Pennsylvania Real Estate Investment Trust
Q3 2016 Earnings Call Transcript

Published: 6 Nov 2016

[Operator:]

Good morning. My name is Mike and I will be your conference operator today. At this time, I would like to welcome everyone to the PREIT third quarter 2016 earnings call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instruction] I will now turn the call over to Heather Crowell, Senior Vice President of Corporate Communications and Investor Relations, you may begin your conference.

[Heather Crowell:]

Good morning and thank you all for joining us for PREIT's third 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, November 03, 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 CEO; and Bob McCadden, our CFO. We look forward to meeting with many of you at the upcoming NAREIT conference to discuss our story in more detail. It is now my pleasure to turn the call over to Joe Coradino.

[Joe Coradino:]

Thank you, Heather and good morning everyone and thanks for joining us. We're pleased with our results and that we embarked on our portfolio transformations effort when we did as we now move on to polishing this gem we've created. We have a new high energy team in place with over 50% of our production team having joined the Company within the past three years with experience in managing and creating value in a portfolio of this caliber. There's been a lot of negative market sentiment driven by a number of factors including uncertainty around the election, department store performance, and rationalization, concerns around omni-channel retail, the threat of rising interest rates, and the corresponding fund flows out of the REIT space. While operating in this environment, we've created a high quality portfolio that is resilient and capable of responding the headwinds and capitalizing on tailwinds. In the past three months, we have moved from a 52-week high and have since experienced significant erosion while continuing to have a dramatic positive impact on the quality of our portfolio through our continued progress on re-merchandising, re-development and dispositions, which we will review with you today. Our results continue to reflect the strong portfolio of high quality well-located assets that we have and in full swing, a pipeline of value creating projects that will further strengthen the portfolio. Let me walk you through our operating results highlighted by a second quarter of increased guidance. For the quarter, FFO as adjusted per share increased 14% excluding dilution from asset sales. On a year-to-date basis, FFO as adjusted per share increased 21% when excluding dilution from asset sales. Same-store NOI improved by 5.2% for the quarter and by an average of 4.3% for the first three quarters. As many of you have pointed out, this includes the impact of significant termination fees, which were planned and resulted in our ability that several high impact tenants including Zara at Cherry Hill. Our quarterly results also included the impact of widely publicized bankruptcies. Adjusted for these two factors, quarterly same-store NOI growth excluding lease terminations was 3%. Comp store sales grew across all tiers of the portfolio coming in at $460 a foot compared to $424 a year ago and $384 two years ago with growth most pronounced in the core growth properties where we have been actively upgrading tenancy. Springfield Town Center rang in at $513 per square foot, evidence of the continued growth of this property. Average renewal spreads for tenants under 10,000 square feet were 12% for the quarter and 15.5% on a year-to-date basis. And note that this does include some of the impact of PacSun. Non-anchor lease space for malls excluding those held for sale was 93.9%, representing a 160 basis points of space that is leased but not yet occupied. Sequentially, non-anchor occupancy for same-store malls improved 190 basis points to 92.8% compared to the end of the second quarter. Since our last call, we opened four H&Ms with two more under construction, our first Alex and Ani and Mission Barbeque locations and 70,000 square feet of Al brand [ph] stores opened in new prototypes. At Springfield Town Center, we opened Saks OFF 5th with another 36,000 square feet under construction for 2016 opens. We also recently announced that we executed Zara at Cherry Hill for a 2017 opening that will be their first location in suburban Philadelphia. On the disposition front, we had an active quarter again, having completed the sale of Washington Crown Center and an office building in Voorhees, New Jersey. We also executed an agreement of sale for Beaver Valley Mall that we expect will close near the end of the year. Today, as we continue to prune our portfolio, we're announcing another mall for sale, Crossroads Mall, where we have buyer interest. The decision reflects our capital allocation discipline prioritizing investments to ensure we deliver the best risk adjusted returns. As we had shared at our Investor Day in January, we will continue to optimize our portfolio through constant evaluation of the markets we're operating in and how to maximize our shareholder dollars. Portfolio sales excluding these two assets would increase to 466 per square foot. Now, let's talk about department stores and their store rationalization, a topic we think scores are unnecessary dark cloud to form over our industry. We've been out in front of department store consolidation. It's something our industry has been successfully dealing with for decades and we'd like to share some examples of our success. Regarding Sears, in 2012, we had 29 stores and today, have reduced that number to 11 having recently reached agreement to recapture three stores for several exciting replacement tenants and are on our way to single digit exposure. We've been methodic and disciplined in proactively securing tenants to replace underperforming stores and then actively disposing of assets so that we would be the ones controlling our exposure. Moving on to Macy's announcement to close approximately 100 stores, as our peers have also relayed, details are being finalized, but we expect to get somewhere from three to five stores back. We can't emphasize enough the robust demand and exciting prospects that are emerging for these sought after locations. We think it's a good decision from Macy's to prune their store count. It's no secret that the value and contribution of many department stores have been declining in recent years. We want to take a minute and put this in perspective. Back in '06, we took back four Strawbridge's stores following the consolidation of May and Macy's with the following results. At Springfield Mall in Pennsylvania we added Target. In downtown Philadelphia we brought in Century 21, a pioneering lead tenant in the transformation of this property into fashion outlets at Philadelphia. At Willow Grove, we brought in Nordstrom Rack, Cheesecake Factory, and JCPenney. At Cherry Hill, we added Nordstrom, Crate and Barrel, five new restaurants and 25 first to market tenants. So, it's safe to say we've capitalized on these opportunities to improve merchandising, drive sales, and add significant value to the properties. This provides us with a chance to bring in tenants, today's consumer crave ranging from entertainment, dining, fitness, salons, big box offerings, off-price merchants as well as full line department stores. It's worth noting that today 15% of our mall space is leased to dining and entertainment tenants, a sharp contrast to a decade ago. We're currently in meaningful discussions with 14 different tenants to fill the boxes we expect to get back. The end result is replacing department stores who have average product assortment and below average store experiences with new and exciting destinations. So we're taking this seriously and are well out in front of it with an operational strike force dedicated to achieving full occupancy in these boxes. Furthermore, we have a number of properties that stand to benefit from competitive Macy store closings. In some of these markets where we already own the dominant asset, this will serve to strengthen our position. Also underscoring how attractive the Company's portfolio of properties located in compelling markets is particularly the Philadelphia and DC markets, we have 419,000 square feet of notable transactions in various phases of delivery. DICK'S Sporting Goods just opened at Cumberland Mall, completing that project at a strong return. Saks OFF 5th opened last month at Springfield Town Center. Primark opened their second, Philadelphia location at Willow Grove Park in July. We signed home goods to join DICK's Sporting Goods and Field & Stream, and the former Sears box in Yuma. Round One Entertainment is opening in December in the former JCPenney box at Exton Square where we are also replacing a former Kmart with Whole Foods, under construction for a fall '17 opening. Last week, we celebrated a Lego brick dumping for LEGOLAND Discovery Center's ninth U.S. location at Plymouth Meeting Mall. This addition will catalyze an interior re-merchandising that will build off successful exterior additions and take advantage of its prime location as a destination for families throughout the region. On our larger redevelopment projects, we're also well underway. At fashion outlets in Philadelphia, we received an additional allocation of public funding in the form of a $10 million grant from the Commonwealth of Pennsylvania. This allows us to deliver a great project in 2018. Demolition is near completion and construction contracts for the build out have been awarded. On the leasing front, we have great momentum approximately half the space committed with a truly unique mix of stores, entertainment, and dining options. We're bullish on the project and know the residents, commuters, and visitors to Philadelphia will welcome this new destination when we open the doors. At the Mall of Prince Georges, we're also making progress. H&M is under construction for a December opening and we just executed leases to bring DSW Alta to the shopping center and is set to begin work on common area improvements in a new year. This re-merchandising and cosmetic renovation represents another opportunity for us to add value to a well-positioned asset in a high barrier to entry market undergoing significant development in suburban DC. So our ongoing re-merchandising portfolio pruning and execution on our larger redevelopments is having the effect of making our portfolio more attractive to retailers, driving traffic, sales, and rents while compressing cap rates. So we're pleased with the progress we've made and the direction we're heading. We believe we are well-positioned with 12.9% occupancy costs along with rising sales and meet the challenges of a dynamic retail environment in which we operate. We will continue to hone the retail quality of our portfolio as we look to accommodate an exciting mix of retail, entertainment, and dining to our portfolio. With that, I'll turn it over to Bob McCadden who will review our quarterly results and expectations for the balance of the year. Bob?

[Bob McCadden:]

Thanks, Joe. I want to provide more details on our strong financial and operating performance in the quarter. Our results for this quarter reflect the progress we've made in repositioning the portfolio. During the third quarter, we reported strong same-store NOI and FFO results. Reported comp store sales per square foot of $460 an 8.5% increase from a year ago. We made further progress on our successful disposition program, posted solid renewal spreads both on a cash and average rent basis. As Joe mentioned, we signed leases with a number of noteworthy tenants and continue to build a strong pipeline of leases for future openings. We increased our non-anchor occupancy by 144,000 square feet during this quarter. New store openings more than offset the impact from bankruptcy-related store closings in a proactive recapture of underperforming stores. We also mitigated the financial impact of 2016 bankruptcies and store closings. We generated a 14% increase in FFO as adjusted for the quarter to $0.49 per share after taking into account the $0.06 dilution from the 2015 and 2016 anchored asset sales. On a year-to-date basis, FFO as adjusted per share improved by 21% over last year again taking into account the $0.15 dilution from the asset sales. The increases in FFO were driven by improved same-store operating results, contributions from new properties, and lower interest costs. Last quarter, we started including Springfield Town Center in our quarterly same-store results. We removed Washington Crown Center from the same-store pool following its sale. Same-store NOI increased by 5.2% reflecting Springfield Town Center and a higher level of lease terminations compared to last year. The termination payments were received as a result of recapturing space from underperforming tenants. We've been able to backfill most of the spaces with new tenants while mitigating the cost to build out the space for their replacements. Tenant bankruptcies reduced our revenues by over $700,000 compared to last year's quarter and reduced non-anchor occupancy by 77 basis points after accounting for the backfilling of some units with temporary tenants. It's important to note that 61 basis points of the occupancy impact was recognized at our joint venture with power center properties. On a year-to-date basis, bankruptcies reduced revenues by $1 million and the revenue impact of these bankruptcies for the full year 2016 is expected to be $1.7 million. On a positive side, we were able to keep all 32 of the PacSun and Aero locations open through the end of 2016. Five Aero stores will close next year and we have tenants lined up to backfill these locations. We are pleased with the resolution of the Aero and PacSun bankruptcy situations. It gives us an opportunity to maintain the presence of well recognized brands in our malls. At our power center properties, we have executed leases or are in active negotiations with tenants to backfill all of the 63,000 square feet [ph] currently vacant at higher rents than the bankrupt tenants were paying. Average rent for small shop tenants at our premier and core growth properties increased by 1.7% to almost $56 per square foot. Comp store sales at these properties increased 2% to $461 per square foot and occupancy cost of 12.9% provide room for growth as leases grow in future years. Operating margins increased by 260 basis points to 62.7% from 60.1% in the last year reflecting improved performance in the same-store portfolio and the impact of disposing of the lower productivity malls, which operated with thinner profit margins. Portfolio expense recoveries improved 350 basis points to 87.8% compared to 84.3% last year. Our same store expense recoveries in the current quarter were impacted by lower margins on redistributing utilities and the impact with tenant bankruptcies. Renewal spreads were strong with average rents of 12% for our small shop tenants and up 4.9% on a cash basis for all non-anchored tenants. Non-anchor mall occupancy was 92.2% at the end of September, up 30 basis points from September of 2015 while total mall occupancy was down slightly from a year ago reflecting the impact of several department store closings. All but one of the vacant anchor stores in the portfolio is either currently under redevelopment with executed tenant leases or located at an asset listed for sale. If we include signed leases not yet in occupancy, total mall occupancy increases by 130 basis points to 94.9% and our non-anchor occupancy increases by 150 basis points to 93.7%. G&A expenses were flat on a year-to-date basis, but higher in the third quarter of 2016 compared to last year, a function of the timing of certain expenses. We continue to utilize the proceeds from asset sales to reduce debt and fund our redevelopment spending. Since September of 2015, we have lowered our debt balances by $104 million. The combination of lower outstanding debt and lower interest rates contributed to $2.5 million reduction of interest expense for the quarter. The net loss attributable to PREIT common shareholders was $1.4 million or $0.02 a share compared to a loss of $36.3 million or $0.53 per share in 2015 quarter. In addition to the factors described previously, the 2015 quarter included a higher level of asset impairments partially offset by gains on property sales. Let me review the guiding principles governing our debt financings that we set forth at Investor Day. We plan to reduce leverage through asset sales and NOI growth, maintain adequate liquidity to fund committed projects and provide cushion in the event of a downturn, keep a well laddered maturity schedule to mitigate the risk of disruptions in the credit markets, and limit our exposure to variable interest rates. We have only one significant maturity in the next 18 months, the mortgage loan on The Mall at Prince Georges. As we mentioned during last quarter's call, our modified term loan facility incorporates a deferred draw feature which gives us the flexibility to repay that loan when it matures in June 2017 without the need to access the credit markets at that time. At the end of September, we had approximately $242 million of liquidity. Our bank leverage ratio was 50.9%, unchanged from June, but 190 basis points lower than at the end of the first quarter. Our average interest rate excluding financing fee amortization was 3.89%, a 24 basis point reduction from a year ago. Our debt maturities are well laddered with approximately 80% of our loans maturing after 2018. At the end of the quarter, 91.4% of our debt was fixed or swapped, leaving us well positioned to mitigate the impact of increases in short-term interest rates. For illustrative purposes, 0.25 point increase in interest rates would only impact us by about $400,000 or less than $0.005 per share. We are currently evaluating opportunities to lower our fixed charges as the preferred shares we issued in 2002 are callable next year. Series A, which has 8.25% dividend rate is callable in May, and Series B, which has 7.375% dividend rate is callable in October. At this point in time, we are considering a number of options for these instruments, but expect to be able to reduce the coupon rate. For the balance of this year, we expect our redevelopment capital spending to be in the range of $25 million to $30 million, with majority of that spending occurring at FOP, Whole Foods at Exton, and the DICK's Field & Stream stores at Viewmont. We are revising our previous estimates of net income available to pre-common shareholders, FFO, and FFO as adjusted for the full year. The revisions give consideration to our results of operations for the first nine months of the year completed and plain dispositions, completed financings, and our outlook for the balance of 2016. We are increasing the midpoint of our guidance range for a full year FFO as adjusted by $0.01. FFO as adjusted is now estimated to be $1.85 to $1.88 per diluted share. FFO is estimated to be $1.83 to $1.86 per share, and net income available to pre-common shareholders is estimated to be between $0.08 or $0.11 per share. For purposes of providing guidance, we're assuming that the sale of Beaver Valley Mall will close near the end of the year. We're not assuming any other acquisition or disposition activity. Same-store NOI growth rate for the fourth quarter is expected to be between 3.5% and 4.5%, which includes the impact of lease termination fees. We look forward to a productive holiday season with cold weather and no snow. I want to turn it back to Joe.

[Joe Coradino:]

Good morning again. We learned that there was some technical difficulties in our -- our script wasn't being heard by all. So let me just take a minute and make a few points extemporaneously, if you will, that I think are important to be made before we move to questions and that is there's been a great deal of negative market sentiment driven by uncertainty around the election, department store performance and store closings, concerns around omni-channel retail, the threat of rising interest rates, and the corresponding fund flows out of the REIT space. So we've been operating in this environment and I think it's important to make a point that we've created a high quality portfolio that's resilient and capable of responding to these headwinds, capitalizing on tailwinds. In the past three months, we moved from a 52-week high and now have experienced significant erosion, but while that's been occurring, we continue to have a dramatic impact on the quality of our portfolio through continued progress on re-merchandising, re-development and dispositions. So, again progress continues to be made, the macro conditions are in many cases out of our control and we continue to make progress. So we've seen growth in same-store NOI. We've seen growth and the same store NOI to a certain extent was driven by the termination fees, but that was a planned move on our part to dramatically improve the tenancy at Cherry Hill Mall by adding Zara, one of the most sought-after retailers that customers talk about. So all of the things that are occurring out of our control, we to an extent had blinders on. We've grown comp sales through dispositions, through organic growth, we've seen Springfield Town Center sales rise to $513 per square foot, renewal spreads continue to be strong, 12% for the quarter, 15.5% on a year-to-date basis, and non-anchor lease space for malls excluding those held for sale rose to 93.9%, representing 160 basis points of space that's leased but not yet occupied. So much progress has been made in spite of the macro environment we find ourselves in, so with that and again, apologies for the technical difficulties. I'll open it up for questions.

[Operator:]

[Operator Instructions] Your first question is from Christy McElroy from Citi.

[Katy McConnell:]

This is Katy McConnell on for Christy. Can you talk about the incremental impact to same-store NOI once the Aero rent re-lease starts kicking in Q1 and how do you expect growth to trend throughout 2017 and by that re-tenanting?

[Joe Coradino:]

Well first, when you think about the Aero transaction and we put PacSun in that mix as well, we think we fared pretty well, 32 stores, total count. We'll end up with about five store closings. Those store closings are all accounted for two with permanent tenants, three with specialty leasing tenants. The result will be that we will be better off for those five stores than we would have been had we negotiated a deal with either PacSun or Aero. So the general conclusion of that is a good one. And as it relates to 2016, we're not expecting any impact in 2016 from those. And 2017, we're really not in a position right now to give 2017 guidance particularly as it relates to a particular tenant, but we've created a strong portfolio, we think we have growth in front of us and shortly, we'll be sharing our thoughts on 2017 with you.

[Katy McConnell:]

Okay, great, and then just a quick follow-up. Are you expecting any meaningful impact from lease term fees in the fourth quarter like this quarter?

[Bob McCadden:]

Yes, for the fourth quarter, we probably are estimating somewhere between $1 million and $2 million of lease termination fees in the fourth quarter of 2016.

[Operator:]

The next question is from Ki Bin Kim from SunTrust.

[Ki Bin Kim:]

So just a follow-up on that previous question, maybe, we just kind of ask it in a different way, what is the total NOI tied to Aero and PacSun so far?

[Bob McCadden:]

Well, with that, calling out those two tenants specifically, we had a $700,000 impact on lower revenues in the quarter from all the bankrupt tenants, $1 million year-to-date through September, and we anticipate another $700,000 impact in the fourth quarter aggregating to total of $1.7 million for the year.

[Ki Bin Kim:]

So $700,000 sounds like the appropriately fully loaded run rate from tenant bankrupt fees and things like that, right?

[Bob McCadden:]

I'm sorry.

[Ki Bin Kim:]

It sounds like the $700,000 is the appropriate run rate.

[Bob McCadden:]

No, because some of the tenants that, as I mentioned in my remarks that some of our power center properties, essentially all of those bankruptcies have been accounted for. They're not all going to open on January 1 of 2017. So that's a point in time run rate, but that number should be mitigated over time as replacement tenants begin to take occupancy. In the case of, again, the power center tenants, in all cases, we're getting higher rents from the replacement tenants than the bankrupt tenants were paying us previously.

[Ki Bin Kim:]

Okay, and just generally speaking, the lease amendments that you've, I'm assuming there's some lease of [ph] amendments with Aeropostale or PacSun, generally, what does that look like? Does the rent go down by half or is there are, just trying to get a sense of what we're dealing with?

[Bob McCadden:]

Yes, I don't think it's appropriate for us to comment on specific tenant economics.

[Ki Bin Kim:]

Okay. All right, switching to a different topic. Just curious on Springfield Town Center, I was especially curious about if there is actually any clauses for tenants where if sales don't hit a certain level, can tenants come, their rent changed to a different level and also, just overall, I mean you've made a lot of progress in that center, but just quarter to quarter, I know it's a small snapshot, but the occupancy going to increase a whole month a whole lot, just curious what momentum you're seeing there?

[Joe Coradino:]

I think in Springfield first off, I would mention there is -- I would guess there's a significant number of malls in this country that have sales kick-out causes for tenants that are occupying them, but having said that, at Springfield, it's not a material number of tenants, it's rather, it's a small amount, and with sales trending at 513 a foot, certainly not something that I think keeps anybody up at night, quite the contrary with over 20,000 square feet of new tenants opening at Springfield this quarter and the rising sales, we actually toured the property a couple weeks ago, we're looking forward to a great holiday season.

[Bob McCadden:]

And what was your other question Ki Bin?

[Ki Bin Kim:]

Just the leasing pipeline at Springfield Town Center, how does the tenant prospect list look like and what is your feel for how that trends going forward?

[Joe Coradino:]

Well, we are at about 90% at this point in terms of level of occupancy. I think that includes some new tenants that are rolling in and I think our goal is in the stabilized year next year to bring that number to 95%.

[Ki Bin Kim:]

And just one last quick one before I get back in the queue, the serious boxes that you said three are coming back, could you also have some that are going to expire in 2017 just by the contract ending? Are those three inclusive of some of those or is that in addition to some that are coming back already?

[Joe Coradino:]

Well, on Sears, we did extend several of those as part of our negotiation and again it's really difficult to have a discussion about Sears and not because we don't want to, we would love to tell you what stores and who is replacing them, but we really can't and bound by agreement that until Sears announces to their employees that we're precluded from doing that, but we have as part of the transaction with Sears secured some extensions and of course, as I mentioned three stores that we're taking back where we have tenants signed and at the ready.

[Operator:]

[Operator Instructions] The next question is from Floris Van Dijkum from Boenning.

[Floris van Dijkum:]

Question on the Beaver Valley sale, can you tell us, give us a little bit more color. Is the buyer local? What's the pricing like? How are they looking at that asset? How did they earn the right to get comfortable buying that?

[Joe Coradino:]

I didn't hear the end of your question. Let me take a shot at Beaver and then you could come back at me. Beaver, the buyer is not local. It's a buyer that we're familiar with and one that we're working through the transaction. I mean, clearly the market for these kinds of properties are its not robust shall we say, but the good news around Beaver is the fact that Shell is developing a plan about a mile from the property. And so, we feel good about bringing it to closure. What was the balance of your question? [Multiple Speakers]

[Floris van Dijkum:]

In terms of pricing, any more color that you can give?

[Joe Coradino:]

I don't want to negotiate the deal with my buyer on the earnings call, but when we can, we will, you know that.

[Floris van Dijkum:]

Got it. Okay. Can I, maybe can you give us a little update on what's happening with your power centers or you were previously thinking that they might be close by year-end. Is that flipping into next year do you think?

[Joe Coradino:]

Look, I never thought that was going to be easy, given the nature of the buy-sell. We continue to have a dialog as recently as this morning before this call and we're determined to conclude that transaction, having said that, it may slip a bit.

[Floris van Dijkum:]

Okay and you mentioned in your remarks earlier that you think that you have over 50% -- 50% or maybe just over 50% of Fashion Outlets at Philadelphia committed now. When do you think you're going to be in a position to give some more color on that and maybe can you also give a little bit of what type of tenants have shown the most interest in and who do you expect to sign up?

[Joe Coradino:]

I think there's a couple of tenants that -- I mean a number of tenants, but let me give you categories, maybe that will help you. First off, we have two what I would consider to be flagship stores that these store type would be new to the Philadelphia market, a number of -- we have an entertainment use, a number of off-price retailers in that queue as well and I think in terms of an announcement with specific names, I think we want to make a really loud pop if you will because we've got some exciting retailers, we're very bullish on it. I think it's going to be great for the partners ourselves and Macerich for the city and I think our analysts and investors will be suitably impressed when we're in a position to announce.

[Floris van Dijkum:]

Great, I guess maybe one last question. It was at Crossroads, the one in the West Virginia.

[Joe Coradino:]

That's correct.

[Floris van Dijkum:]

You're going to put to the market. Should we expect maybe one or two other ones by year-end 2017 to be put to the market or you think for the time being that, that will be it?

[Joe Coradino:]

Yes, no, maybe, and I'm not trying to be a smart ass. I mean I think it really comes down to as we continue -- look part of what is occurring is Springfield is ramping up, FOP is gaining momentum and in not too distant future, it will start to deliver NOI and as that occurs in some of our Sears replacements, we believe there is significant NOI upside to the lease up of the mall particularly in those Sears occupied wings. As that continues to ramp up, we'll continue to take a very hard look at our portfolio. At this point, we're talking just about Beaver and Crossroads, but we always look for ways to improve the portfolio. When we think about it, by the way, from a sales performance perspective, upon the sale of Beaver, we will own no assets doing less than $300 a square foot and I think that number is, if we went back a few years, that would probably be 17 [ph] or so assets in that. We would count among that and we'll move our sales to $466 a foot. With a good holiday season, which we are expecting given ICSC and NRF predictions, that goal of $500 is getting closer and closer to our sites.

[Operator:]

There are no further questions at this time. I will turn the call back over to the presenters.

[Joe Coradino:]

Well, thank you all for being on the call and again, my sincere apologies for the technical difficulties and if there is anything anyone missed or if you have any questions, please feel free to reach out to myself, Bob, or Heather because we want to make sure that everybody's operating from the same playbook. Thank you all and we'll see most of you at NAREIT in a little bit. Thanks.

[Operator:]

This concludes today's conference call.