that is sort of in the queue to execute our capital plan. And to the extent we can, accelerate it a bit.

Okay. And just to clarify, I mean you said you're looking to JV some of your better assets. Were you talking about malls or were you talking about something...

Yes. So I was talking about malls.

Your next question comes from the line of Michael Mueller of JPMorgan.

I guess, looking at your occupancy right now into shops that's at about 90.5%. Can you talk a little bit about expectations as you move through the balance of 2017 where you think you could end the year on that aspect on an occupied basis as well as when you say look out to 2018, what sort of targets do you think are achievable as well?

So, Mike, I think we expect to end the year somewhere in the -- between 93% and 94% in the small shop space at the end of the year.

And that's occupied, not leased -- that's occupied?

That's occupied. Yes, physical or economic occupancy. In our 4 year plan, we actually have that moving up to closer to 95%. So we would expect given the pipeline of leases that we have and certainly we have other things in the queue that we haven't yet brought to lease, we would expect to maybe take a halfway step there in '18 and then get fully there the following year.

Okay. You mean halfway to the 95%?

Halfway to the 95%.

Got it. Okay. And then I guess, it wasn't a big number, but the cotenancy income or a cotenancy impact is about $300,000. Can you talk a little bit about some of the background of what triggered that? So was it in malls where there is more than one anchor vacant? Or was it just maybe that's the only anchor that was vacant in that mall, but it was part of a lease or was it just part of a negotiation where this was back and forth and you ended up settling on that. But just any sort of color because people ask about cotenancy all the time?

Yes, I think that's -- given the fact that we have 8 vacant anchors at the current time, I think that number is not that unreasonable if you look at it on a per-property basis. So it's generally, I think we've talked about previously, it's a handful of leases at a handful of properties ranging from as few as to maybe half a dozen or so at some of the other properties. But it's generally tied to -- mostly it's tied to the anchors. And in some cases, some of the old leases, as Joe alluded to, the anchors were deemed, were considered to be there, at least expected to be there forever. So some tenants have leases that were tied to specific named anchors. So when those tenants vacate it then cotenants would kick in.

Got it. Okay.

But again just another, before we leave that point, Mike, I do want to point out that we don't have any malls with more than 1 vacant anchor.

Your next question comes from the line of Floris van Dijkum of Boenning.

Question, Bob, on the revolver that you guys have outstanding that you drew down on it. Presumably, when you're talking about your capacities, most of that capacity on that -- remaining on that revolver?

That's correct.

And doesn't -- wasn't that -- that has an extension option I believe until 2018, when does that have to get refinanced?

We have -- it expires by its initial term in 2018. We have 2 1-year extension options. So we could -- we can go to 2020 under its terms.

Okay. And then a question for you guys on, any more update on the FBI relocation? What's the latest that you guys have heard?

Well, the latest we heard, and it's -- this is probably a little aged, maybe 6 weeks ago, is that they were down to the location in Fairfax County adjacent to Springfield Town Center. But I'm certainly not going to make a prediction on what's happening in Washington D.C. under any circumstances.

Okay. So I guess, we'll have to wait.

I mean, we're going to have to -- we'll wait and see. We've obviously been in touch with our representatives in D.C. and doing everything we can to stay as informed as we can. And encourage a decision to go to Fairfax County.

Right. Another question I have, I guess one follow-up on Moorestown. You sort of alluded you had a lot of interest in that, but you don't actually own that box, right? Have you got an agreement ready to purchase that box from Macy's?

We have reached agreement with Macy's and documents are moving back and forth right now.

Okay. And presumably you will give us more detail once all of that has been agreed?

Yes. As Bob alluded to, Floris, these will be 2 first-to-market tenants. They're not currently in the area. One is -- will be one of the first concepts in the country. So it's -- it would be quite exciting when we conclude it.

Got it. And presumably that also means if you're splitting up the box, you probably have some more costs, will that be included in all of the deferred cash and investment?

Yes. Actually, at Moorestown, we envisioned the box being split up into 3 pieces with the third piece being in addition to the 2, let's call them, stores. The third piece being a food market.

Your next question comes from Linda Tsai of Barclays.

In your 4Q press release, your CapEx guidance was the range of 220 to 250 for 2017. With the potential for some of these department store anchors to come back, a few faster than sooner over the next few years, how are you thinking about CapEx in the coming years, particularly as it relates to redevelopment of these department store boxes?

So when we set out our guidance, we had -- we were pretty far along with the number of these transactions. So our capital spending both for this year as well as we laid out in the 4-year plan, we're still very comfortable with those numbers and ranges.

Okay. And then, can you highlight what Von Maur might be doing differently from its peers that makes it more in demand. I realize that having a much smaller store base to begin with, probably helps.

Well, I think for the most part, they're a fashion department store that serves a market where they're well-known and there's significant income available. I mean, I would consider them on a level of a Nordstrom both in terms of merchandise mix as well as service. And they have a very well-defined market. In the case of Grand Rapids, the city of about 1 million people living there. Our trade area around Woodman Mall has incomes over a $100,000. So it was the right choice for Von Maur, and again, the customer is based on intercept and information we got from our customers. It was the #1 store in demand. So we think they'll perform quite well there.

And then finally at the beginning of the call, you discussed the presence of too much apparel in this space. In your view, how long do you think this bloodletting will continue in terms of news of store closures? Do you see this as like a 2- or 3-year process?

Well, you used bloodletting, I used detoxing, either one works. When we look through our watch list, right. First off, we obviously review it regularly. And the tenants on our watch list are performing right now with trends that are pretty much in line with last year and have occupancy costs that are sustainable. The portfolio -- the stores are profitable. And again, that occupancy cost is reasonable. They average slightly above our average of around 13%. So we don't think we have significant store closure exposure in the portfolio. Again, we've pared our portfolio down to 23 soon to be 24 high-quality properties. And, but your other question around the apparel, we continued to see that number more, if we pointed out a number of 17% dining and entertainment, we see that number going probably to 25% over some period of time. And also, as I mentioned, we also begin to see certainly health and fitness being important component to mall, which is not apparel based. So there is significant movement away from apparel irrespective of whether or not there are bankruptcies or not bankruptcies. We're being proactive about getting space back and introducing those various uses to the malls, I mean a case in point at Plymouth Meeting Mall, our non-apparel tenant base is 45%, right? That number in the near-term is probably going to move north of 50%. Now the good news is, the other tenants are seeing the benefit of that from the fact that we have diversified our tenant base significantly away from apparel and so there is demand for apparel in the mall now. So I think it will continue to morph. As I think, one thing that customer has voted for, we think it's pretty clear, they've voted for a fast fashion, off-price, right? There are 2 key categories. And even as we introduce apparel, there are areas that all of a sudden have become fair game for malls.

Your next question comes from the line of Christy McElroy of Citi.

Joe, can you discuss the recently announced 4 departures. Why they left? And what are the plans to replace those seats?

Well, in terms of the board departures, the 2 departures were made for personal reasons. And we -- they were both long-tenured board members that exited for personal reasons. We're also -- we also noted in our filing that we nominated George Alburger, who was the former CFO of Liberty Property Trust to join the Board. George brings significant financial and capital markets operational experience. He also, by the way, spent a number of years in the retail real estate business prior to joining Liberty. So we think George is, assuming that he receives the appropriate shareholder vote, going to be a great addition on the board.

Okay. And you've done this portfolio upgrade, you have this multiyear plan. But with the stock underperformance, the market doesn't appear to be recognizing that. If there is an inherent discount to private market value in your stock and your efforts don't appear to be helping narrow that discount, how do you think about the possibility of M&A or privatization today or going forward?

Well, first and foremost, we've got a lot of work underway right now with upwards of a dozen anchors, various redevelopments, et cetera. Our sense is that over, as we begin to bring them to fruition that the hysteria, the overreaction disappears, the short sellers get squeezed out, nice piece you put out the other day, by the way, on that point, that exact topic, and we begin to see share price appreciation in -- on multiple growth. Having said that, as it relates to a strategic transaction, Christy, you know the answer to this question. The answer is that, we view our job as to drive shareholder value and to the extent there is an opportunity to be a private or public, to do so from a strategic perspective, our Board will consider it.

Joe, it's Michael Bilerman speaking. I had -- in your opening comments, you talked about the increased interest from institutional investors seeking to visit your properties, 2 of your properties. I'm curious whether you've had private market interest as well? And are there private -- that are looking for this as an opportunity potentially given all of the mass hysteria that there is around sort of retail real estate?

Michael, I was waiting for you. So not at this point. All of the folks who we toured and been on calls with, by the way, and have -- have them going on tomorrow as well have been public market investors. I would not be surprised if our space, not PREIT specific, begins to see interest from private markets investors. But we have not at this point.

And then, I guess, Bob, is there anything on sort of the lending side to malls. How the lenders are sort of taking all this information and looking at potentially providing loans on malls. Has that changed? And then is there anything you can sort of talk about in that front?

Well, right now, as I mentioned earlier, we haven't been active in the borrowing market because our maturities are kind of pushed out in the future. But we have ongoing discussions with lenders and they are focused the same way they have always been on the quality of real estate and the quality of tenancy. So I don't think those fundamentals have really changed in the last 12 to 18 months. I think they continue to focus on good assets and good locations.

And then on the Board, other than George, are you going to replace or you just going to downsize the Board?

Well, obviously, diversity is certainly important to us. So we'll continue to look for a candidate that would bring diversity to our Board. And that's an ongoing process that we're engaged in right now.

Okay. I thought Rosemary was, she had gone on the Board in 2012, was she older than that?

Well, no. She was on the Board before I -- if you do -- as you go back, she was on the Board for a number of years, I think since the initial, I think it was...

1997.

1997 to 2011, when I stepped in as CEO, I asked her to come back, which she did. And so this is a sort of -- she's had a second run at it, if you will.

And your next question comes from the line of Karin Ford of MUFG Securities.

With the sale of Beaver Valley and Crossroads, those really 2 remaining non-core malls. Has -- with the evolution of the retail environment, has your -- have your thoughts changed on maybe any additional malls falling newly into the noncore pool, say any of the malls that are in the low $300 sales per square foot numbers? And, or do you have plans for all of those?

I think as we look at our portfolio today, we continue to look for opportunities to improve it, and further dispositions, particularly exiting markets that are not primary markets are on the table. We've not made any decisions at this point, but certainly, we'll -- we're looking hard at our portfolio.

Okay. And can you give us some characterization of the institutional interest you've seen thus far in the JV interest in the core pool?

It's fair -- the way in which we're approaching the JV transaction, very select group, I think less than a dozen. It's very early. Most of those discussions will occur at ICSC in Las Vegas. So it's a little preliminary to respond to that.

Okay. And final question for me. You said I think that the fashion outlets were progressing well. Could you just give us more color as to how leasing and construction and everything is falling together there?

Construction, I was amazed to walk through it the other day, I hadn't been there in a couple of weeks. Construction is progressing. We're actually beginning to reconstruct at this point, vertical transportation is being installed. So the project is moving forward from that perspective. From a leasing perspective, we sit at about 70% committed tenants, that's either signed leases or LOIs and that effort is obviously continuing very strong. We're looking to have a big showing in Vegas, that'll be highlighted there. We think we will come to that convention with a very positive story around cotenancy, et cetera.

And any update on the potential residential component there?

Only that there are discussions that are ongoing at this point.

There are no further questions. I now turn the call back to over to the presenters.

Thank you. And thank you all for being on the call. Couple of closing comments. The work we're doing in transforming the traditional mall model into an exciting venue, that offers a diverse array of dining, entertainment and the most sought-after retail venues, complemented by boutique grocers, health and fitness among others, is what drives the vision of our company. In 24 months, we'll take our places as an A-Mall company, with sales of $525 a foot, a dozen new anchors, our new top asset open and operating in Philadelphia, NOI exceeding predisposition levels, 25% of our space committed to dining and entertainment, Sears exposure minimized, thousands of apartment units opened or under construction on our sites, and a multiple in line with the quality portfolio we have created.

Thank you all. I look forward to talking with you soon.

And this concludes today's conference call. You may now disconnect.