Pennsylvania Real Estate Investment Trust
Q4 2016 Earnings Call Transcript

Published: 24 Feb 2017

[Operator:]

Good morning. My name is Lisa and I will be your conference operator today. At this time, I would like to welcome everyone to the PREIT Fourth Quarter 2016 Earnings Conference 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 Instructions] Thank you. Heather Crowell, Senior Vice President of Corporate Communications and Investor Relations, you may begin your conference.

[Heather Crowell:]

Thank you. Good morning and thank you everyone for joining us for PREIT's fourth 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, February 24th, 2017, and PREIT makes no undertaking to update 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.

[Joe Coradino:]

Thank you, Heather. And good morning everyone and thank you for being on the call. We're genuinely optimistic about our portfolio and our prospects for growth. This optimism stems from our confidence in the leadership we have demonstrated in the face of a rapidly changing retail landscape. Our forward thinking focus on quality and the bold actions we have taken lay the foundation for continued shareholder value creation. These bold actions include our aggressive disposition strategy, in which we sold 16 low productivity malls, early adoption of dining and entertainment uses was 17% of our space committed to dining and entertainment. The off market acquisition of Springfield Town Center, now approaching $530 per square foot in sales and over 90% occupied. The reinvention of three city blocks in downtown Philadelphia, where Fashion Outlets of Philadelphia will grand open in 2018. Our proactive approach to strengthening our anchor mix, recently recapturing three Sears boxes that are now lease. We made the decision to recapture the anchor stores with full knowledge that this would result in 2017 same-store NOI growth below our 3% goal. All of these actions together will fortify our portfolio, leading us to target 2018 to 2020 NOI growth averaging 6% to 8%. We believe this will also take us to our new targeted sales goal which is $525 per square foot and following the development cycle and execution of our capital plan to target and leverage below 47%. We can talk about some of the events catching headlines in our industry, weak retail environment, department store closures, retailer bankruptcies, and declining apparel spending. We will demonstrate how the actions we have taken respond to these headlines. As you know, this morning JCPenney announced closing up to 140 stores. To clear this up, we thought we would let you know we expect to have only one store impacted by this announcement at one of our top assets. This is evidence of an undeniable truth in this industry, survival of the fittest. We've witnessed natural selection in the mall space with accelerated portfolio pruning across the sector and we have seen it among retailers. Those that cannot keep pace with consumer preferences are closing stores. Those malls and retailers who do not present an engaging customer experience simply will not survive. When we have spent the past several years solving this problem, the metamorphosis of our company was timely and hasn’t been a coincidence. It's a result of the deliberate actions taken in the anticipation of the trends that we're seeing with a goal of continuous value creation. It's the result of calculated yet swift decisions that form the basis for the next stage in our evolution, one where targeted investments serve to further improve the quality of our portfolio. It all started with one fundamental premise, quality is paramount. A move to quality continues to be the guiding principle of this company. We've been leaders in low productivity mall dispositions. We've sold 16 malls and now have 18 vacant anchors, and more to come. These properties generated sales of $276 per square foot. We now boast portfolio sales approaching $470 per square foot, a star contrast from when this management team. But this is about foresight, not hindsight. This is about understanding how the business is changing and setting ourselves up for success. We simply don't want to waste our shareholders' capital on third-grade malls. With nearly 20 vacant anchors in the 16 properties we sold, I'd say we were dead-on accurate. Today, we're putting our shareholder capital to work in places like Philadelphia, Washington D.C., Grand Rapids, Michigan, solid growing markets with strong demographic profiles. We also bought Springfield Town Center, despite a sharply negative initial reaction. We told you it would perform, and it has. Sales which were projected at $525 are now approaching $530, having grown every month. Occupancy is at 91% with almost 70,000 square feet having opened in 2016 and we're receiving unsolicited inquiries into densification of the peripheral land. We also were pioneers in recognizing the critical importance of bringing dining and entertainment to the tenant mix in light of shifting spending habits, seeking experiences in addition to goods, namely among the millennial population. Currently, we have 17% of our portfolio dedicated to dining and entertainment, which we expect will exceed 20% in the near-term. Recently opened venues are acting as proof of this approach with impressive sales volumes leading to overage rent in many cases. At Exton, where we opened our first Round 1 entertainment, the reception is indicative of the customers' desire to socialize and interact. It has quickly become the number two entrance at the mall, driving more traffic than the department stores. We've also been leaders in proactively rationalizing our department store mix. We've been at work reducing traditional department store exposure for over four years. In 2016, we replaced or signed a number of anchors. Dick's Sporting Goods opened at Cumberland, replacing the JCPenney. At Exton, Round 1 replaced the JCPenney and Whole Foods is under construction, replacing Kmart. A Dick's Field & Stream combo store, along with Home Goods, is under construction to replace Sears at Viewmont. And we recently announced the three additional Sears replacements that have been executed. We've reduced our Sears exposure from 27 to 10. Notably, they are no longer one of our top 20 tenants. Just five years ago they ranked seventh in our portfolio. We've reduced our Macy's exposure from 25 to19, as it relates to the three recently announced closings we have assigned LOI on one of the boxes and are in advanced discussion for the other two stores. We're particularly pleased at the announced Macy's closings at competitive malls in Massachusetts, Virginia and Philadelphia, will serve to further strengthen our premier assets with existing stores located in these markets, including Cherry Hill Mall, Willow Grove Park, Patrick Henry, Springfield Town Center, and Dartmouth. And again, our JCPenney exposure has been reduced from 29 to 16. And as we mentioned, after today's store closing announcement, we expect to get only one back. What's this anchor improvement and redevelopment work do for us? First and foremost, it drives shareholder value through a geometric effect. It enhances the shopping experience and dramatically diversifies the tenant mix at our properties. Let's look at the three Sears take backs, the composition of these three boxes. Dick's, a large-format sporting goods retailer, Burlington, a discount department store, and Von Maur, a high-end fashion department store, all with additional space for restaurants and in-line tenants, creating value and variety and driving traffic sales and newness and cross-shopping. It also improves our credit profile with two Fortune 500 companies. These sought-after tenants with strong credit coupled with increased ability to drive in-line tenant interest, sales and rents, creates tremendous value at the asset level through cap rate compression and NOI growth. And this arguably puts us ahead of the curve. We've touched 13 department stores in our portfolio over a three-year time horizon at a time when there are 400 vacant stores, or 60 million square feet of department store space on the market, putting us a step ahead in the completion circuit, similar to our approach in the disposition program. The result of all of this is a stronger portfolio positioned to capitalize on changing retailer and shopping behavior. And these efforts set us up to be able to continue to attract high-quality tenants and customer traffic. Our 2016 results were strong, reflecting the work we've done to-date. We should not forget what we overcame in delivering these results. Same-store NOI growth averaged 4.4%. In 2016, we delivered strong renewal spreads of 14.3%, when excluding leases that were restructured with Aeropostale. We also saw sales growth when others did not. We attribute this to our extensive and ongoing remerchandising efforts, propelled by the retailer demand in our new portfolio. We delivered these results in spite of significant tenant bankruptcies and anchor closings. 2017 is impacted by a number of factors, including anchor closures and the related co-tenancy impact, and of course, bankruptcies from 2016 and 2017. Now, let's take a minute to talk about this accelerated pace of bankruptcies and our view on it. We opened talking about survival of the fittest and the consumer. Today's millennial consumer has clearly voted for fast fashion and discounts, so you are seeing the likes of Wet Seal, The Limited, PacSun fall victim to this. And we have responded to this, having added seven H&Ms stores to our portfolio just last year, recently signing two more H&Ms, Zara and Primark. We're confident that we've created a portfolio comprised of well-located, high-quality assets capable of overwhelming -- overcoming obstacles and creating continuous opportunities. We're confident that the moves we are making on the anchor side will drive demand for in-line space as well. We've talked before about the continuous cycle of improvement that begins with an improved portfolio and ability to attract higher-quality tenants. This is all part of that cycle. There's a lot of movement in our industry and tenant base right now, and yes, stores are closing. But our view is that we are detoxing our portfolio as we move toward a healthy environment and our future looks bright as a result. We posted to our website a multiyear plan detailing how these efforts contribute to our future growth and we urge you to review it. The plan lays out the path depicting how our bold actions set us up for accelerated growth going forward. We have underway 12 projects, most of which will be completed by the end of 2018. As we complete major redevelopments, back-fill bankrupt in-line tenants and replace department stores, delivering strong rents, curing co-tenancy at driving the leasing environment at these properties, we're targeting average NOI growth of 6% to 8% over the three-year time horizon from 2018 through 2012. Now, let's talk about these projects. At Fashion Outlets of Philadelphia, exterior demolition is in full swing and the balance of the interior access has been closed off to the public. Leasing continues to be strong, with approximately 70% of the project in LOI stage or better. At Mall at Prince Georges, in Suburban DC, the renovation is underway to be completed this year and we believe this will be our next $500 per square foot asset with a newly opened H&M outperforming expectations. At Viewmont, one of the first dual concept Dick's Field & Stream combo stores is under construction, expected to open ahead of schedule. At Exton, located in Pennsylvania's fastest-growing county, both Whole Foods construction is nearing completion. At Plymouth Meeting, the 33,000 square foot LEGOLAND Discovery Center will open in April and we're in advanced discussions to replace Macy's. At Magnolia Mall, Sears has been vacated and we are underway for a 2017 opening for Burlington. At Capital City, Sears has vacated and we're underway for a 27 opening of Dick's Sporting Goods. At Woodland Mall, in Grand Rapids, Michigan's second largest city with a population of over 1 million we have executed a lease for our first Von Maur department store. The addition of this sought-after retailer will complement the existing high-quality tenants at Woodland, including Apple, North Face and Pottery Barn among others and meet the retail demand of strong shopper demographics in the region. Von Maur, along with an array of high-quality retail and enclosed small-shop space and 30,000 feet of quality restaurants, will join the roster in 2019, strengthening this top asset. We wholeheartedly believe that we have made the right decisions and that while 2017 is a transition year, if we continue to focus on long-term value creation, we will be rewarded. Rewarded with continued opportunities to bring new and exciting tenants to our portfolio and rewarded with a stronger multiple. Most importantly, we think it helps us to prove our value proposition. We sit here today at a deeply discounted valuation based on moment in time news reports that lack clarity, and frankly, substance, and give no credit to the quality of our assets or the momentum we've created. The opportunities to buy shares in a high quality mall company with outsize near-term growth prospects at a steep discount that consensus NAV. Think about what we're on our way to. A 24-mall portfolio led by Cherry Hill, Fashion Outlets at Philadelphia, Springfield Town Center, Willow Grove and Woodland, sales exceeding $525 per square foot, a powerful presence in two major markets, Philadelphia and D.C., market dominant, franchise assets, and strong secondary markets. Over 20% of space committed to dining and entertainment. Therefore, insulated from shifts in apparel presence -- apparel preferences, a strong diversified anchor mix and realistic densification opportunities in major markets leading to thousands of apartments, hotels, and build-to-suite office space. With that, I'll turn it over to Bob.

[Bob McCadden:]

Thank you, Joe. I want to cover results of operations then cover guidance on our multiyear plan. Regarding operations, we had a strong quarter despite the drag on performance from the 2016 bankruptcies and related store closings. Same-store NOI was 4.4% and 1.7% without lease terminations. Lower revenues from tenants filing for bankruptcy in 2006 -- 2016 impacted our fourth quarter FFO results by proximally $700,000, or $0.01 per share. Our same-store NOI growth rate was reduced by approximately 100 basis points in the quarter for the same reason. On a year-to-date basis, bankruptcies reduced revenues in our same-store properties by about $1.6 million, or $0.02 per share. Non-anchor occupancy for our same-store retail properties finished the year at 93.6%, which was down 30 basis points compared to 2015's ending occupancy. Store closings from bankrupt tenants disproportionately impacted our joint venture properties, reducing our year end 2016 occupancy by 120 basis points. Renewal spreads throughout the year continue to reflect the benefits of an improved portfolio. We opened 218,000 square feet of new tenants in the fourth quarter, including Dick's, Round 1, and H&M stores at the Mall at Prince Georges and Patrick Henry Mall. These fourth quarter openings will help us drive leasing momentum into 2017. We continue to build a strong pipeline of leases for future openings with almost 0.5 million square feet of tenants with signed leases not yet in occupancy. These tenants, when opened over the next few years, will contribute approximately $10 million of incremental revenue to our topline. After taking into account the $0.04 dilution from the 2015 and 2016 asset sales, we generated a 7.5% increase in FFO as adjusted for the quarter to $0.57 per share. The increase was driven by improved same-store operating results, contributions from new properties, and lower interest rates. Average rent for small-shop tenants at our malls increased by 1.8% to about $57 per square foot. Comp sales for these properties increased 1.6% to $464 per square foot and occupancy cost of 13.1% provide additional room for growth as leases roll in future years. Our sales growth continued into 2017, as we finished January with sales reaching $468 per square foot. Operating margins in our same-store properties increased by 70 basis points to 64.9%, while expense recoveries improved by 30 basis points to 93%. G&A expenses were comparable to last year's fourth quarter and up modestly for the full year. Our net loss attributable to pre-common shareholders was $27.8 million, or $0.40 per share, both comparable to the prior year's quarter. The 2016 quarter included impairment losses taken on the two malls we sold in early 2017 along with a land parcel that we are offering for sale. Turning to the balance sheet, we utilized the proceeds from asset sales to fund our redevelopment spending and we're still able to reduce debt balances by approximately $78 million since the end of 2015. The combination of lower outstanding debt balances and lower rates contributed to a $3 million reduction in interest expense for the quarter. Following the Series C preferred share issuance in January and the sale of Beaver Valley and Crossroads Malls, our credit facility borrowing capacity increased to $339 million. At the end of December, our bank leverage ratio was 51.1%, but 47.3% on a pro forma basis taking into account the January transactions. Our average interest rate excluding non-cash amortization was 3.87%, a 32 basis point reduction from a year ago. Our debt maturities are well laddered with approximately 80% of our loans maturing after 2018. Our modified term loan facility incorporates a deferred draw feature which will give us the flexibility to repay the $150 million loan on the Mall at Prince Georges when it matures midyear, adding to our unencumbered asset pool. At the end of the quarter, approximately 90% of our debt was fixed or swapped, leaving us well-positioned to mitigate the impact of any increases in short-term interest rates. We are introducing our FFO and net income guidance for 2017 with FFO per share expected to be between $1.64 and $1.74. GAAP earnings are expected to range from a loss of $0.10 to breakeven. In our press release, we provided a bridge between 2016 results and our 2017 guidance. While the release provides a number of detailed assumptions, let me review some of the key assumptions and a couple of other factors with you. The net dilution from asset sales completed during 2016 and 2017 is approximately $12.2 million, or $0.16 per share. Our same-store NOI growth expected in 2017, excluding lease terminations, is approximately 1% to 2%, which is comprised of 1.5% to 2.5% growth at our wholly-owned mall properties and negative 1% to negative 2.5% at of joint venture properties. Bankrupt tenants will reduce 2017's NOI by an additional $4 million on top of the $1.6 million impact we experienced in 2016. The financial impact of anchor closings and related co-tenancies is estimated to be approximately $1.2 million in 2017. Lease termination revenue is expected to be between $1.5 million and $2.5 million, down from $6.2 million recorded in 2016. We expect lower interest expense, reflecting savings from applying the proceeds from asset sales to pay down debt, repaying our line of credit balances using proceedings from the Series C preferred shares issued in January 2017, and lower rates realized on completed and expected financing transactions. Our guidance assumes we keep our Series A preferred shares outstanding during 2017. We have placed a high priority on completing the sale of various non-core assets. Our capital plan assumes a future redemption of the Series A shares as we generate proceeds for non-core asset sales. To the extent we complete the asset sales in 2017; we will have an opportunity to redeem the Series A earlier than currently forecast. We expect capital expenditures to be in the range of $225 million to $250 million, including redevelopment expenditures, recurring CapEx, and tenant allowances. Our guidance does not assume any other capital market transactions other than mortgage loan financings and the ordinary course of business. Last night, we posted a multiyear plan to our website. A little over a year ago, at our last Investor Day, we presented our roadmap for PREIT. Since that time we sold off eight malls and have identified a number of opportunities to re-purpose anchor space with new and exciting tenants. In light of the changes that have taken place in our business over the past 12 months, we thought it was important to update our roadmap. So, if you have not looked at the plan yet, I would encourage you to do so. As Joe mentioned, we laid out a plan that encourages NOI growth averaging 6% to 8% over the 2018 to 2020 period. That growth is expected to come from a combination of organic growth and incremental returns on capital invested in our existing assets. The presentation provides more detail on all of the projects that Joe mentioned in his remarks and lays out the assumptions to achieve our growth leverage and liquidity targets. Key assumptions include capital spending of up to $450 million, including the completion of Fashion Outlets at Philadelphia, a major redevelopment at Woodland Mall, remerchandising of the Mall at Prince Georges, and anchor replacements for Sears and Macy's. A significant portion of that spending will occur over the next few years with many of the projects slated for 2018 openings. Returns by projects will vary, but we're targeting between 7% and 10% returns on incremental capital. Specific return targets for individual projects are laid out on page 31 of our December supplemental. We're targeting approximately $150 million of net proceeds from asset sales, including interests in certain joint venture properties, the sale of land parcels, and other non-operating assets in our portfolio. As we've previously addressed, we would use a portion of the proceeds from the sale of non-core assets to fund the redemption of our Series A preferred shares. In the interim, we plan to maintain the liquidity provided by the preferred shares until we are able to secure replacement capital. We do not assume the sale of any wholly-owned properties, but continue to consider the sale of a joint venture interest in one or more properties. We also did not underwrite the incremental costs and returns from exploiting densification opportunities that exist in our portfolio. We see additional upside potential in these opportunities beyond our current capital program. Finally, page eight of the deck provides a capital plan roadmap the summarizes our sources and uses towards our leverage, debt to EBITDA, and liquidity targets. Let me turn it back to Joe for a recap.

[Joe Coradino:]

Before we open it up for questions, let me reiterate where we are headed. A 24 mall portfolio led by Cherry Hill, Fashion Outlets of Philadelphia, Springfield Town Center, Willow Grove and Woodland. Sales exceeding $525 per square foot, a powerful presence in two major markets, Philadelphia and D.C. Market-dominant franchise assets in strong secondary markets, over 20% of space committed to dining and entertainment, therefore insulated from shifts in apparel preferences, a strong diversified anchored mix and realistic densification opportunities in major markets, leading to thousands of apartments, hotels, and build-to-suite office space. And now we'll open it up for questions.

[Operator:]

[Operator Instructions] And our first question comes from the line of Karin Ford from MUFG Securities. Your line is open.

[Karin Ford:]

Hi, good morning. Could you just give us a little more detail on what underlies the 6% to 8% same-store NOI growth expectation for 2018 to 2020?

[Bob McCadden:]

Karin, this is Bob. As we laid out in the deck, we're expecting about two or three quarters to 3% same-store NOI growth and then 7% to 10% returns on approximately $450 million of incremental capital to be spent over that period.

[Karin Ford:]

And could you just walk us through the economics of what a typical anchor replacement would look like? What's -- what would be the purchase price, what would be the redevelopment spend? What type of rent increases and sales increases would you expect?

[Joe Coradino:]

Well, the purchase price for the asset, first of all, is at least digit-owned. And the purchase price can vary anywhere from $1 million to buy an owned property back to $20 million. Typically though, the spend -- again depends on -- if you are replacing a box with a box, right. In one case, we're putting a department store back into a department store space. And we're seeing the spend in the $5 million to $6 million range. In another case, we're taking that department store -- taking it down, redoing it and that number is probably going to be in the $30 million range. But the returns tend to be fairly well situated within that 7% to 10% range.

[Karin Ford:]

Okay. How much of the program would you characterize as proactive and how much of it would you say is reactive?

[Joe Coradino:]

As it relates to the anchor boxes specifically?

[Karin Ford:]

Well, just the whole $450 million capital?

[Joe Coradino:]

I would say that for the most part, the majority of it is proactive and not a defensive move. We made a very conscious decision as I mentioned in my script, not to invest capital you know in the second tier or third tier properties. And so what we're doing is, in most cases strengthening an already strong position. And that's probably best described by Woodland Mall. At Woodland Mall we're essentially taking a mall that's doing in excess of $500 a square foot, that has a premier tenant roster and adding to it a Von Maur, a fashion department store, restaurants, and some pretty exciting in line retailers, very proactive. Fashion Outlet of Philadelphia, which is a significant portion of those $450 million, again, a very proactive effort to bring high-quality retail, if you will, to Philadelphia City that has everything else but that. That answer your question, Karin?

[Karin Ford:]

Yes, it did. Thanks for the color.

[Operator:]

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

[Christy McElroy:]

Hi, good morning guys. Bob, you mentioned at $1.2 million impacts from anchor closings in co-tenancy, which I think is about 50 basis points on same-store NOI, can you break that out between the lost anchor rent and the co-tenancy impact? And then Joe, you mentioned more department store recapture to come in the coming years, how do we get comfortable with a 3% -- roughly 3% same-store NOI growth forecast in 18 to 20 when you my continue to see a drag from re-tenanting?

[Bob McCadden:]

I'll take the first piece of that Christy. Its roughly a couple hundred thousand dollars from lost anchor rent and about $1 million from co-tenancy adjustments.

[Joe Coradino:]

Christy, I think I may have -- I mentioned more to close at the properties we sold. To be clear about that. I think we're -- our statement about JCPenney is that in their 140 store announcement this morning, we will be affected by one store; it's actually less than one store. If you want to split hairs here because it was a former department store and about 40% of it is already occupied by tenants other than JCPenney. So, we don't -- as we look at our department store mix today, we think we have a very strong well rationalized mix of department stores. I don't see significant closures in front of us.

[Christy McElroy:]

Okay, got it. And with regard to that one JCPenney that you're getting back. You mentioned it's one of your top assets. Why do you think JCPenney is willing to sort of get back the store if it's a strong mall for you? Do you have a sense for how they are sort of approaching this round of closings? And did they approach you, or vice versa?

[Joe Coradino:]

Let me sort of not keep the cat in the bag. It's Willow Grove. Center is trending towards $650 a foot at this point. It was absolutely on a tear in terms of sales growth. And the Penny store was a Penny store that was one of the first [Indiscernible] Johnson prototypes. I could stop there, or continue. And it really is not a traditional JCPenney. I think never really regain the former JCPenney customer. And we see it as a great opportunity to really bring in tenants; we are high in the 90s, 95%, 96% occupied at Willow Grove. We see as real opportunity to re-purpose the space and we've been in discussions with tenants for that space for about 60 days now.

[Christy McElroy:]

Okay. Thank you.

[Joe Coradino:]

That answer your question? Christy, did that answer your question?

[Christy McElroy:]

It did. Thank you.

[Operator:]

Our next question comes from the line of Ki Bin Kim from SunTrust. Your line is open.

[Ki Bin Kim:]

Thanks. Good morning everyone. So, first I want to give guys credit for selling some of these assets earlier on and avoiding maybe some more pain down the road. But with that said, I just have a couple of questions here. First on your reported same-store NOI growth of 1.7% in the quarter. It looks like if you back out Springfield Town Center's contribution of $2.3 million; it looks like the NOI growth -- same-store NOI growth would have been maybe negative 1.5%. And at the same time, if I look at your operating metrics whether that be sales per square foot, or occupancy year-over-year, those are healthier than that negative 1.5%. So, what am I missing here?

[Bob McCadden:]

Well, there's a couple of things. One, there were a number of lease terminations -- well to start with, the impact of bankruptcy. So, we had about $600,000, $700,000 in the quarter. In addition there were a number of proactive store recaptures that were reflected earlier in the year in lease termination income. Some of the stores are vacant in anticipation of remerchandising initiatives that we have underway. Probably the most significant is the introduction of Zara to Cherry Hill Mall. So, we terminated [Indiscernible] lease at both Cherry Hill, Willow Grove to make way for our future remerchandising impact. So, we have that as well impacting our fourth quarter.

[Ki Bin Kim:]

And -- so I guess same question for 2017 guidance of plus 1% to plus 2%. If I back out -- and I guess we're assuming about $4 million contribution from the Springfield still looks like 2017 might be a flattish year, is that correct?

[Bob McCadden:]

I think you're probably overestimating the contribution. Springfield is probably close to $3 million incrementally. But yes, we would expect early part of the year to be flat and then the second half of the year to pick up, based on tenant openings and kind of whittling the impact of the 2016 bankruptcies as we lease some of that space with replacement tenants.

[Ki Bin Kim:]

Okay.

[Bob McCadden:]

And again as we open up the replacement anchors that co-tenancy drag goes away.

[Ki Bin Kim:]

Okay, got it. And in terms of your guidance of $1.69 per share that's all in 2017, it's interesting that in your guidance you're assuming that the Series A proffered is not redeemed?

[Bob McCadden:]

Yes, that is correct.

[Ki Bin Kim:]

And so why is that? I mean it sounds like a material change from just a couple of weeks ago when you issued new shares thought that would be used to pay down older preferred?

[Bob McCadden:]

No, you should go back and read the perspective supplement, because I think it was clear that we did not explicitly say we were going to use it to redeem the Series A. But let me give you some color on that. I think clearly we saw the market as a great opportunity early in January. The market conditions were very ripe for us. So, we took advantage for the market to raise that additional capital, which was really not initially planned. If you go back six months ago, we didn’t anticipate we would have that opportunity. Once we saw the opportunity, we took it in light of that capital plan that we have laid out for you as of last night. But we also have continued asset sales of non-core assets, joint ventures, peripheral land, et cetera that, we're working very diligently to execute. And as we complete those sales, we'll use a portion of those proceeds to redeem the Series A, which we can do -- we don't have to do it all at once, we can do it in pieces. So, our plan is as we complete asset sales, we'll nibble way out the Series A preferred, but we really can't predict with any degree of certainty when those sales will be completed. So, for the purposes of providing guidance, we just assumed that both the sales and redemption would occur in the year beyond 2017. But as we've all said, we're working very hard to accelerate that. But at this point, we didn't want to set expectations that we couldn’t deliver on.

[Ki Bin Kim:]

Okay. When I'm reading your old press releases it says possibly to redeem the outstanding Series A preferred shares. So, I took that as that you're going to do it. But I guess we're kind of splitting hairs here. But it sounds like with the capital needs you have in 2017, 2018, 2019, 2020 is that part of the reason why because you need about $450 million of capital, maybe that's why you're considering keeping the Series A outstanding for longer?

[Bob McCadden:]

Yes, it's a matter of time. If you look at the deck that we put out, we end the forecast period with close to $400 million of net cash, but in the end there are points along the way where our capital constrains -- or our capital somewhat constrains, so we want to give ourselves the flexibility to get through the short-term. And then once we have some clarity on asset sales and the timing on spending, then it will give us the flexibility to make a different decision, or consider a different decision on the Series A.

[Ki Bin Kim:]

I guess I was just confused because why issue preferred versus debt given that I think the market mostly assumes that preferred -- chose preferred equity as debt anyway, but I think fit there.

[Operator:]

Our next question comes from the line of Michael Mueller from J.P. Morgan. Your line is open.

[Michael Mueller:]

Hi. Real quick just on the prior question. Just to clarify make sure I understand this completely. So, even though the 150 of asset sales isn't in 2017 guidance, you're actually going through and trying to sell the assets, you're just not putting them in there? And if you do sell them, you may end up taking out some of the preferred, is that the right way to think of it?

[Bob McCadden:]

That's right way to think about it.

[Michael Mueller:]

Got it. Okay. And then on the same-store NOI for the -- I think it was for the guidance for this year, you talked about the difference in terms of the consolidated assets versus the JV, and the JV was notably negative. Can you talk a little bit about what's driving that disconnect?

[Bob McCadden:]

The big issue is that the JV assets particular the power as soon as they had a disproportionate amount of anchor closing, you had Sports Authority, you had a number of all country buffets and other -- these are big boxes the take some time to fill. So, our partners are anticipating leasing these -- some of these boxes up in 2017, but you won't get full impact. And these are the assets that we have been trying to sell. These are the three joint venture power centers that we are actively working to sell.

[Michael Mueller:]

Okay, that's helpful. And then one other question, you talked about the bigger CapEx spend, but if we're just thinking about like normal course recurring CapEx, where do you see that level coming in 2017?

[Bob McCadden:]

You're talking about like recurring CapEx and TAs?

[Michael Mueller:]

Yes. exactly.

[Bob McCadden:]

It's like -- call it $45 million to $50 million.

[Michael Mueller:]

Okay, that was it. Thank you.

[Operator:]

Our next question comes from the line of Floris Van Dijkum from Boenning. Your line is open.

[Floris Van Dijkum:]

Great. Thanks guys. Just wanted to touch upon -- I guess two things. In terms of your anchor exposures, obviously, it's great to hear about JCPenney. But I'm thinking about its not just -- it appears like it's not just down-side, there's actually quite a bit of upside here if I'm not mistaken. Don't you have a 2017 exposure of a Macy's box at $194 a square foot at one of your properties?

[Joe Coradino:]

Doesn't pop-up for us.

[Floris Van Dijkum:]

I'm looking at your schedule, sorry, maybe I'm looking here at which one it is, it's Lehigh Valley? And I'm also looking at the Macy's, maybe these are -- as I look at your supplemental, maybe that's the first -- maybe there's some renewal options in that as well, but that seems to be pretty--

[Joe Coradino:]

Yes, there is, says renewal option. I mean it's obviously a great center. It's a joint venture with Simon, does $550 of foot. And yes, that lease you're talking about has renewal options.

[Floris Van Dijkum:]

Got it. So, you can't get that yet. But--

[Joe Coradino:]

I doubt very highly that would be one of the stores Macy's closes. I think it is the only store -- only Macy's in the Lehigh Valley.

[Floris Van Dijkum:]

Got it. Okay. And Joe, congratulations on becoming the Chairman. I had a question for you on your -- could you remind us maybe on the anti-takeover provisions for a Pennsylvania region? And would you opt out MUTA for shareholders or the equivalent of MUTA?

[Joe Coradino:]

MUTA is not applicable to us in Pennsylvania. So, I get your question, Pennsylvania is not the most favorable shareholder state in terms of if you are getting at strategic questions. But we -- it's not an option in the State of Pennsylvania number one. And number two these are things that we're in constant communication with our Board about.

[Floris Van Dijkum:]

Okay. That's it for now. Thanks.

[Joe Coradino:]

Thanks Floris. And thank you for the congratulatory words.

[Operator:]

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

[Michael Bilerman:]

Hi, its Michael Bilerman. So, Joe as you went through the Board process, can you just help us understand I guess Ron giving up the Chairmanship, but staying on the Board. And why the Board felt that having a Chairman-CEO, I recognize it is a -- it's something that can be viewed important, but I think from corporate governance perspective, a lot of people industrialists and corporate [Indiscernible] firms would like the split of the Chairman-CEO role even with the lead independent Trustee. So, how did the Board idea of improving corporate governance decide to maintain the Chairman and CEO role?

[Joe Coradino:]

Well, first off, as a relates to Ron's decision, I mean he just felt that it was time that he wanted to step down. So, obviously, a personal decision. He and I have worked together for a long time and it was somewhat bittersweet. I think -- so as it relates to Ron, I think--

[Michael Bilerman:]

He's staying on the Board. So, it's really not giving up his Chairmanship role, but he's still on the Board. So, that really doesn’t change--

[Joe Coradino:]

Exactly. But obviously Ron and I worked together for a long time. First stepped down as CEO, now he stepped down as Chairman. And it's -- nonetheless for me is something that I'm honored, just put it that way. As it relates to the decision to join the two roles and nominate me, I think it was the Board looked around at the possibilities, at the opportunities, and simply made a decision in light of -- again just what the opportunities and choices were at the time.

[Michael Bilerman:]

But couldn't they just have name the lead independent trustee Chairman, and actually split the roles?

[Joe Coradino:]

That's what they decided to do, Michael. I mean I get your point. I understand your question. But again, it was a Board-driven decision.

[Michael Bilerman:]

As we think about the stock prices, and I appreciate the presentation on the strategic overview and I appreciate the bold actions you've taken in terms of disposing of assets earlier relative to the peers that had similar assets really pushing dining and entertainment, making the move to acquire Springfield from tornado, bringing in [Indiscernible] rich to the Downtown Philly project. I guess the stock is basically anywhere from 2010, 2011, 2012 levels, right. So, the stock unfortunately is not at a place where it has been rewarded. Now, we can debate where the stock would be if you didn’t take the bold actions that you did, but at the end of the day, the stock is meaningfully below what you probably perceived. So you talked about the need to take it pressure [ph] for Philadelphia-based company. At some point, do you now as Chairman of the Board have to take a deeper look and say, maybe we shouldn't be public, and we have to more aggressively and not wait 2020 on the strategic plan. But we got to do more decisive action today to move this company forward and get into a price where I believe it should be -- where you believe it should be?

[Joe Coradino:]

Well, a couple of comments to that. Number one, I mean we're clearly not happy with where our stock price is. Make no mistake about it. It's been in a freefall since August. And I think as it relates to the work we're doing though, we think that there is -- there continues to be value to be harvested. And that there has been somewhat of an over-reaction in the marketplace to department store closings. And as I mentioned in the script, our portfolio is well-positioned to absorb this. And I don't think we're sitting around, sort of not taking action. I think as you heard in the script, much underway. We're trading at a significant discount. We think the actions that we're taking have the ability to close at any gap [ph], but at the same time, our Board and myself are constantly looking at all options that are available to us in an effort to drive shareholder value.

[Michael Bilerman:]

But you think about where your FFO is right, your guidance of $1.64 to $1.74 in October, the streak was at $2. So, I take your point on freefall, at the same time, your earnings expectations has come in meaningfully below, not only where it stood as of last night, but where expectations were towards the end of last year.

[Joe Coradino:]

Right. Well, again, we think there is a -- there's given the work that we are doing that from an FFO perspective, we'll get back to where we were before we sold our first asset in 2012 as a result of the redevelopments, FOP, stabilizing Springfield Town Center, the anchor replacements, Woodland, et cetera, et cetera. So, we're in -- from an FFO perspective, we are in a trough, right, there's no question about that. But, again, we see that being solved over some medium range period of time.

[Michael Bilerman:]

Okay. Thank you.

[Joe Coradino:]

Thank you.

[Operator:]

Our next question comes from the line of Karin Ford from MUFG Securities. Your line is open.

[Karin Ford:]

Hi, just couple of follow-ups. Can you talk about what type of traffic trends you might've seen at any of centers where you track it?

[Joe Coradino:]

Actually, Karin, the two properties where we have comp traffic, that's both Cherry Hill and Moorestown, holiday traffic was up. In the case of Moorestown up double-digits. In the case of Cherry Hill, low single-digits. So, the -- from a data perspective, traffic at those two assets were up. From a sales perspective, which I think really is a good barometer as well. We're seeing our sales continue to move in a positive direction. Even most recently through January, we're now approaching $470 per square foot in sales. And we are adding by the way, traffic counters that will become comp as time goes on. So, -- but today, with specificity, just those two assets and that's a positive story.

[Karin Ford:]

Thanks for that. And then just a last one sorry if I missed this Bob, but did you say what the sources of the $260 million of financing proceeds was going to be on page eight [ph]?

[Bob McCadden:]

No. I don't know that we did it. We didn't laid out in the book, but we assume there's $100 million of construction financing our share on FOP. There's an additional construction limit we have put on Woodland Mall. And the balance comes from refinancing mortgages that come due over that time period in excess proceeds from those refinancings -- excess proceeds from mortgages as well as our construction loans into the larger projects.

[Karin Ford:]

Great. Thanks. Do you know roughly just an estimate of what the cost is going to be on those?

[Bob McCadden:]

Not at this point.

[Karin Ford:]

Okay. Thanks.

[Operator:]

We have no further questions in queue. I'll turn the call back to the presenters.

[Joe Coradino:]

Well, thank you all very much for participating and for engaging with questions. We look forward to seeing you all at various investor conferences over the next few weeks and months. Thank you.

[Operator:]

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