Pennsylvania Real Estate Investment Trust (PEI) 2018 Q1 法說會逐字稿

Good morning. My name is Stephanie, and I will be your conference operator today. At this time, I would like to welcome everyone to the PREIT First Quarter 2018 Earnings Conference Call. (Operator Instructions)

Heather Crowell, Senior Vice President of Strategy and Communication, you may begin your conference.

Thank you. Good morning, thank you all for joining us for PREIT's first quarter 2018 earnings call.

During this call, we'll make certain forward-looking statements within the meaning of the 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, May 2, 2018, 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.

I'll now turn the call over to Joe Coradino.

Thank you, Heather, and good morning to everyone. Welcome.

An earnings call is a time for us to update you on our business and its future as it relates to our strategy, not only for the quarter but over the long term. Our strategy has always been one that takes a long view and we feel good about the business and where we're headed.

We started our last call with a quote, "Hungry dogs run faster," which really epitomizes our approach to business. We've proven that we will not relent. We've created a strong portfolio that differentiates the company, and we are certain that if you own quality properties in strong markets, opportunities continue to avail themselves. A powerful proof point to this strategy, 4 years ago our NOI-weighted sales were $402 per square foot. We've now surpassed the critical threshold of $500 a square foot, a 25% increase in just 4 years, with room to run going forward.

Our efforts to improve our portfolio are paying off as we've shed weaker properties and proactively replaced department stores, we're driving foot traffic, sales and occupancy, which gives way to strong renewal spreads in NOI growth. When coupled with our strong pipeline of executed leases with diverse tenants, we've demonstrated that our portfolio is well positioned to thrive and grow into the future, but our hunger is unsatiated. It can't be and it won't be. We'll not let a broad narrative tell a false tale about a great company with a fundamentally strong portfolio of properties located in top markets with impressive growth profiles. While it has been a challenging time in our business, we are proud of what we've accomplished by constantly pushing the envelope and embracing speed to execution.

We believe recent strong tenant sales are an indicator that the negative headlines are getting stale, and our strong -- and our tireless efforts to redefine the traditional mall experience are paying off. Consider these accomplishments: Our NOI-weighted sales per square foot now stand at $501 per square foot, with room to run; same-tenant sales were up by 2.2% in March alone; we've grown sales in Q1 by 7.4%; we have our first property exceeding $700 a square foot in Willow Grove Park; our top 5 assets, which generate nearly 40% of our NOI, for the first time averaged over $600 per square foot in sales.

And all of this has occurred while there are a number of department stores in transition. Our performance will only impro ve as the replacement tenants take occupancy. We've now signed leases for 11 of the 12 department stores we had available, and we're on the cusp of executing leases with 5 tenants to fill the remaining box. A noteworthy achievement, particularly given the size and scale of our portfolio. As you know, we've been very active in recapturing boxes, and replacing underperforming department stores ahead of announced closures, so we successfully avoided competing for tenants in a high-supply environment. And the facts are quite impressive. Last year, we opened 10 tenants in 5 former department store boxes. This year, we'll open 7 tenants in 4 former anchor spaces. And in 2019, we'll open at least 10 different tenants in 3 former anchor spaces.

Anchor closures have provided an opportunity to bring exciting new and in many cases, new-to-market retail, dining, entertainment, health and -- and health and wellness destinations that are reflective of our shoppers' lifestyles. We expect the new anchors we have dispatched throughout our portfolio will generate at least 3x the sales volume that the previous tenants did, highlighting the continued opportunity to draw new customers and increase productivity for our existing tenants.

As a reminder of the economic results [inuring}] to our benefit, by breaking up the boxes and challenging the traditional anchor definition, we're generating market rents that are, on average, 8x what we were generating previously. We're doing it with better credit tenants and we're diversifying our income stream.

This year, the boxes will generate an incremental $3 million of gross revenue and another $4.8 million in 2019. These results are again reflective of the power of a portfolio of high-quality locations. At Willow Grove, we signed a lease with a luxury movie theater to bring premiere, dine-in movie going to our top-performing property, which now boasts sales that recently eclipsed $700 per square foot, and a tenant mix that includes Bloomingdale's, Primark, Cheesecake Factory and Apple, among others. Occupying a portion of the former JCPenney space, the movie theater will offer 12 screens and extraordinary experience, including a premium restaurant and full bar with reserve seatings. We'll complement this with additional entertainment and dining experiences in this top-performing property.

As a result of our widely recognized successful disposition program and anchor recapture effort, our exposure to Bon-Ton's liquidation is minimal, with only 2 stores. And our options are maximized, spanning retenanting dispositions. And we have tenant interest in both boxes and are evaluating the path forward.

We have a strong foundation for revenue growth, with a pipeline of executed future leases totaling $10 million and 664,000 square feet in our same-store NOI portfolio. 75% of the leases in our same-store portfolio are with tenants representing the new mall experience, with 30% dining and entertainment, 17% fast fashion, 16% off-price, and 13% health and wellness.

It's noteworthy that we've just signed 6 Forever 21 leases for 65,000 square feet. In addition to recently executed leases with Five Below, Express and Burlington stores, another indicator that our portfolio today presents itself differently to retailers. Our renewal spreads during the quarter were 7%, having secured increases (technical difficulty) for the percentage of (technical difficulty) for all tenants. While varying from quarter-to-quarter over the longer term, our spreads tell the story of our improving position across the retail landscape. As retailers continue to confront challenges, we're able to grow rents and attract new tenants as our portfolio grew compelling to those retailers.

Moving to our Q1 results. Our top line revenue growth was in line with our expectations as we continue to open and sign new stores. Same-store NOI was incrementally impacted by the unexpectedly long and active winter in the Northeast, excluding the impact of snow, utilities and bankruptcy-related bad debt, our same-store results were flat compared to Q1 '17. And we are pleased to be able to reaffirm our same-store NOI guidance expectations for the full year, indicative of the improving environment we are seeing.

Now as a reminder, we have $3 million of incremental revenue coming online from anchor replacements in 2018. And progress continues at all of our redevelopment and anchor replacement projects, including Fashion District, where construction is well along and we continue moving leases through the continuum, with commitments for approximately 75% of the space. With a compact portfolio of strong assets, generating over $500 a square foot in sales, located in high-barrier-to-entry markets with strong population and household incomes, we have a unique opportunity to continue to evolve our portfolio, through densifying with mixed-use additions to maximize the value of the underlying real estate and enhance the profile of the assets.

Looking to the future, we'll continue to create a truly distinguished position as we evolve the mall mix, eliminating the underperformers and replacing them with compelling retail and social experiences, coveted in an increasingly digital world. This also provides us with the opportunity to take advantage of our strong locations to exploit multifamily and hotel additions at our properties. Because of our high concentration in top MSAs, we estimate that we can add between 5,000 and 7,000 multifamily residential units and have identified several hotel opportunities. With the right structure, we can further densify our -- diversify our revenue stream, enhance our capital position and add value to our real estate.

With that, I'll turn it over to Bob.

Thanks, Joe. I want to review our earnings guidance first, move on to operating results for the quarter and the progress we've made against our capital plan. As Joe mentioned, we are reaffirming our FFO guidance for 2018, with FFO per share expected to be between $1.50 and $1.60. We are adjusting our [essence] of GAAP earnings to give effect to the final gain on sale of 907 Market Street and adjustment to depreciation expense. We expect a GAAP loss between $0.17 and $0.29 per diluted share. We are also reaffirming our same-store NOI guidance in the range of 1.25% to 2.25%, based on expectations that we will mitigate the impact of unanticipated first quarter events. We have telegraphed that we expected the first quarter to be our weakest. If you recall, the 2017 bankruptcies [didn't] materially impact the first quarter of '17.

For the full year, bankrupt tenants net of replacements are expected to reduce 2018 revenues by an incremental $2.4 million on top of the $5.6 million impact we experienced in 2017. That number is up about $1 million from year-end, reflecting the anticipated closings of the 2 Bon-Ton's, 2 Toys"R"Us stores and 2 Babies"R"Us stores at our joint venture properties. Co-tenancy adjustments are expected to be approximately $2.7 million in 2018 compared to $1.3 million in 2017, reflecting the full year impact of anchor closings. That number is also up approximately $700,000 from year-end, reflecting the incremental impact of Bon-Ton closings.

Bridging the NOI GAAP, we anticipate higher common area revenues, normalization of operating expenses, including bad debts, as the year progresses. We also anticipate some bankruptcy recoveries and temporary releasing of space, impacted by the unexpected closings. We initially assumed lease termination revenues of $1.5 million to $3.5 million for the year, and we expect to be at the higher end of that range. This contributes to the FFO growth we expect to record later this year.

Capital expenditures, including redevelopment spending, recurring CapEx and tenant allowances are still expected to be in the range of $220 million to $240 million.

Finally, our guidance does not assume any other operating asset sales or capital market transactions other than financings in the ordinary course of business.

Turning to operations. We reported FFO per share of $0.28, which was below The Street, primarily due to the timing and cadence of NOI and G&A expenses. As mentioned previously, we still expect to be within our initial FFO guidance range of $1.50 to $1.60 for the full year. Same-store NOI at minus 1.6% was impacted by weather-related expenses of $600,000 and bankruptcy-related bad debts of $500,000. If you normalize for these items, same-store NOI was in line with our expectations for the quarter. Key takeaways from the first quarter's operating performance include top line revenue growth, in-line with our internal budget, and occupancy levels modestly above plan, due to early openings of several large-format tenants. The $1.7 million of incremental revenue contributed by anchor replacements and new tenant openings, offset the negative revenue impact from the 2017 bankruptcies and co-tenancy adjustments.

We ended the quarter with same-store mall occupancy of 93.3%, up 50 basis points from March of '17. Nonanchor occupancy was up 40 basis points compared to last year at 91.1%. Total lease occupancy was 94.9%, and nonanchor lease occupancy was 92.4%, reflecting the strong pipeline of signed leases not yet in occupancy.

As we look forward at our same-store properties, we have a pipeline of leases totaling 664,000 square feet that will open in 2018 and 2019, and contribute approximately $10 million in annualized rent at our share. Of this amount, tenants paying annualized rents of $6.5 million will open later in 2018, with a balance next year. The increase in G&A expenses relate primarily to incentive compensation costs, a portion of the variance was due to the timing of certain awards as we issued our employee long-term stock grants a month earlier this year, and we had an unusually short amortization period for trustee awards which were issued in late 2017. The company's first quarter 2017 results were also -- reflected the favorable impact of a bonus accrual adjustment from year-end 2016.

With respect to our capital plan. Since the end of our -- since year-end, we've continued to tap the unrecognized value on our assets through various refinancings and asset sales. Our Fashion District joint venture sold an office condo at 907 Market Street, generating approximately $20 million of proceeds and a $2.8 million gain at our share. We also received more than $10 million of earn-out proceeds for the mortgage lender at Viewmont Mall, following the successful opening of Dick's, Field & Stream and HomeGoods. In March, the venture that owns Gloucester Premium Outlets refinanced its previous mortgage loan, extending the initial maturity date on the new financing to 2022. We now have no mortgage maturities until July of 2020, more than 2 years from now.

By the end of this quarter, we expect to complete a recast of our $400 million unsecured credit facility and $300 million of unsecured term loans ahead of their scheduled maturities in 2019 and 2020. We continue to make progress on the planned sale of several land parcels, including the parcel adjacent to the newly opened Whole Foods at Exton Mall. As part of our densification initiatives, a third party will develop approximately $350 million -- 350 multifamily housing units on this site. This transaction is expected to generate proceeds of approximately $10 million and close later this year.

In March, the Fashion District joint venture borrowed the remaining amount available under its new 5-year term loan, and we received distributions from the venture totaling $123 million during the quarter. At the end of March, we had over $100 million of cash on hand and $190 million of available borrowing capacity under our credit facility. Our liquidity position remains strong.

At the end of March, our bank leverage ratio was 51.7%, and our net debt to EBITDA was approximately 8.1x, in line with our expectations. With over 89% of our debt either fixed or swapped, we continue to be well positioned to manage through a period of rising interest rates. And last week, we announced that our board had approved a 21% -- $0.21 share common dividend for the second quarter. On a rolling 12-month basis, our FFO payout ratio was 55%, and our FAD payout ratio was 86%.

Finally, with respect to development, we invested $23 million on our redevelopment and anchor replacement program in the first quarter, and expect to spend another $155 million to $165 million over the remaining of this year in line with our prior guidance.

So before we open up for questions, I want to turn it back to Joe.

There's clearly a disconnect between the valuation of our company and our share price. Our share price is inordinately pressured by short interest. We're confident our business is solid, fundamentals are improving, we have access to capital and a great portfolio. We think there are ways to influence the short sellers, including refinancing our credit facility, which is underway, executing our business plan within our guidance range, maintaining our dividend, even increasing it over time and bringing JV partners on densification projects.

Now, we'll open it up for questions.

(Operator Instructions) Your first question comes from Christy McElroy with Citi.

Just given the reaffirmation of guidance, you mentioned expecting Q1 to be your weakest, but did the quarter come in below your own expectations? And what do you think were the major pieces that The Street missed?

So Christy, other than the kind of few noncontrollable items, we were in line with our own internal expectations. I think principally, focused on our top line revenue growth, we were basically spot on our internal budget for the first quarter. I think, The Street may have missed just in terms of the cadence of our NOI. I think we expect to have, first half of the year, probably a little bit [better] than we did last year, and with a ramp-up of NOI and FFO in the second half of the year, following the opening of anchor replacements, other seasonal lease-up.

Okay. And then, just regarding the nonanchor renewal spreads, the negative 4.5% in Q1. That number continues to slip, and I know it's just one quarter, but can you give us some context on what your spreads are? So what's sort of the comparable number for that -- for nonanchor leases that are currently slated to commence in 2018? So just -- again, the 4.5% is just the one quarter, but for all of commencements, everything that you've done for 2018, what is the spread on that?

Well we're expecting our average rent spreads to be in the mid-single digits for the balance of the year based on what we have on our pipeline.

Mid-single digit positive?

Right.

And just for clarification on the percentage in lieu deals, the spreads of negative 22%. Does that represent leases where the co-tenancy has been triggered, so converting to the percentage-rent leases?

In some cases, yes. In other cases, they're just renegotiated leases for tenants set. As you look at the term, typically they're 1-year terms. So essentially keeping tenants in place as we identify their replacements.

Your next question comes from Ki Bin Kim with SunTrust.

Can we just go back to your full year same-store NOI guidance of 1.75% at the midpoint. I think in your opening remarks you've mentioned that there were a couple of unexpected things, like weather, obviously. But I think you mentioned bankruptcies as well. Given that, shouldn't -- I guess, how comfortable are you with hitting the midpoint of that guidance? Or should we expect, because of some of the unforeseen events, to come in at a lower end?

At this point, yes, we're still comfortable where we are. We think about where we were a year ago, we weren't at a much different place, although we had a much more challenging second quarter, which we expect to outperform this year. So I think when you look at where we are at the end of June, I'd ask you to kind of reassess your expectation of our performance. I think, we feel pretty comfortable where we are at this point in time.

Yes, Ki Bin, there's still a good deal of levers that we can push at this point as it relates to partnership marketing and specialty leasing, pop ups, et cetera. There's a -- we feel good about it.

Okay. And how should we -- you've done a good job of releasing the anchor spaces proactively, yet you've still got hit by a little bit of those co-tenancy losses this quarter, and I think you said something around $3 million for the year. How should we think about the cadence of the co-tenancy losses and how that cures itself throughout the year?

You're probably going to see some roll-down of that in the fourth quarter as we open up some of the anchor replacements. So you'll see kind of an uptick in really the third quarter and then it come back down in the fourth quarter.

Okay. And going back to Christy's question about lease spreads. If I remember correctly, if a renewal lease or a new lease does not extend the life of the lease, an amendment -- an early amendment to that lease is not in the reported spreads, I guess, is that correct? First question. And second, if that was included, how would that impact your reportedly lease spreads?

The number of leases that fall into that category are relatively de minimis compared to the total leasing volume that we did for the quarter. So we don't have that information, but I wouldn't expect it to be materially impacting our reported spreads.

Your next question comes from Karin Ford with MUFG Securities.

Just going back to the same-store NOI guidance for the year. It sounds like the puts and takes are that you're going to have about $1.7 million of additional bankruptcy impact and co-tenancy impact, and then that's offset by about $1 million perhaps more of lease termination fees. Is that sort of the way to think about what's changed from December in the same-store?

Well, I guess in our same-store numbers, we do not include lease termination fees, so that -- if you're looking to reconcile our FFO guidance, you'd certainly look at that. But as Joe mentioned, we have a number of levers to pull. We also think there'll be some normalization of expenses. So if we look at our history of the last few years, often times you have a hard winter that may impact snow removal costs and utilities, but we find ways to make that up through cost rationalization elsewhere. And we've seen -- again, we've seen a history of bankruptcy recoveries, payments. They're not always easy to predict, but we typically take a conservative view and write-off the full amount of any prepetition amounts, and later on we get those recoveries. That helps to again, mitigate the impact, but it occurs in a different quarter.

Do you have a rough estimate as to what the nonrecurring operating expenses were in 1Q?

Sure. We had about $600,000 of snow removal and utilities; and about $500,000 of bankruptcy-related bad debts.

And the plans are in place to replace that. It's not a -- it's not being hopeful, it's being measured and having a plan in place that the team is executing.

Great. You mentioned the sales performance, which was clearly good in the quarter. How do you reconcile that with what looked to be a substantial occupancy -- sequential occupancy decline in several of your properties? Was that occupancy decline due to anchor replacement activity you're doing? Or is there something else that we should think about?

Yes, some was just the normal seasonal cadence of occupancy. Typically, the fourth quarter is obviously going to be your highest occupied quarter. And then, occupancy trends down as some temporary tenants fall out of occupancy. And they, in fact, come back into your statistics at the end of the year. But on a quarter-to-quarter basis, again, compared to March of '17, total occupancy was up 50 basis points and nonanchor up 40 basis points. And the other thing is, sales is kind of a leading indicator. So obviously, we can't immediately capture the benefit of increased sales in the portfolio in the same quarter it occurs, but it does certainly give retailers the confidence that -- to open stores in our properties and to maybe move more aggressively on their expansion plans.

And, Karin, I would add to that, that occupancy is in line with our budget. We were in line with the budget in -- to Bob's point, there is a lag between rising sales and occupancy, but it will necessarily follow.

Joe, in your comments when you were talking about the apartment opportunity and the densification at Fashion District, it sounded like -- you mentioned that you could possibly diversify your revenue stream. Are you considering maintaining ownership in the residential piece of that?

We're flexible, and we'll be opportunistic as it relates to that. In some cases, we'll use our land as our equity in the deal and maintain some level of ownership. In the case of, let's say, the Exton example that Bob gave in his script, that's one where we'll realize $10 million in a sale. Again, it's going to be different. We see it as an opportunity to enhance our capital position. So we're not of a mind where we're going to make a major investment in any of these projects, but rather use the value of the land, because we're -- take a case like Springfield Town Center or Fashion District in Philadelphia, where we've created significant value from a residential perspective, and we'll want to realize that value and minimize, if at all, making any kind of a capital investment.

Got it. And last one for me. I know it's early, but do you have any sense for what additions you might have to your capital budget given the recent Bon-Ton activity?

Well as it relates to that right now, I don't think -- we have a lot of options in front of us with respect to the Bon-Ton stores, and -- which might include dispositions and could include retenanting. So at this point, I think we're looking at our options and going to make a decision that is the best course of action given our capital objectives.

Your next question comes from Caitlin Burrows with Goldman Sachs .

In your March presentation, then you brought it up again now in the prepared remarks, you're expecting to see an incremental $3 million impact from the anchor replacements this year versus '17 and another $4 million impact in '19. I was just wondering if you could go through some of that expected timing during 2018. And I think, maybe you said that $1.7 million is already in for 2018. Is that right?

The $1.7 million was just for the first quarter, that was the benefit that we received, not only from anchor replacements but also new tenant openings. So effectively, even though we absorbed the impact of co-tenancy and bankruptcies, we still delivered revenues kind of in line with our expectations. So you're going to see some part of that -- obviously, the fourth quarter '17 openings, we get the full year benefit in 2018, and we'll also get incremental benefit in the -- really in the second, third and fourth quarters. When you think about, we have HomeGoods and Five Below opening in the second quarter of '18; we have HomeSense at Morristown opening in the third quarter; and we also have a number of tenants at Valley Mall, Onelife Fitness, Tilt, Belk as well as others opening in the fourth quarter. So we've already experienced some of it. We'll see an uptick in the second quarter, a modest uptick in the third quarter and a larger impact in the fourth quarter.

Okay, got it. And then, I was just wondering, in terms of sales growth, I know that sales growth in your portfolio has been pretty strong over the past few years, but the cash renewal lease spreads continue to be frequently negative. So I was just wondering why do you think lease spreads aren't reflecting that sales growth that we've seen?

I think part of it is related to dealing with some tenants that are probably, longer-term, won't be in our portfolio. But the interim, as we kind of work through the transition and see the benefits of the -- many of the redevelopments, we'd expect those numbers to turnaround in the relatively near-term.

Okay. Then just another one on the sales side. It looks like the -- when you look at percent rents as a percent of base rents in the quarter, 1Q seemed to have been the lowest in a while. I was just wondering how the percent rent line item tied out to the strong reported sales growth numbers and whether you expect that to -- that ratio to improve later in the year?

Yes. That was really a function of timing, the tenant that reported in the first quarter of '17, because we had an extended close at the end of the year, we picked up their 2017 sales in our fourth quarter results. So it's really a timing issue. There was no significant erosion in the amount of percentage rents, it's just one of timing.

Okay. And then, maybe just the last one. I think you might have touched on this before, but in terms of renewal spreads going forward, I know in the past you mentioned getting to mid- to high single digits as a maybe normalized rate. Could you just confirm, is that on an average basis that you're expecting that?

That is, correct.

Your next question comes from Mike Mueller with JP Morgan.

Two questions. So going back to the rent change on the percentage in lieu leases. For full year 2017, it looks like it was down about 30%. I think it was down low-20s this time. First of all, should we look at that as, the spread is getting better, or just take a step back and say, it's still down 20% and it's going to persist at that level for some time?

No, I think that's what you see is kind of just the processing of some of these tenants through the portfolio. Again, as I mentioned, this is, I guess, referring back to Caitlin's comment, we have seen strong sales performance at a number of our -- many of our properties. But I see this as more of a temporary phenomena as we kind of reposition the portfolio. And these are tenants -- again, if you look at the terms of these deals, they're short-term in nature. So these are not tenants that we expect to see 2 or 3 years from now in our portfolio.

Yes, we're kind of walking on a -- Bob is walking on eggs a little bit in answering this question. I mean, essentially, you're keeping a couple of tenants in place through a percentage in lieu, if you will, with the ability to press a button and exit them and recapture the space. And so, it's a way to keep space occupied while we're finding replacements. And that's a fairly usual technique that's being used. We think with the sales growth we're experiencing with the new anchors we're bringing into the properties, that replacing those tenants is going to be something that, while nothing is easy, it's going to be something we can accomplish in the near term.

But at the end of the day, if you look at our average rents on Page 13 of our supplemental, the average rents, including large and format -- large and small format tenants, were up 1% from last year. So despite the fact you may identify specific renewal spreads, overall we're still moving the ball forward in terms of increasing the amount of rent we get per square foot in the portfolio.

Got it, okay. And then, Bob, when you were talking about expectations for the balance of the year being for mid-single-digit spreads, was that cash basis or GAAP basis?

That's GAAP basis.

Okay. And then, I guess, final question here. Yes, when -- I think it was mentioned there was about $3 million of incremental revenue coming on line this year for anchor leasing -- anchor releasing initiatives. Is that an annualized number? Or is that a calendar year number in terms of what hits this year?

That's a calendar year number.

Okay. And how back-end loaded would you say that $3 million is?

I think we've seen -- as I mentioned earlier, we've seen some of it from the 2017 openings. Yes, I would say maybe half of it will come in the back end.

Okay, so about half is in place now, you would say, and about half is to come later?

Right, because the openings in '18 will have a much bigger impact on the '19 performance.

Your next question comes from Floris van Dijkum with Boenning.

A question, Joe. As I look at your portfolio, it appears that your top 10 assets have on average better sales growth as well as better occupancy than your -- the bottom 10 that you list in your supplemental. Is it right to assume that your troubled tenancies are located in the bottom half of your portfolio?

Well, I mean, that would be an easy assumption to make. Certainly, the top 10 assets are performing better, but we have some good quality assets throughout the -- that lower half of the portfolio. If you look at examples like Morristown mall where we got a Macy's back, and we're going to be putting 3 tenants in that Macy's space that's currently under construction. Cap City Mall is a mall where we added a Dick's Sporting Goods. And we're about to open up a -- the only Dave & Buster's in the Harrisburg market. So the bottom line is, I don't want to throw the baby out with the bathwater here. Patrick Henry Mall is another good asset, and Plymouth Meeting Mall, which is sitting at the very bottom of the portfolio, I've never been really comfortable assessing that on a sales per square foot basis, because so many of the successful tenants are well above 10,000 square feet. And again, that's another place where that Macy's is going to be replaced with 5 new, exciting first-to-market tenants. So I think we've got a little time before we make -- say yes to your question, because there's work being done.

Okay. And is there any more updates that you can give us regarding potential board composition or any other corporate things that you can share?

Well, we just made a change to our board. We brought on JoAnne Epps as a new board member, and Ron Rubin is going to be stepping down at the annual meeting. And year before that, we brought George Alburger. So we have 3 new directors on in a 4-year period. And we'll continue to look at governance issues and try to improve the company from all perspectives.

Your next question comes from Ki Bin Kim with SunTrust.

There's a couple cleanup questions here. Do you have a sense of the NOI coming online from FOP this year and what we should expect for next year?

We have a -- I think in our initial guidance, we had relatively modest amount that was included in our '17 -- or I'm sorry, our 2018 guidance.

Okay, so not much. And the occupancy swings -- nonanchor occupancy swings at your top 5 malls like Willow Grove, is that just a timing issue? Or does that last for a couple more quarters?

You might see some of those for a couple of quarters, but we'd expect, by the end of the year, some of those gaps to decrease to narrow.

Okay. And what was the cause of that?

Just some typical seasonal leasing and some tenants that we were planning to replace.

Okay. And just last question on the jewelry tenant base, like Signet. Just -- can you provide any color on how those sales are doing, and just the overall kind of commentary? And I know the kind of the rent they pay is generally higher and is located typically in the kind of prime locations in the malls. So just curious how those things are kind of trending so far?

So our jewelery category was up in the month of March, 2.4%. On a rolling-12 basis, down modestly, but still performing extremely well, if you look at it as a group.

Your next question comes from Christine McElroy with Citi.

It's Michael Bilerman. Bob, I didn't know if you had sort of numbers handy just in terms of the ramp in FFO, and I think you mentioned the $0.29 was generally in line with what you thought, but what that does do is it implies a pretty steep ramp to meet the $1.50 to $1.60 for the year. A simple average is $0.40 to $0.44 a quarter. Now part of that is, you do have seasonality in the fourth quarter where you probably will pick up $8 million to $10 million of seasonal revenues. But that -- even accounting for that, it's still a pretty fast rise to get there. So I don't know if there's buckets either on a per share or on a dollars basis that you can sort of share with us. I don't know if there's anything, recovery or onetime, that helped to bridge the gap, but going from, effectively $0.29 or $23 million of FFO, there is a pretty steep ramp in 2018. Do you have some of the details?

Yes, Mike, I just recognized that, when we're talking about the dollar amount of the decreases, it's less than $1 million, right, in terms of our difference between kind of a breakeven quarter from an NOI perspective and where we ended up. So we don't think that's an insurmountable mountain to climb. If you think about some of the things that both Joe and I talked about, we expect some of these things to be self-correcting, right? As our history has shown, when we have a large bad debt expenses in one quarter, they tend to level out based on our expectations. Weather-related expenses, again, we found that more often than not, we're able to kind of mitigate those through additional cost savings or at the end of the year, they tend to kind of even out. And we do have, as I read through earlier, a number of anchor replacements opening as early as the second quarter, more in the third quarter and then a big slug in the fourth quarter. So you will see certainly the cadence of NOI and FFO much more back-ended. I don't have the information to share with you in front of me. But we also have some significant lease terminations that we expect to record in the second quarter relating to Best Buy mobile and Teavana. And again that will -- you would expect to see those boosting our second quarter FFO results.

So lease term fees for the year are now projected to be what relative to the first quarter?

Well, we expect them -- we originally provided guidance of $1.5 million to $3.5 million. I think we're now leading -- expect those numbers to be toward the upper end of that range.

Right. I mean, but it doesn't -- I guess, when you step back from it, doing $0.29 in the first quarter and maintaining the $1.50 to $1.60, how much of those sort of things that you think will reverse versus the leasing activity that's already been done? Can you -- do you have sort of -- hoping that things will reverse is not -- I mean, I'm not crazy about hearing that sort of response. I'd rather it'd be much more in the second bucket.

No, no. But that's -- we're talking about -- it's not a significant amount we're talking about in terms of the -- again, the scale of the company is such that you have a couple of unusual items that skew the results. But we have, again, I mentioned, of the new store openings, $6.5 million of that at an annualized rate will come onstream in 2018. That's [not] a full -- we'll get the full benefit of that, but certainly those leases will be coming on, and they are signed leases not yet in occupancy.

Michael, I mean, the bottom line is, we've looked at our performance, we have a plan in place that includes a number of things, including the anchors that'll be moving in, some of whom will be moving in earlier. We'll do some -- have some pickups there, specialty leasing, filling some of the vacant boxes, the Teavanas, et cetera, partnership marketing. So there's a plan in place, and we're comfortable with, and it's not hope. So let's not get caught up on that. Probably a bad word to have used. This is a carefully considered plan that's being executed, and we believe that we will maintain our guidance.

Right. I think, it's just -- it's always a question of how you get to a number rather than the number itself, right. And the last thing we would want is for things to pop up over the next few quarters of like, "oh, there was $0.05 of this or $0.03 of that or $0.10 of this. I didn't realize that was coming? " And so, when we just step back from it, you did $23 million of FFO in the quarter. You're projecting $117 million to $125 million for the year. That's only 19% for the year in the first quarter. So that implies a much larger ramp towards the end. We're just trying to put all the pieces in place of how much does the anchor leasing represent on a calendar year 2018 basis and also on an annualized basis, because you'll see the benefit in 2019, how much of it is these onetime or other expense items that have happened. Just how much of its lease term fees relative to the first quarter. Just trying to be very prescriptive about understanding that ramp in earnings and clearly getting the benefit into '19 as well. It sounds like a lot of these things are more permanent in nature. That's all.

Okay, good point.

Your last question comes from Linda Tsai with Barclays.

When you look at your top 20 tenants, do you have a sense of how much more store rationalization might take place over the next few years? The tenants you highlighted signed in this quarter, Five Below and Burlington, are not on the list, although Forever 21 is. And with the top 20 tenants comprising 38% of your annualized gross rent, would you expect concentration to decline materially over time as the mix gets more diverse?

Well, first of, I think it's -- Linda, this is Joe. It's noteworthy that 60% of our top 20 tenants had positive sales growth in the quarter. And when you mention something like Forever 21, we think that a large part of that rationalization has to do with larger stores, larger-format stores, where they moved into former Mervyn's locations, mostly on the West Coast. Our -- as we just announced that we signed a -- half a dozen Forever 21s for a total of about 35,000 square feet. Our average size of our Forever 21 is 8,000 to 12,000 feet, not 60,000 or 70,000 or 80,000 feet. In that case, I think from -- another one you would probably put on your list would be Ascena. And we have worked through -- and they seemed -- they're -- as leases come up, and we're working through and have worked through much of the issues that have occurred through Ascena, Signet is another one that we've worked through the issues are -- with, and we actually will end up getting positive spreads from it.

So in your view, Ascena {should present less] of a risk going forward in the medium term?

In our view -- yes. We don't have a great deal of concern. We think this is a much better year, and part of it is the portfolio that we are putting forth at this point, which is a portfolio, I think, that is compelling to retailers. We sit with a significant number of our assets in the Philly and DC markets. And I could go through asset by asset, but even ones that are not in the Philly and DC markets are in strong markets; Dartmouth, which is the Boston Providence SMA. So in any event, we don't have a high degree of concern at this point. We're navigating our way through the issues, and as they come up, we're fairing pretty well.

There are no further questions at this time.

If there are no other questions, thank you all for participating on the call, and enjoy the rest of your day. Bye now.

Thank you. This concludes today's conference call. You may now disconnect.