Pennsylvania Real Estate Investment Trust
Q2 2015 Earnings Call Transcript

Published: 29 Jul 2015

[Operator:]

Good morning. And welcome to the PREIT Second Quarter Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] I would now like to turn the conference over to Heather Crowell. Please go ahead.

[Heather Crowell:]

Thank you. Good morning and thank you all for joining us for PREIT’s second quarter 2015 earnings conference call. During this call we will make certain forward-looking statement 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. Statement that PREIT makes today might be accurate only as of today, July 29, 2015, 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. It is now my pleasure to turn the call over to Joe Coradino.

[Joe Coradino:]

Thank you, Heather. And good morning everyone. We consistently communicated our belief in improving the quality of our portfolio through dispositions, remerchandising and redevelopment, will differentiate PREIT from our historic peer group. Today, the stage is set for PREIT's transition into the next peer set, where we begin to benefit from improved multiple forwarded to companies with higher quality portfolios. The strategic vision outlined in all of our investor communications since 2012 has been actualized. We will have sold 7 non-core malls with three more under contract, two additional agreements of sale being negotiated and double-digit portfolio sales growth, creating a higher quality portfolio that is more compelling to shoppers, retailers, and investors. We are now in a position to deliver strong earnings results in the coming years that will reflect the quality of our properties. Make no mistake, we are taking these portfolio improvement steps to grow NOI and enhance total shareholder return. Over the past few years, we've spoken frequently about our transformation and its importance in creating value for our shareholders. Today’s announcement combined with our past disposition activity and two assets nearing agreement of sale indicates that we are approaching the finish line with respect to dispositions. We believe the best capital allocation strategy is harvesting the value of our non-core assets to reduce leverage and a recycling capital into high quality properties to redevelopment opportunities which will pave the way to earnings growth and multiple expansion. As we look into future, we are excited that the elements of the gallery are coming together and falling into place. Legislative approvals have been secured, detaining is proceeding rapidly and we are making great progress with respect to anchor release sub. We expect the project will take its place as another premier asset upon completion in 2017. Since acquiring Springfield Town Center, we've opened 75,000 square feet of storage and are pleased to report that sales for the mall shops and restaurants are forecast to exceed $500 per square foot in its first year of operation based on tenant performance to date. And we do have some exciting opportunities underway to enhance the retail lineup and drive NOI and we continue to drive to our goal being 90% at least by year end. Now, when you spend some time looking toward the future introducing you to the new PREIT in the context of where we came from. Assuming the disposition of the five malls currently under agreement or in negotiation, our overall number of properties will be concentrated down to 30 in ten states, worth noting is that half of these are in major metro markets; half by count notably more by valuation. The number of same-stores in our portfolio began to 16 from 29 in 2012; a 45% reduction in exposure. And after reducing our GLA footprint by 7.3 million square feet since 2012, we expect to generate over 95% of the NOI we delivered prior to the reshaping of the portfolio, when we include a redeveloped FOP and stabilized Springfield Town Center. We also are forecasting growth in CAM recoveries based on dispositions of pending in anticipated properties of 980 basis points. And over 96% of our mall same-store NOI is expected to come from premier and core growth properties compared to just over 82% in 2012. Sales per square foot now at 14, full 18 already up over 10% are expected to exceed $450 a foot. This new portfolio is contributing the stronger positioning with respect to relationships with retailers and an attitudinal shift in the company, both of which fuel the opportunity to continue to enhance our shopping centers and create shareholder value. This new paradigm we have created has allowed us to secure five transactions was etching in for a 100,000 square feet opening in 2016 and in our core growth properties over 50% of which will be absorbing existing vacancy. We've executed a 55,000 square foot lease with a natural and organic growth reduction square which is a catalyst to attract other high quality tenants to this property, consistent with the excellent demographic profile of the trade area. This is a great start as we contemplate a redevelopment that we include a remerchandising of the existing malls. We also opened our portfolios first one Wyoming, Towne, Red Deer Stores at Cherry Hill Mall this quarter. Cherry Hill now boast sales of 659 per square foot, a historic high and some of the tenants we're adding we can see our way to $700 a foot. A real quarry to enhance our standing with bridge and luxury retailers. We've also signed over 8000 square feet of new leases in Moorestown Mall and look forward to signing over 30,000 square feet of transactions that are underway. And we look forward to opening the fifth restaurant yard house in the fourth quarter of this year. With all these leases in effect, non-anchor occupancy was expected to grow to 93% with corresponding NOI growth. On the releasing of bankruptcies, we secured replacements for over 60% of the GLA which is either open, leased, or being finalized and have prospects for additional 16%. In spite of a slight decrease in mall occupancy, occupancy of properties where we've initiated a remerchandising effort all up sequentially and sales were similarly up and properties like Viewmont, Louisiana, Washington Crown. Moving past these highlights to our quarterly performance and expectations for the future. Sales grew during the quarter by over 10%; another milestone for us. With nearly all properties experiencing increases in sales, chosen by the electronics, athletic footwear and restaurants. Cherry Hill mall continues to climb its way to $700 a foot and Willow Grove continues to make strides towards $600 a foot. Same-store NOI was also softened by the affect of significant bankruptcies earlier this year, are consistent with our expectations and we have reaffirmed our full year same-store NOI guidance. So, clearly as a transformed company we are positioned to deliver quality earnings results that will be reflective of the improved portfolio. We view our occupancy cost which are under 13% in the transformed company as an opportunity to drive revenue based on the outpaced growth in tenant sales that has occurred. With that I would like to turn the call over to Bob McCadden.

[Bob McCadden:]

Thank you, Joe. We've had an active quarter for a number of funds. I will cover the operating results for the quarter in more detail, summarize the work we've completed on the balance sheet and review our guidance for the balance of the year. These are what the key highlights for the quarter. FFO, as adjusted for the quarter was $30.5 million or $0.39 per diluted share, compared to last year when we reported FFO as adjusted of $33.1 million or $0.47 per diluted share. Key driver to the decrease in FFO per share included the dilutive impact of 2014 asset sales and the impacted first quarter bankruptcies. Same-store NOI of $62.8 million was essentially flat when compared to the prior period. The NOI contribution from bankrupt tenants was $1.6 million or $0.02 per share, low in the second quarter of this year compared to the second quarter of 2014. These bankruptcies also impacted our same-store non-anchor occupancy by 227,000 square feet or 200 basis points. Also worth noting is a 2014 quarter having received the benefit of a favorable adjustment to bad debt expense resulting from an adjustment to our straight-line rent receivable reserve due to improved historical collections experience. When compared to last year our bad debt expense for the second quarter was $800,000 or $0.01 per share higher. Non-same store NOI decreased by $2.4 million compared to last year. The largest factor contributing to this decrease is the delusion from a 2014 asset sales including our reduced share of income from the Gallery. Including our interest savings, the assets sales were at $4.3 million or $0.06 diluted to this year's quarter's operating results. We also incurred bad debt charges and other write-offs totaling $600,000 or a penny per share related to the business failure of an office tenant at Voorhees Town Center. Both of these factors were partially offset by the inclusion of Springfield Town Center's NOI for the quarter. Portfolio total occupancy was up by 10 basis points from a reported occupancy a year ago, partially driven by calling lower performing properties. Same-store non-anchor more occupancy was down about 60 basis points from last year reflected the impact of store closings from the bankruptcies that we experienced in the first quarter. Not including Springfield Town Center, Gloucester and fashion outlet of Philadelphia, we currently have about 400,000 square feet of executed leases for future occupancy, including the transactions that Joe mentioned in his remarks. These leases are expected to generate annualized revenue of $9 million to $9.5 million when they take occupancy later in 2015 and into 2016. We believe that our improved sales performance environment will continue to allow to have a strong renewal spread and attract new retailers to the portfolio. Average growth rents for small shop tenants in our same-store mall properties grew up 4.3% as compared to in-place rents a year ago, driven by a 3.1% increase in our premier malls and a 4.7% increase in our core growth malls. Interest expense for the quarter was $23.7 million compared to $24.3 million last year reflecting average borrowing that were approximately $220 million higher than last year partially offset by average interest rates now at 50 basis points lower than last year. This year's quarter includes prepayment penalty incurred to connect with the Patrick having more refinancing and deferred financing write-offs aggregate to $1 million while last year's quarter included $1.2 million of hedge and effectiveness. At the end of the quarter, our average borrowing rate was 4.36% and our weighted average time to maturity on our mortgage funds was 4.9 years. Outstanding debts at the end of the second quarter including our share partnership debt was $2.1 billion, an increase of $351 million at the end of 2014, reflecting borrowing sees to complete the acquisition of Springfield Town center. Our bank leverage ratio stood at 50.3%, up slightly from March 2015's ratio. We anticipate the leverage ratio remaining near this level for the balance of the year. At the end of the quarter approximately 86% of our debt was fixed. We expect that proceeds from any assets sales will go to its repaying amounts borrow into our revolving credit facility, proving us with adequate liquidity to satisfy our anticipated capital needs. Mills spreads on over 255,000 square feet of small shop leases executed during the quarter came in at 4.6%. Historically, we have reported renewal spreads on cash basis growth rents -- including minimum rent CAM charges, real-estate taxes and marketing fund contributions. Our spreads are computed by comparing final expiring close trends on the prior lease to initial growth rents under the renewal lease. As you all know, there is very little consistency of reporting of operating matrix by the public more companies. We are in the process of reviewing our approach disclosure and anticipate making changes and in an attempt to make our matrix more comparable to other companies. For example, if we were to include new leases for recently occupied spaces, average rental of lease term and only include excavation thing, minimum rent and CAM and shortly tax or pass through what we’re leasing spreads during the quarter would have been approximately 8%. We have more work to do in this area and would welcome input from the analyst community and what presentation it feels most meaningful from their perspective. During the quarter we closed with $650 million of financings including expansions to our $400 million credit facility in addition of a new five year $150 million term loan and refinancing of our mortgage loan at Patrick Henry Mall. Key terms of the medic credit facility include the maturity date of June 2018 with two additional one year expansion options available and reduction in pricing and in effect in August borrowing on the credit facility will be at a rate of LIBOR plus 130 basis points the rate on our new and existing five year term loans will be at LIBOR plus 160 basis points and the rate on the seven year term loan will be at LIBOR plus 215 basis points. The unencumbered debt yield which establishes our maximum unsecured borrowing capacity was reduced from 12% to 11% reflecting improved quality of our unencumbered asset pool. We’ve also – in 2010 year loan secured by [indiscernible] with an interest rate of 4.35% which resulted in annual interest savings of almost $1.7 million on the previous loan balance. On year term, to reduce our average cost of debt over the next nine months we’ve $388 million of loan maturities when four high quality assets with an average interest rate of 5.52% on these loans we’ve a significant opportunity to realize additional interest savings by refinancing these upcoming maturities at current rates. Regarding our outlook for 2015, we’ve revised our previous estimates of FFO as adjusted to be in the range of $1.84 to a $1.89 per share forgetting the effect of $0.03 per share dilution from the sale of Uniontown and Springfield Park. We’re reaffirming our expectations at same-store NOI will be in the range of 1.7% to 2.7%. We now expect GAAP earnings per share to be a net loss between $0.49 and $0.54 reflecting the dilution from asset sales to prepayment penalty and the impact for the second quarter’s impairment charge offset by the anticipated gain on the sale of our interest in Springfield Park. With that we’ll open it up for questions.

[Operator:]

With that we’ll now begin the question and answer session. [Operator Instructions] Question comes from Mr. Ki Bin Kim of SunTrust Robinson Humphrey, please go ahead.

[Ki Bin Kim:]

Thank you. I though litigation pass were done by the first quarter, so I was little surprised if you had another half a million dollars I was just curious where that came from and are we, can be – with those targets this quarter?

[Bob McCadden:]

Ki Bin, this is Bob. This cost, residual cost from the matter that we had earlier in the year. Some of the service providers that we provide service we build on a value add basis so the final bill wasn’t negotiated and settled until the second quarter. But there is cost really added to expenditures incurred prior to our settlement with activist.

[Ki Bin Kim:]

Okay. And those targets added back to your adjusted FFO number?

[Bob McCadden:]

No, they’re not added back.

[Ki Bin Kim:]

Okay. And I’ll really ask this question, but just given some of my guess – quarter, quarter earnings, just curious you guys maintain the guidance for the year adjusted for that sales, can you provide little guidance on how third quarter and fourth quarter would shape up because I think you have the average about $0.52 a quarter from your current $0.89 or maybe $0.40 to add back to litigation cost run rate. So, I think all it help us to mitigate any future [indiscernible] quarter by quarter earnings?

[Joe Coradino:]

I think the key thing is the NOI run rate and I think as we mentioned when we started the year that we expected obviously having a strong first quarter very flat, second quarter and then the third and fourth quarter would begin to improve. So, given the slight NOI pool, different names can move the numbers but we expect 1.5% to 2% same-store NOI in the last couple of quarters of the year.

[Ki Bin Kim:]

And the Gallery leasing is that fully baked in by now, by the end of second quarter or is there a more NOI leakage that we can expect in the second half?

[Bob McCadden:]

There is additional NOI we haven’t baked into our overall guidance.

[Ki Bin Kim:]

Okay, alright, that’s it from me now thank you.

[Operator:]

The next question comes from Christy McElroy of CitiBank, please go ahead.

[Christy McElroy:]

Hi, good morning guys. Just regarding the three assets on your agreement for sale the new raise, what sort of expected timing of course and are there any financing contingencies related to the agreement for sale and how is the buyer financing?

[Joe Coradino:]

Well, we’re traditional care of contingencies in there which we include financing Christy and it would be the buyers seeking financing as we speak but it is quite a credible buyer with capital available to close.

[Christy McElroy:]

If you don’t have any concerns if the financing may not come through?

[Bob McCadden:]

Oh sure, look selling as I’ve always said selling these lower quality assets is an adventure. You saw that depending where it is related to Uniontown because we have a current drive from New York City add around backs to collect a signature. So it’s over when it’s over so I’ve concerns until we tend – expect closing or likely be towards the end of this year or the early part of 2016.

[Christy McElroy:]

And then just really into that Palmer Park, I think it was under contract last quarter, what’s the status on that?

[Joe Coradino:]

Yes, Palmer Park another illustration, Palmer Park fell out of agreement we had an under agreement of sale where we’re driven by the buyer having concerns about the lease up. But, we do have two additional assets that we’re negotiating agreements of sale at this point.

[Christy McElroy:]

Is that like Humming and Washington Crown the other two?

[Bob McCadden:]

It’s Humming and Washington Crown that’s correct.

[Christy McElroy:]

Okay. And then just on the 95 million of asset what’s the average cap rate as far as the agreement is concerned?

[Joe Coradino:]

We really don’t want to talk about that at this point. Still in negotiations we prefer thing away from a cap rate discussion.

[Christy McElroy:]

Okay, thank you.

[Operator:]

[Operator Instructions] The next question comes from Michael Muller of JP Morgan, please go ahead.

[Michael Muller:]

I guess, first just kicking with the disposition, you said the timing on these three – beginning next year should we expect similar timing for the other two that you’re negotiating contracts for?

[Joe Coradino:]

I would certainly be, like that happen yes.

[Michael Muller:]

Okay. And then, just quick clarification, I guess the portfolio sales in Q2 of 418 versus 378 that’s not on a same-store basis is it or is it?

[Joe Coradino:]

Yes, it is.

[Michael Muller:]

It is same-store for the same portfolio, okay. That was great thank you.

[Operator:]

Next a follow up from Mr. Ki Bin Kim of SunTrust Robinson Humphrey, please go ahead.

[Ki Bin Kim:]

Thank you. So just curious about your pipeline, obviously you guys announced the growth and moving into Excellent square. With that in Springfield and Gallery after rate done, and maybe pretty much sure, but when you look to your portfolio are there any other opportunities where you might little harvest more value?

[Bob McCadden:]

Sure, I mean, well first off, the organic [indiscernible] is a first step if you will we can build it on a standalone base system, but it also reached the way to a redevelopment of that property as part of getting back the 12 acres from K-Mart to an opportunity there, there is an opportunity at Prince Georges Center begin to move towards 500 dollars of foot in the sales production down in the DC market we think there is opportunities for a remerchandising and redevelopment there. And of course, Woodland Mall in Grand Rapids Michigan which is another 500 dollar foot asset where we think there is an opportunity to remerchandising and potentially brining a fashion acre to either downsize or replace here.

[Ki Bin Kim:]

Okay. And just to clarify on the Excellent Square, the gross are moving in, in addition that we – whatever you talked about in the past?

[Joe Coradino:]

Yes. That would like a first step in the potential redevelopment.

[Ki Bin Kim:]

And going back to asset sales with sellers or buyers looking for financing, now do you want LTV we’re seeking?

[Joe Coradino:]

We understand 65.

[Ki Bin Kim:]

And if it was close to that number, but not that number would be open to sell the financing in some fashion?

[Joe Coradino:]

No, we stayed away from that to-date we would prefer selling the assets as opposed to staying in a piece. And again, we started to get pretty good at this sort of thing, we think we’ll be able to bring these to either to this buyer or another buyer to closure.

[Ki Bin Kim:]

And last one. How much NOI are you currently booking from a Springfield Towncenter at the end of second quarter and how should we think about the run rate for the second half of the year?

[Joe Coradino:]

We typically don’t give individual NOIs but when we kind of give you some.

[Ki Bin Kim:]

Big project –

[Bob McCadden:]

Yes, let me give you kind of frame of reference. If you were to take the existing rent role, add in the tenants that we have basically in lease negotiations we will be looking at an annualized run rate of about $19 million to $20 million today. Obviously those tenants aren't in place we still have a significant fourth quarter lease up but if you turn to the first quarter of 2016 maybe the second quarter we would expect it to be at about $19 million to $20 million annualized run rate.

[Ki Bin Kim:]

Okay. But so where are we are today I mean, on the starting point is some more important?

[Joe Coradino:]

Yes, again keeping where that at this point we are not prepared to disclose them out.

[Ki Bin Kim:]

Okay. Thank you very much.

[Operator:]

The next question comes from Nathan Isbee of Stifel, Nicolaus & Company, Inc. please go ahead.

[Nathan Isbee:]

Hi, good morning.

[Bob McCadden:]

Hi Nathan.

[Nathan Isbee:]

Just going back to the 1.5% to 2% same-store NOI expectations for the second half of the year what type of store closure environment does that envision I guess what is your – what are your outlooks for the store closure environment for the next six to 12 months?

[Bob McCadden:]

I think we absorbed a good deal of it at this point. The one concern that we had is GAAP and we think we understand the impact and the GAAP have a good deal of that handled in those kind of baked into that performance.

[Nathan Isbee:]

Did you mention how many GAAPs you expect to close?

[Joe Coradino:]

We did not.

[Nathan Isbee:]

Would you care to share?

[Bob McCadden:]

At this point it's a very small number. We have one that’s trying to terminate that we are working at termination agreement and a lot have significant term. So we are - we won't be terribly impacted by GAAP at this point.

[Nathan Isbee:]

Okay. And then just moving to the asset sales, the collection of those three assets that are on the contract, have you done business with those prior before and have they provide any hard money at this point?

[Joe Coradino:]

No they have not provided any hard money at this point but there is a provision for that to occur at some point in the process. We have not done business with the buyer but it is a credible buyer.

[Nathan Isbee:]

Alright. Thank you so much.

[Bob McCadden:]

Thank you.

[Operator:]

The next question comes from D.J. Busch of Green Street Advisors. Please go ahead.

[D.J. Busch:]

Thank you. Just wanted to touch on the sales growth reported in the quarter and your comments earlier on potentially getting more apples to apples to some of your peers. I know that you are one of the few that want the tenants to have 24 months of reported sales before you enter them into the pool and I think that’s the case with Willow Grove Park that opening in late 2012 so it's been in the number in all three quarters now, I guess my assumption and understanding was that the reason you did that was so you can have a true comp number from this year compared to last but it doesn't seem like that’s the case given the huge increase of Willow Grove Park can you just give me an understanding on what’s the rational for the 24 month lag and is that something that you guys potentially may change to get more in line with some of your peers?

[Joe Coradino:]

Yes, essentially when tenant reaches 24 month day as you mentioned we include that in our comp store so effectively what you see Willow Grove Park is the inclusion of the apple store in the reported numbers beginning in the fourth quarter of 2014. But we are looking at whether or not we are sure that 12 month period but quite frankly we got that in the past, it doesn’t materially change the portfolio number but it's something we are looking at as part of our overall review of our reporting of metrics.

[D.J. Busch:]

Okay. The reason I ask is because the $430 a square foot that Willow Grove Park was doing last year that didn't include the apple, I am just trying to get a sense on if it's –

[Joe Coradino:]

That didn't. It could be apple. We don't necessarily go back. Whatever we report for these malls sales we don't go back and read statement if you will for the comp store pool so it represents tend to qualified for the comp definition at any quarter end and we call that reported number for the following year as well. So the 430 to specifically address your point didn't include apple sales in the previous year.

[D.J. Busch:]

Okay and do you know if you have done the math to see what it would be if you start including after 12 months?

[Joe Coradino:]

As I said earlier I think, when we book in the past it’s generally pretty doing close to our reported numbers but we will look at that again in the third quarter and report out.

[D.J. Busch:]

And now that the financing looks like it's setup for the gallery are you guys prepared to kind of give the total spending and potential returns that you are expecting there and then on top of that and we have talked about in the past but – one of the things that you look to add is some type of development schedule to the supplemental package?

[Joe Coradino:]

Yes and as it relates to the Gallery we still have one more piece of financing to put in place with the state of Pennsylvania. We are working one so we have not laid out the entire package because that’s moving around a little bit. There is a lot of tension in house right now with our new Governor. So we are not getting – we didn't get done as quickly as we would have liked to. That’s why you are not getting the full story on the gallery. As it relates to total spend again depending upon how much public financing we get it will determine how much we spend so again it's a little bit of moving target.

[D.J. Busch:]

Okay. Thank you guys.

[Operator:]

The next question comes from Linda Tsai of Barclays. Please go ahead.

[Linda Tsai:]

Hi. We discussed Willow Grove, but can you also talk about some of the strong fields improvements that few of the other malls like Valley View, Cross Roads or Cumberland?

[Joe Coradino:]

Well, it’s really a result of a couple of events happening. One is a re-tenanting program that was really a response to sort of economic development in the market. [indiscernible] moved there. National training facility to West Virginia as a result we brought in a sporting goods and a number of other tenants and we have seen significant sales growth with that property given that. So it was really a response to economic development to us happening. We can get back offline to you on those particular properties.

[Linda Tsai:]

Okay. And then just kind of a follow-up along the same lines. The 10.6% was nice gain, how much do the improved momentum there as it relates to maybe premier and core like are you seeing the same level improvements at the upper end of core as opposed to lower end?

[Joe Coradino:]

I think the growth in core is really across the portfolio. We have, if you look at our portfolio among all the other assets we only have one asset didn't have a positive same-store growth over the last 12 months.

[D.J. Busch:]

Thanks.

[Operator:]

Next a follow-up question from Christy McElroy of Citi. Please go ahead.

[Christy McElroy:]

Hi. Can you talk about what happened at Voorhees Town Center? You mentioned losses incurred. Is that just lost rent or is it something more and maybe since it's been a year since we saw. Maybe you could update us on sort of a overall leasing products of the center?

[Joe Coradino:]

Well the loss is really result of, there was a 48,000 square foot office building located at Voorhees, that was almost entirely occupied by the Star Group. They have seized to be in business. I say that because they have not formally filed bankruptcy, but their business, they were an advertising agency and their business was tied to the Casino industry, mostly in Atlantic City, New Jersey, which had a great business right now. As a result, they closed and there was a significant hit that we felt as a result of that. As it relates to the lease up of Voorhees, most of the work they were doing right now is around populating the second level with non-retail users which is opened up a Children's Neurological Center that took about 18,000 square feet. They moved in a few months ago. We're working a deal to relocate the Voorhees library there, which we pretty much conclude at least prop up in that second floor. And the street retailers, a couple of slots in there, but we also have a front lease deal that is going to be moving on to the street, which will end up being in our six or seventh restaurant in that street. That’s really what's making up the bulk of the leasing effort.

[Christy McElroy:]

What was the NOI impact from Star moving out? So, well, how much an annual NOI were they paying and what was the timing that they stopped payments?

[Joe Coradino:]

The impact in the second quarter is about $600,000 that reflected both rent as well as the write-off of some recent leased asset as well as straight line rent receivables on an annualized basis about a $1.2 million of revenue contribution that they made.

[Christy McElroy:]

Okay. Can you tell us the name of the grocery that you signed at Exton square to replace the Kmart and what's the timing of the opening and are they taking the entire Kmart back?

[Joe Coradino:]

No. Well, first off, we are bound by our agreement within not to reveal the name, but you can expect a press release in the next day or so. In any event, we'll be demolishing the Kmart and reconfiguring that site that will allow for this organic grocery to be built as part of a -- either on a standalone basis which they can do or as part of a redevelopment with a number of additional stores.

[Christy McElroy:]

On that, I will pass off.

[Joe Coradino:]

That's correct.

[Christy McElroy:]

Separate, it's a separate from the mall. Okay.

[Joe Coradino:]

That’s correct. But that will ultimately conclude in a connection into the mall.

[Christy McElroy:]

Okay, got you. So, I guess on the mall, would you sort of your overall plans for and you talked about it a little bit but your plans for remerchandising, redevelopment. Would it involve ultimately replacing the vacant anchor dock?

[Joe Coradino:]

The vacant anchor right now, we have prospects in terms of a dine-in movie theater they were working with and a bowling entertainment concept to take there. So, that’s done irrespective of the work as it relates to the organic grocery.

[Christy McElroy:]

Right, okay. Okay, thank you.

[Joe Coradino:]

Thank you.

[Operator:]

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

[Joe Coradino:]

First of all, thank you all for being on the call today. We are pleased with the significant steps we took this quarter with respect to our strategic objectives. We believe that our quarterly results was within our expectations were a function of timing, timing of bankruptcies and asset sales. And over the long term, we will deliver results in line with a higher quality portfolio. We look forward to sharing the details of our medium term plan with you at Investor Day we are planning this fall. And wish you all a enjoyable balance this summer. Thank you.

[Operator:]

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