Pennsylvania Real Estate Investment Trust
Q4 2014 Earnings Call Transcript

Published: 18 Feb 2015

[Operator:]

Welcome to the PREIT Fourth Quarter 2014 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Heather Crowell, PREIT’s Vice President of Investor Relations and Corporate Communications. Please go ahead, ma’am.

[Heather Crowell:]

Good morning and thank you all for joining us for PREIT’s fourth quarter 2014 earnings conference 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 18, 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’s 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. Our 2014 accomplishments evidenced PREIT’s continued evolution into a higher quality mall REIT indicated by record sales, occupancy, and same-store NOI growth. Also distinguishing us are peer-leading non-core asset sales, record low leverage, and ample liquidity. These achievements, coupled with the planned acquisition in Springfield Town Center and the redevelopment of The Gallery, have been recognized by our shareholders. We are evolving from a company that has been burdened with lower quality assets to one driven by its higher quality assets. The proportion of NOI from our premier assets has grown from 30.9% at the end of 2012 to 34.3% at the end of 2014, a 11% increase resulting from our portfolio transformation efforts. Think about it, when Springfield Town Center stabilizes and The Gallery has redeveloped, over 90% of our NOI will be generated from premier and core growth assets, and sales will significantly eclipse $400 per square foot assuming all else remains equal. We are particularly pleased with the market’s validation of the execution of our strategies resulting in multiple expansions that distinguishes us from our peers. This is particularly noteworthy considering that not long ago we had the lowest multiple among our peers demonstrating our successful and expeditious execution. We started 2014 facing a substantial hurdle resulting from last year’s harsh winter. We overcame this obstacle and we are able to establish record same-store NOI growth and exceed expectations for the year. Not only did we hold the line on expense growth, but we delivered 3.2% same-store revenue growth through achieving record high non-anchor occupancy of 94.5%. We also delivered comp sales growth of 3.7% ending the year at $394 a square foot, just shy of getting to the $400 a square foot mark, another historic high. Sales for comp tenants at our premier properties were particularly strong with tenants reporting increases of 5.4%. When the non-core assets were sold, we will exceed the $400 square foot milestone. In the fourth quarter, sales from all reporting tenants regardless of size were up 3.1%. In our leasing accomplishments, we executed new deals for 51% more space than we did in 2013, confirming that demand remains strong in our portfolio. Renewal spreads for leases with terms in excess of 5 years exceeded 15% and we had a stellar year in improving and replacing anchor positions. As well, we have signed a lease and opened Century 21 at The Gallery this year. Not only with this transaction first to market, but it was the first store the retailer opened outside of the New York Metro, a significant accomplishment towards our redevelopment efforts and fills our vacant anchor position. Now just as we are executing the lease with Kohl’s a New River Valley Mall in Christiansburg, Virginia, and we are thrilled with this transaction to replace a former Sears location. This is clearly an enhancement to the fashion offerings at this center located just 3 miles from Virginia Tech’s 31,000 students. It’s also a perfect example of what makes a property opportunistic in our portfolio. In this case, we have the opportunity to create a more compelling shopping environment for consumers that will lead to a more dynamic small shop tenants and increase sales. Earlier this year, Sears announced that it sub-leased a portion of their space to Primark at Willow Grove Park, one of our premier assets in the Philly market. We are excited to be part of the early rollout in the U.S. for this tenant and view this as another indication of the high quality of our portfolio. These accomplishments are further evidence of our continuing ability to replace anchor stores and leave us just one vacant anchor existing in our portfolio today. We have also been successful in introducing first to market and expanding new retailers through our portfolio. We introduced Uniglow, a growing international retailer through our portfolio in two locations. Lou and Lemon at Cherry Hill, this is our first transaction with this discerning tenant evidencing the strength of our top performing asset. Dave & Busters at Springfield Town Center rounding out the entertainment offerings at this property, and since the end of ‘14 we have signed over 48,000 square feet of new leases at Springfield Town Center; Garage and Walt Whitman, another first to market Canadian retailer. So, on the remerchandising front of our core growth assets, we have made tremendous progress. At Moorestown Mall, we have signed best of breed local boutiques along with two new restaurants that complement the existing offerings, which have resulted in a 590 basis point improvement in non-anchor [ph] occupancy and a substantial improvement in our NOI. At Viewmont Mall, our comprehensive program of right sizing and relocating existing performing tenants to make way for Forever 21, ULTA, and Buffalo Wild Wings, and similarly resulting in a projected 15% growth in NOI at this property. As is usual and expected in our industry, a number of tenants announced bankruptcies and their store closing. This year, the quantity exceeds previous years, but presents itself as an opportunity to recycle space to upgrade merchandise, increase sales productivity, and improve rents at our centers. We view this short-term impact as one that will yield positive long-term benefits. These tenants generated an average sales of just $168 per square foot in our portfolio, that’s been half of our portfolio average. We started the year with 280,000 square feet of tenants generating $8.5 million of annualized gross rents that have recently filed for bankruptcy. These names will come as no surprise

[Bob McCadden:]

Thank you, Joe. After a difficult start to 2014, we recovered and finished strong with solid occupancy gains and top line revenue growth in the second half of the year. Let me go through the details. FFO as adjusted for the fourth quarter was $43.3 million or $0.61 per diluted share. Last year, we recorded FFO as adjusted of $41.7 million or $0.59 per diluted share. 2014’s results were achieved despite the dilutive effect of asset sales that were completed this year. Same-store NOI for the fourth quarter was $75.4 million, a $4.1 million or 5.8% increase over the 2013 period. Excluding lease termination revenue, same-store NOI was $74.1 million, a 5.5% increase over the prior year period. Results for the quarter were impacted by the following. Increased revenues were driven by improvement in occupancy and higher average rents. At December 31, 2014, non-anchor occupancy at our same-store malls increased by 20 basis points to 94.5%, while total retail occupancy increased to 96.7%. Average gross rents for small shop tenants in our same-store properties were up 3.9% as compared to in-place rents as of year ago. This translated into a 3.6% increase in same-store revenues in the fourth quarter of 2014 compared to a year ago. On a combined basis, CAM real estate tax expenses were up 1.3% compared to last year. Real estate taxes were up by 11.9%, while CAM expenses were down by 5.2%. If you remember, the 2013 quarter was impacted adversely by higher weather-related expenses, such as snow removal and utilities. Our bad debt expense was about $150,000 better than last year’s quarter. While we experienced a number of bankruptcies in December and after year end, for the most part, those tenants were not delinquent when they filed at year end. We will however record the $600,000 bad debt charge in the first quarter of ‘15 with the balances that were unpaid at the time of the respective bankruptcy filings. Our interest expense for the quarter was $22.7 million compared to $23 million last year reflecting lower average borrowings, lower capitalized interest and a slightly higher average rate. Average borrowings were $94 million lower than last year and the effective interest rate on our borrowings during the quarter of 5.24% was 15 basis points higher than last year. Now, at the end of the year, our average borrowing rate was 5.02% and our weighted average time to maturity on our mortgage loans was 4.7 years. G&A expenses for the quarter were $8.5 million, a $1.1 million decrease from last year’s fourth quarter reflecting lower incentive compensation expenses for the period and other expense savings. We are pleased to have been successful in reducing G&A over the past few years as we have sold assets. And after we closed Springfield Town Center and the Gallery comes back online, our G&A as a percentage of revenue will benefit from the increased scale of the company. Outstanding debt at the end of 2014, including our share of partnership debt, was $1.7 billion, a decrease of $133 million from the end of 2013. Our bank leverage ratio stood at 47.6%, an 80 basis point reduction from a year ago. Our maturity schedule is very manageable in 2015 with just over $300 million of mortgage loans maturing on four high-quality malls, Willow Grove Park, Patrick Henry, Springfield Mall and Magnolia Mall. The average rate on these 2015 maturities is 5.69%. We will have an opportunity with these upcoming maturities to make further reductions in our average cost of debt. Since the loans mature in the latter part of the year, we will realize some benefit in 2015, but more of the benefit will be realized next year. Regarding our outlook for 2015, we expect that GAAP earnings per diluted share will be a net loss between $0.14 and $0.20. We expect FFO per diluted share to be in the range of $1.82 to $1.87 per share. And FFO as adjusted will be in the range of $1.87 to $1.92. Let me take you and bridge the gap from our 2014 operating results. We included a reconciling table in our earnings release issued last evening to assist you in understanding impact of the changes in our portfolio to arrive at our 2015 guidance. Our guidance incorporates the following assumptions among others. Same-store NOI, excluding lease termination revenues, was approximately $258 million in 2014. We expect same-store NOI growth of 1.7% to 2.7%, excluding lease termination fees. As I mentioned previously, while tenant bankruptcies had a minimal impact from our 2014 operating results, we expect the impact to be more significant in 2015 due to bad debt charges and loss revenues as a result of downtime following announced store closings. Our share of annualized revenues from Body Central, Cache, Deb Shop, RadioShack and Wet Seal totaled approximately $8.5 million in 2014. These tenants occupied 280,000 square feet at an average rental rate of $33, 30% below the company average. What we had anticipated at many of the store closings, we anticipate our revenue in 2015 from stores occupied by these tenants to be approximately 4% to 4.5% lower in 2015 due to the downtime. Non-same-store NOI will be lower from the sale of non-core retail properties exclusive of the Gallery. Our share of NOI from the Gallery will be lower. For the first 7 months of 2014, the Gallery was wholly owned by PREIT. For last 5 months of 2014 and all of 2015 PREIT will own 50% of the Gallery. The lower NOI results from our ongoing efforts to terminate leases and vacate tenant spaces in preparation for the planned redevelopments. NOI from acquisitions and redevelopment activities will be higher as a result of a full year of ownership of two street retail properties in Philadelphia, the planned acquisition of Springfield Town Center at the end of the first quarter of 2015, and the opening of Gloucester premium outlets in August of this year. We expect a 4.7 million increase in the weighted average share count to get us back to the anticipated issuance of 6,250,000 operating partnership units in connection with the planned acquisition of Springfield Town Center and other normal share activity. We expect the current capital expenditures in the range of $45 million to $50 million. We anticipate redevelopment and development capital expenditures in the range of $80 million to $110 million. Our guidance does not contemplate any material property dispositions or acquisitions other than Springfield Town Center. As we have done in the past, our guidance for potential dispositions isn’t adjusted until we know what the high degree of certainty the price and closing date for a transaction. For those of you who want model hypothetical sale the five assets targeted for sale generated approximately $17 million of NOI in 2014 and a similar amount of NOI is expected this year. And finally, our guidance does not assume any capital market transactions other than mortgage refinancing in the ordinary course of business. Regarding the sequencing of our same-store NOI growth, given these soft results in the first quarter of 2014, we anticipate the rate of growth will be higher in the first quarter of 2015, fall off during the second quarter during to the normal leasing cycle compounded by bankruptcy related store closings and then pick up again in the third and fourth quarters. With that, we will open it up for questions.

[Operator:]

Thank you. [Operator Instructions] And our first question will come from Craig Schmidt of Bank of America. Please go ahead.

[Craig Schmidt:]

Thank you. I was wondering did the Philadelphia City Council consider the public financing project in December or is that still waiting to occur?

[Joe Coradino:]

Good morning, Craig. That’s still waiting to occur. We are navigating the political wins in Philadelphia, but we are highly optimistic and continue to work towards executing the redevelopment of The Gallery, because we have a high degree of confidence that we will conclude the public financing and all the appropriate discussions and documentation with the City of Philadelphia.

[Craig Schmidt:]

Great. And then what is the current occupancy at Springfield Town Center for the specialty small shop space?

[Bob McCadden:]

It’s north of 70%.

[Joe Coradino:]

Yes. It’s about 70%, and as I have mentioned in my script with a significant amount coming online in Q2.

[Craig Schmidt:]

Great. And then the lower guidance, the same-store NOI, it sounds like it’s related to the bankruptcy, is there anything else sort of weighing on that number?

[Bob McCadden:]

Yes, I think you’ve got to look at - you have to look at a couple of pieces there. So, one is certainly the bankruptcies. Two is the de-tenanting or slow closing of the Gallery. And three is asset sales. As you think about – as you think about sort of our guidance going forward, that’s really what’s weighing on it.

[Craig Schmidt:]

Okay. Thank you.

[Operator:]

Our next question will come from Ki Bin Kim of SunTrust Robinson Humphrey. Please go ahead.

[Ki Bin Kim:]

Thanks. So, this – I am trying to triangulate how you get your – not same-store, but your overall NOI numbers, and some of the commentary regarding bankruptcies helps, but I was just curious the $33 per square foot rent that these tenants are paying, are these in the good malls, in premier malls, non-core, how does that split up in terms of quality of malls that these spaces are in?

[Bob McCadden:]

I think we have stores across the portfolio spectrum in all of our asset classes. So, the $33 a square foot is an overall average. It probably ranges from $17 in the opportunistic to in the 40s in some of our premier assets.

[Ki Bin Kim:]

Okay. And is that bad debt number in your same-store NOI metrics or is it in kind of other NOI?

[Bob McCadden:]

No, bad debt is on our same-store NOI metric. I mean, our NOI is essentially, I guess, is a discussion of whether it’s GAAP or cash, it’s basically our GAAP revenues, less our GAAP expenses, all inclusive.

[Ki Bin Kim:]

Bad debt. And – okay. And how much of this space have you preemptively started to release, and how much of that releasing is in 2015 guidance, if there is any, if any?

[Bob McCadden:]

Right. Just in terms of maybe I will talk in terms of dollars, I mentioned in my remarks that about $8.5 million of revenue from those tenants in 2014, we are expecting about half that amount in 2015. So, again, we are going to have some downtime in the middle of the year and retaining that takes place in the second half of 2015.

[Joe Coradino:]

Ki Bin, I would add to the response. That $33 think about it, as the average of the tenants that declared, think about it compared to our average rent in our portfolio of $47 a square foot. So, from that perspective, you could see that there is upside there. And in terms of prospects at this point, we – in terms of the space, we have identified prospects for about 90% of the space. And as Bob pointed out, about half of that will get occupied and obviously the balance shift into ‘16.

[Ki Bin Kim:]

Okay. And I just want to clarify to what Bob said, you said $8.5 million is the expected bad debt for these tenants?

[Bob McCadden:]

No, no.

[Ki Bin Kim:]

All bankruptcies, I see.

[Bob McCadden:]

No, no. The bad debt – we took the bad debt charge already, that’s $600,000 that would have been taken in January. And then in addition, we had $8.5 million of revenue from those tenants in 2014, and those same spaces, if you look at it on a same -space basis, we would expect about half that amount in 2015. So, you are looking at we have got a $4 million to $4.5 million hit from the bankruptcy this year.

[Ki Bin Kim:]

And the remainder is the following year or the remainder you assume it is just stabilizing?

[Bob McCadden:]

No, we’ll lease that space. As Joe mentioned, again rents had 30% lower than the mall average, we would expect to tenant that space in ‘15 and some of it will obviously spill over to ‘16. But I think the opportunity there is significant given the rents that they were paying and the level of sales productivity that these tenants were performing at.

[Ki Bin Kim:]

Okay. And in your guidance numbers, what are you assuming for lease termination fees from these bankruptcies, and I realize maybe every deal is little bit different, but on average, are you just assuming zero lease cancellation fee income?

[Bob McCadden:]

Yes. From the bankruptcies, you are not going to get any. They are going to – the tenant doesn’t want the space, they will reject the lease in the bankruptcy proceedings. So, we won’t get any lease termination revenues from the bankrupt tenant.

[Ki Bin Kim:]

Okay, okay. I will get back in the queue. Thank you.

[Operator:]

The next question will come from Michael Mueller of JPMorgan. Please go ahead.

[Michael Mueller:]

Yes, hi. I was just wondering going to the Gallery for a second, if we think about your share of the NOI that you are receiving from the Gallery after the sell down of the stake, how much is that eroding in 2015? What’s the magnitude of that from de-leasing where you are going to see the NOI drop off?

[Bob McCadden:]

The total impact, ‘14 to ‘15 is $7.4 million. That’s a function of both having a lower ownership stake for a full year and then also the de-leasing efforts.

[Michael Mueller:]

I mean, if you segregate those two and just get rid of your list and just look at the de-leasing, how significant is the de-leasing component of that?

[Bob McCadden:]

The de-leasing component is, I don’t know if I can give you that off the top of my head, but it’s significant. The only – we will have the small retail component left as well as the office leasing at the end of this year if you think about it.

[Michael Mueller:]

Okay.

[Bob McCadden:]

All the retail will be vacated or a substantial of the retail will be vacated and we’ll be left with a mall prime [ph] for construction.

[Michael Mueller:]

Got it. It is significant more than half of it do you think, just a rough stab?

[Bob McCadden:]

Yes, Mike, I will get back to you offline with your question.

[Michael Mueller:]

Okay, that was it. Thank you.

[Operator:]

Our next question will come from D.J. Busch of Green Street Advisors. Please go ahead.

[D.J. Busch:]

Thank you. Just to quickly follow-up on Michael’s question there. Joe, I just want to make sure I heard you correctly when you are answering Craig’s question on the impact of same-store NOI, you have mentioned the Gallery and the de-leasing there. Just following along with the guidance, it doesn’t look – it looks like you are pulling the Gallery out, so that….

[Joe Coradino:]

You are right, that’s not same-store. I misspoke.

[D.J. Busch:]

And then I know, Bob, you said you couldn’t break it now, but would you say that the magnitude if it were still part of the same-store number will probably be similar to the bankruptcy maybe 100 to 125 basis points?

[Bob McCadden:]

Yes.

[D.J. Busch:]

Okay. Joe, when I look at the supplemental in the opportunistic group versus the non-core group, it’s the operating metrics and performance, it’s very hard to differentiate the two, why still keep those groups segregated and not label them all non-core?

[Joe Coradino:]

That’s a good question. We will have to take a look at it. I think, D.J., I think the only reason that we distinguished in this presentation is the non-core ones that we are actively marketing.

[D.J. Busch:]

Okay.

[Joe Coradino:]

And our description would be appropriate.

[D.J. Busch:]

You don’t really look at them not much differently with the exception that the non-core actually being marketed for sale?

[Bob McCadden:]

Right. I think we have always kind of described the opportunistic are those that we much like Washington Crown Center, which was a opportunistic property. Our view was that we would make a decision whether to – after we do whatever we could do to the asset in that case redevelop it, we either want to remain in our portfolio, which will then move up to the core growth group or would move down and we would dispose of it.

[Joe Coradino:]

So, if you think about the non-core compared to the opportunistic, the opportunistic assets, Beaver Valley, for instance, is in Marcellus Shale, New River Valley we just mentioned, we just signed calls to replace a vacant series there. So, the question at that point, does that give the ability to move up in the core or does it give the ability to move it into non-core kind of think about it as sort of a holding pain if you will as it relates to where these assets go to – we bring into the market for sale, but the point is that we don’t believe we have harvested all the value. We think there is an opportunity to harvest more value from the opportunistic properties.

[D.J. Busch:]

Okay, got it. And then you guys have some of the, I guess, best disclosure quite frankly when it comes to supplemental. A couple of years back when you had redevelopment going on in the portfolio, you had a page similar to what your peers have now. Are you planning to implement something like that, so we can follow along with the Gallery as it gets going and maybe even the premium outlet?

[Joe Coradino:]

Yes, we expect to do that when we make the announcement on the Gallery.

[D.J. Busch:]

Okay. Okay, thank you.

[Operator:]

And our next question will come from Nathan Isbee of Stifel. Please go ahead.

[Nathan Isbee:]

Hi, good morning. Just following up on the guidance, you talked about the bankruptcies that have occurred and the store closures associated with that. I am just curious what is your view on I guess further store closure activity and how much have you reserved for in your guidance?

[Bob McCadden:]

Well, I don’t know if we can point to a specific number for – we don’t have a bankruptcy reserve if you will. When we do our budget, we basically look at each space making assessment as to the tenant performance and viability in that space. And if we don’t think the tenant will survive, we will make a call in that, but we make closing calls all the time, [indiscernible] to either remerchandising of the space or our view that they are not appropriate for the property.

[Nathan Isbee:]

And not a reserve per se, but as you look at your tenant watch lift and there are some other struggling tenants out there, I mean in your same-store NOI guidance range is there allowance for further foreclosure activity upfront normal?

[Joe Coradino:]

There is, yes.

[Nathan Isbee:]

Okay. And then I am not sure if I missed this has – have your yield expectations on Springfield changed at all?

[Joe Coradino:]

No.

[Nathan Isbee:]

They are still coming out around 4.1?

[Bob McCadden:]

Yes, the 401 is really a first year, it’s really first 12 months post ownership. As Joe mentioned we have a lot of activity coming on in the second quarter and we will continue to lease up to the 90% level by the end of the year. So we will get the full – in effect the more full benefit of that in the first quarter of 2015 – I am sorry 2016. So if you look that on a first year run rate basis we would expect yields around 4.1 and further improvement during 2016 to get to our more stabilized yields.

[Nathan Isbee:]

So for modeling purposes, I mean as you look at in second quarter where is it opening?

[Bob McCadden:]

I don’t have that information off top of my head on a quarter-by-quarter basis.

[Nathan Isbee:]

Alright.

[Bob McCadden:]

But it will – it will blend up for the 4.1 a year from now.

[Nathan Isbee:]

You are starting at 2.5 or was it 2, I mean just some sort of ballpark?

[Bob McCadden:]

Yes. I just don’t have that information at my fingertips.

[Nathan Isbee:]

Alright. Thank you.

[Operator:]

Your next question will come from Christy McElroy of Citi. Please go ahead.

[Christy McElroy:]

Hi, good morning. I just wanted to follow-up on Mike Mueller’s question on the Gallery maybe ask it a little bit differently, you are projecting $3.3 million of NOI in 2015, so what was your share of NOI in Q4 of ’14 and as we think about that de-leasing trajectory what should we expect your share of NOI to be by Q4 ’15?

[Joe Coradino:]

I am not sure if I had the information at that granular level to give you a quarter-by-quarter at my fingertips, we will have to get back to you on that.

[Christy McElroy:]

Okay, that will be helpful. And then just in regards to the five properties you are looking to sell in 2015, we appreciate that’s the $17 million of NOI number, can you give us a sense for potential proceeds on the sales and as we think about dilution how are you thinking about the use of proceeds should the sales occur?

[Bob McCadden:]

So, we gave you the NOI number and you can looking at the sales productivity of the malls we will leave the pricing to your own assumptions based on the cap rate and the proceeds will be used to effectively pay down debt.

[Christy McElroy:]

And as we think about the cap rate I mean would it be similar to the South Mall, Nittany, North Hanover sales that you had in 2014?

[Joe Coradino:]

I think given the fact that we are in active negotiations right now we probably not want to respond to where cap rate is going to end up at.

[Christy McElroy:]

Okay. And then just lastly you have about $0.05 of acquisition costs embedded in your NAREIT FFO guidance is that entirely related to Springfield and should we expect those costs to occur in Q1 or Q2?

[Joe Coradino:]

All expects to incur – to be incurred in Q1 and it’s already at the Springfield.

[Christy McElroy:]

Okay. Thank you.

[Operator:]

Your next question will come from Linda Tsai of Barclays. Please go ahead.

[Linda Tsai:]

Hi. Excluding Springfield Town and the Gallery what will you consider a good long-term same-store NOI growth rate for the core mall group?

[Joe Coradino:]

3% to 4%.

[Linda Tsai:]

Thanks. And then just a follow-up on the malls that you have for sale right now, are the buyers pretty similar to the buyers who bought the malls in 2014?

[Joe Coradino:]

Somewhat, yes those buyers are out there, but as we move up the quality spectrum in terms of our assets for sale, we are seeing more real estate people who have operated retail properties before. So you are getting a bit of a blend between the pure entrepreneur kind of cash flow buyer to ones that actually have operating experience, so a little bit of a blend now.

[Linda Tsai:]

Got it. So, are you saying it also – you are looking at public buyers too or?

[Joe Coradino:]

No, I wouldn’t – we have not seen public buyers emerge other than to get the packages. We are not seeing public buyers emerge for the properties we are holding for sale.

[Linda Tsai:]

Okay. You are saying that, but the maybe the pool of buyers have – has widened because the quality of that?

[Joe Coradino:]

Yes, I think the point I am making is not – I am also making public buyer point, I was making a point that we are seeing buyers who have real estate operating experience, right, which is as opposed to a pure entrepreneurial, which is what we were seeing in our earlier sales.

[Linda Tsai:]

Okay. Thank you.

[Operator:]

Your next question will come from Ki Bin Kim of SunTrust Robinson Humphrey. Please go ahead.

[Ki Bin Kim:]

Just a couple of quick questions in the Gallery, going back to the leasing efforts, I think what we are all trying to do is to capture how much of that is impacting our overall NOI number for 2015. So maybe if I could ask – maybe a simpler way on a growth basis on a 100% owned basis, what was a Gallery producing in NOI, if I look at your 10-Q, it seems like $10 million, was that about right?

[Bob McCadden:]

It was $10 million. No, it’s actually – there was more than $10 million, it was probably closer to the – so you have a lot of things going on Ki. You have the opening up Century 21 that occurred in the last half of 2014, so you have to – you kind of have to parse this out in a fair amount of detail to really give you a good answer.

[Ki Bin Kim:]

Well, whatever is easier for you to answer, so including Century 21, what would growth NOI have been approximately?

[Bob McCadden:]

So, you are probably in it – on 100 basis it’s probably about $12 million including Century 21 and Health Partners.

[Ki Bin Kim:]

Okay. And now if you are de-leasing this mall on a growth basis, what is that $12 million go down to approximately with the near 2015 guidance?

[Bob McCadden:]

It goes down to – we have given our share of the guidance at $3.3 million, so on a 100% base it will be $6.6 million.

[Ki Bin Kim:]

Okay. So, the de-leasing is causing about $6 million, a little bit less than $6 million of NOI loss for now, right?

[Bob McCadden:]

Yes.

[Ki Bin Kim:]

I didn’t ask what we are trying to get to. And the second question, you mentioned in your opening remarks that your – in LOIs or discussions of releasing some space at the Gallery with new tenants, but just curious because we have yet to see a real – from the public sale side – public market standpoint a real plan shown to the public, right to the public atmosphere, but when you are talking to tenants and you are obviously in negotiations with these spaces, what – I am sure from their perspective, they care about what the scope of the plan will be, how much – what’s the project is going to look like at the end, right, at least a case A or case B what is that message you are conveying to tenants?

[Joe Coradino:]

What was the end, what is the message did you say?

[Ki Bin Kim:]

Yes, I mean you think you are under lease negotiations or LOI for more leasing at that mall, but I would think that from a tenant’s perspective they will care a lot about what the ultimate scope for that project would look like?

[Joe Coradino:]

Yes. We have a – we have a generally outlined scope. The direction of that scope hedge whether and the total investment in the project is to a certain extent subject to the transaction we end up concluding with the City of Philadelphia, which is why we have been the venture I should say as opposed to we PREIT have been a little quiet about until we get that result. But at this point of discussion with tenants that included discussion of a certain level of guaranteed scope, let’s call it.

[Ki Bin Kim:]

Right, okay. So, is there a fair amount of variability in rent as well it depends, if it doesn’t go, like you said guarantee scope price, if doesn’t hit that target, there is a – is there a pretty fair clause that will say…?

[Joe Coradino:]

No.

[Ki Bin Kim:]

Alright, that’s it for me. Thank you.

[Operator:]

And ladies and gentlemen, we do have a follow-up question now from Mike Mueller of JPMorgan. Please go ahead.

[Michael Mueller:]

Hey, sorry about that. Thanks for taking it. You are talking about the, I think there was $8.5 million of bankruptcy related revenues in – and that we are in 2014, if you are just looking at 20 – Q4 2014, how much of the revenues were in the quarter – in the fourth quarter that are going to basically be there starting in Q1 going forward?

[Bob McCadden:]

Again that’s a fairly granular question. We are going to have some of the revenues, while tenants file for bankruptcy either in December or the first quarter of this year, they have a number of tenants conducting out of – going out of business sales. So, we don’t look at it on a quarterly basis, we will have to do a little bit more digging.

[Michael Mueller:]

Okay. Okay, thank you.

[Operator:]

And ladies and gentlemen, that will conclude our question-and-answer session. I would like to hand the conference back over to Mr. Coradino for his closing remarks.

[Joe Coradino:]

Well, thank you all for being on the call today. 2014 was a pivotal year. A year where we transformed our portfolio and delivered strong operating results without sacrificing our balance sheet. And at the same time, these messages are being heard in the marketplace and our investor base to similarly transform them. We have underlying opportunities for outside growth in our portfolio and look forward with optimism to executing for our shareholders in 2015 and beyond. Thank you all and have a great day.

[Operator:]

Ladies and gentlemen, the conference has now concluded. We thank you for attending today’s presentation. You may now disconnect your lines.