Pennsylvania Real Estate's (PEI) CEO Joe Coradino on Q2 2014 Results - Earnings Call Transcript

Jul.30.14 | About: Pennsylvania Real (PEI)

Pennsylvania Real Estate Investment Trust (NYSE:PEI)

Q2 2014 Earnings Conference Call

July 30, 2014 10:00 a.m. ET

Executives

Heather Crowell – Vice President – Communications and Investor Relations

Joseph F. Coradino – Chief Executive Officer

Robert F. McCadden – Executive Vice President and Chief Financial Officer

Analysts

Daniel J. Busch – Green Street Advisors

Ki Bin Kim – SunTrust Robinson Humphrey

Benjamin Yang – Evercore Partners

Christy McElroy – Citi

Nathan Isbee – Stifel, Nicolaus & Company, Inc.

Operator

Good day. And welcome to the PREIT Second Quarter 2014 Earnings Conference Call and webcast. All participants will be in listen-only mode. (Operator Instructions) After today’s presentation there will be an opportunity to ask questions. (Operator Instructions)

Please note this event is being recorded.

I would now like to turn the conference over to Ms. Heather Crowell. Ms. Crowell, the floor is yours ma’am.

Heather Crowell

Thank you, and good morning, everyone. Welcome to PREIT’s second quarter 2014 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, July 30, 2014, 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 in 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.

Joseph F. Coradino

Thank you, Heather. Good morning everyone. Our future is bright, growth is on the horizon. We’re laser focused on executing a sound strategy designed to enhance shareholder value. Quality has been our focal point without sacrificing balance sheet strength. Operating performance remains paramount and we are confident that shaping a higher quality portfolio will lead the consistently strong operating results and dependable earnings.

Quality will result in a continued narrowing of the NAV gap and in the long run an elimination of it. We are creating a portfolio that drives nearly all of the channel eye from a. High quality b. Assets, with a strong presence in top MSAs.

The market clearly rewards companies with high quality assets with higher multiples and we are on our way to achieving that goal, execution is all that matters. We sit here today with a strong balance sheet, solid operating performance, improving portfolio quality and a realizable vision for the gallery that sharply minimizes execution risk and will provide capital that will fuel our ability to execute one of our strategic objectives and maintain the strong balance sheet.

The redevelopment of the gallery coupled with the pending acquisition is Springfield Town Center and disposition of a few more lower productivity assets demonstrates that the vision for the recast PREIT is crystallizing. As it relates to our adventure with Mace return to gallery, we are very excited about this collaboration they are excited, everyone should be excited, this is a case where some of the parts will clearly be greater than the whole. Our Philadelphia dominance and expertise coupled with your experience in urban vertical mixed use developments anchored by retail is a powerful combination, it is in equal partnership we share responsibilities where each partner will bring our best to the redevelopment.

We now look to conclude the public financing and lease modifications with various government entities in anticipation of presenting and exciting project to you in the near future.

The highlight specific results from the quarter after recovering from the effects of extreme winter weather operations have been solid with NOI for the quarter growing by 3.1%, renewal spreads continue to be strong at 4.5%, occupancy is temporarily flat as we ready spaces for new tenants, a function of our remerchandising efforts. Most notably year-to-date new leases executed for non-anchor space represents an 83% increase, yes 83% increase or 200,000 square feet over last year’s volume for the same period.

We have over 575,000 square feet of newly (as executed) that haven’t taken occupancy and with moving schedule for the balance of the year, we are projecting our ending occupancy to be in line with our expectations and reflect improvement over the last year.

We continue to methodically reduce our exposure to the non-core properties and in the past 19 months we sold seven properties and an interest in the gallery generating 360 million in proceeds.

In addition to this we have two non-core malls under agreement, another one being brought to the market and offered on our non-income producing land and we are making progress on selling our interest and our power center joint ventures.

We previously communicated a range of proceeds in short of $150 to 400 million. Since the announcement of the pending acquisition of Springfield Town Center, we have raised approximately $130 million with another $125 million in the queue. Our leverage at the end of June was 49.4%. When the gallery transaction is included our pro forma leverage is 47.8%, after we complete the acquisition of Springfield Town Center assuming we close on the $125 million in pending transactions our pro forma leverage will be 49.5%.

PREIT’s unique among our peers, we have executed on a disposition of a sizable portion of our asset base. Our approach has been successful and we are pleased with our accomplishment to-date and upgrading our portfolio. We have also made tremendous progress in upgrading the quality of tenancy in the balance of our portfolio. Another commitment we made to our shareholders.

Exciting new releases with expanding domestic and international retailer such as Uniglow, multiple RGA brands including F&S, (inaudible) that are new to the U.S. Vera Bradley, Forever 21, ALTA, the Buckle and key new restaurants that (inaudible).

Let me talk in some detail about the work we have done at some of our properties. I recall that these are the properties where we told you that we were re-merchandising. There is a lot of value to be created at these properties and (inaudible) we have made tremendous progress in upgrading the tenancy and creating a truly unique destination. We have added a new regal premium experience three restaurants, two from celebrity chefs have executed the least at and another one. We are anxiously waiting the opening of the area's most fashionable saloon and spa and if delivered on our promise of adding the boutique row, a collection of high end retailers with a local flair designed to cater to the residents.

This in asset has been transformed and we believe although other things being equal sales will ultimately eclipse the previous high of 433 per square foot in 2007. Note this property is located just five miles from our flagship Cherry Hill and this ever points to the benefit of our deep knowledge of this marketplace and what resonates with these customers.

Viewmont Mall is another great example, a property in Scranton, Pennsylvania that has long been a dominant mall in the trade area. We embarked on an effort to upgraded to upgrade the tenancy to single level mall where we had an expiring drugs store, paying low single digit rents, and over single digit rents, and over size limited super store and an underperforming food court.

We are able to right size the limited Victoria Secrete and other brands house within the former super store and accommodate Forever 21 another large format retailer along with a new Buffalo Wild Wings. Washington Crown Center another success story, it's one of our opportunistic assets sitting right in the Marcellus Shale region that it's clearly benefiting from increased economic activity in the area.

In the past year we have signed leases with Marshall’s, (inaudible) Jo-Ann Fabric and ALTA which will really solidify this is a major retail hub to enable and make use of deep spaces and introduce large format, top category dominant retailers in the mall and with the stores accessing the mall common area. We will dramatically improve the credit profile of the property and drive the asset value by 20% with this re-merchandising.

From the balance sheet prospective we continue to be focused on the strength of our balance sheet and financial flexibility and we are pleased to have reduced leverage by 30 basis points since last quarter. The transaction we announced with Macerich shows up our balance sheet even further. And let me talk a little bit about it.

Proceeds from the transactions are $106.8 million. We will support redevelopment course going forward. We expect to deliver a project scope in cost after we conclude discussions on public financing. Most important is the expertise in developing and leasing vertical mixed used projects in dense urban environments that Macerich brings to the table coupled with our relationship and knowledge of this market will allows us to reduce our execution risk in unlocking significant value at the gallery. This is an exciting transaction again while we’re confident that some of the parts is undoubtedly greater than the whole.

In terms of our growing portfolio, we continue to work Vornado on leasing Springfield Town Center expecting to close that in the first quarter of 2015. As of today, the product is approaching 80% committed with the grand opening scheduled on October 17. As transactions come into focus, we are more and more excited about this property. The combination of location, demographics, retailers and mall finish will yield the premiere property. We look forward unveiling it and sharing a comprehensive tenant roster once we have finalized the few key deals that are progressing.

In June we closed on-land with Seimen for Gloucester premium outlets. Instructions are underway, leasing is progression with 65% committed and we expect that it will open in the third quarter of 2015.

Moving on to the retail sales environment, as many of our peers have discussed we believe the retail sales environment is changing. On a comparable basis, sales were slightly down at 378 and for the quarter total sales from non-anchor tenants were up 1.6%. What's most important as relates to sales is our ability to drive rents and NOI in the future.

Looking at our portfolio and expirations over the next two years, we come away with confidence that renewal and replacement rents will continue to increase over expiring rents. Consider this, our average in place occupancy costs for leases expiring in the next two years is 12.6% which compares the current portfolio occupancy cost of 13.1% leaving much room for improvement just marking rents to market in our existing portfolio before factoring any opportunity growth that occupancy course figure.

Furthermore, of the non-anchor leases expiring over the next two years 75% of them are in the premiere and core growth tiers of our portfolio based on GOA and our first substantive rollover of leases at Cherry Hill since it's redevelopment in 2009. As you can tell, we are extremely optimistic about our future.

For now I will turn the call over to Bob McCadden to give you more color on the company's operating performance.

Robert F. McCadden

Thanks Joe. We had a great quarter having made as nice recovery from a difficult start to the year positioning us for continued strong performance in second half of 2014. We are adjusting our previously announced guidance expectations for FFO as adjusted to reflect the $0.03 per share dilution from the sale of 15% interest in the gallery.

Let me cover some of the financial and operating results in a bit more detail. Same store NOI for the quarter was $67.2 million, a $2 million or 3.1% over the corresponding 2013 period excluding lease terminations same-store NOI increased by 3%. This growth in same-store NOI was up 4.6% in our premiere assets and up 3.6% our core growth assets. NOI of opportunistic properties were slightly negative during the quarter. We expect that trend reverse as tenancy occupancy at Moorestown Center and Washington Crown Center during the second half of the year.

The improvement in operating results was all top line driven with base revenue of 3.2%. Operating margins improved by 30 basis points as revenue growth outpaced increases in operating expenses. Average range per square foot were up 4.4% from the same period last year with increases noted across all property tiers.

Total occupancy and non-anchor occupancy at the end of June were relatively flat compared to last year as Joe mentioned, but we anticipated significant uptick in occupancy in the second half of the year as many of the signed tenants have executed leases take occupancy for the back school and holiday shopping periods. Renewal spreads for small shop tenants increase by 4.5% as expected spreads of our premier and core growth properties were greater than that amount increasing by 6% and 6.9% respectively. Renewal spreads for leases with terms greater than five years were 11.9% for the quarter continuing the strong performance we saw in the first quarter.

Comp store sales per square foot were down modestly year-on-year, but up sequentially from the first quarter. As Joe mentioned, overall non-anchor sales including large format store were up for the quarter. We did experience positive growth in the all import small shop of power category that was hit hard earlier in the year.

Interest expense decreased primarily from lower overall debt balances and lower average interest rates. In the second quarter, our average debt balance was $149 million lower than a year ago and the average interest rate was 58 basis points lower than in the second quarter of 2013.

After the quarter ended, we paid off $51 million mortgage loan at Logan Valley Mall incurring $1.2 million non-cash charge relating to the write-off of hedging costs. We also repaid the $25.8 million mortgage loan at 801 Market Street as part of the transaction with Macerich.

G&A cost were down $800,000 or approximately 8.7% for the quarter reflecting expense savings in a number of categories. We encourage $4.9 million of employee separation expenses associated with the previously announced retirement of our Vice Chairman as well as other officers and employees during the quarter. To be clear, the separation charges are not included in G&A.

During the second quarter of 2014, we also recorded impairment charges $13.9 million at Nittany Mall and $2.2 million in North Hanover Mall as a result of signing the purchase contract for the sales of these two assets. Our liquidity position remains strong with nearly $550 million of liquidity at the end of the quarter including $393 million of unused borrowing capacity under our revolving credit facility.

Regarding our outlook for 2014, we expect the capital earnings per diluted share will be a net loss between $0.43 and $0.50, we expect FFO with adjusted to be in the range of $1.98 to $2.01 per share and FFO per diluted share to be in the range of $1.86 to $1.89. The revised guidance includes expected dilution of $0.03 resulting from the gallery transaction. We are maintaining our expectations for same-store NOI growth of 2% to 2.4% excluding these termination fees.

Finally, our guidance does not contemplate any other material property dispositions or acquisitions and doesn’t assume any capital market transactions other than financing transactions in the ordinary course of business.

With that we will open up for questions.

Question-and-Answer Session

Operator

Thank you, sir. (Operator Instructions) The first question we have comes from D. J. Busch of Green Street Advisors, please go ahead.

Daniel J. Busch - Green Street Advisors

Thank you. Joe just carries with the level demand was from operating partners to joined forces at the gallery, I guess did you approach Macerich or was this more of an open bidding process to come on for a joint venture?

Joseph F. Coradino

Well, we did talk to other developers, other potential joint venture partners for the transaction, but essentially when we, we sort of looked at the skill set of the folks in our sector, we liked the fact that Macerich had significant experience in urban projects, in high rise, in mixed use, etcetera. So as a result, we really thought they were the ideal candidate and I guess in terms of just history I call that I guess just about a year ago, and really introduced the possibility of there looking at the gallery.

Daniel J. Busch - Green Street Advisors

Okay. And in the press release you used the term accessible luxury retailing. That sounds maybe like a higher end outlet. Last quarter you mentioned that dollar format was more unlikely. Has that changed at all with your partnership with Macerich?

Joseph F. Coradino

Well, we are really not in a position today to sort of articulate division. I think it’s something that from our perspective DJ, what we really want to do is get through our discussion with the Citi and finalize our entitlement etcetera before we articulate precisely what we are going to be doing at the gallery.

Daniel J. Busch - Green Street Advisors

Okay, and then, can you disclose what the capital was on the transaction?

Joseph F. Coradino

No, but I suffice to say that when you look across the recent mall sales, it was a respectable cap rate, but I think as we look at this deal, we think when we saw that at a fair price, but we also think that this is really about value creation, it’s about risk mitigation and it’s about capital allocation. So again, not to repeat myself, but we like Macerich as a venture partner, they’ve done some great projects in California, in Virginia and in Chicago. So, we really see this more as we’ve created significant upside in the project as a result of having done this deal.

Daniel J. Busch - Green Street Advisors

Okay, thank you.

Joseph F. Coradino

You are welcome.

Operator

The next question we’ve comes from Ki Bin Kim of SunTrust.

Ki Bin Kim – SunTrust Robinson Humphrey

Thanks. Just couple of more follow-ups on Gallery, what are you looking for – when you request funds from the Citi, is that all grants or is it just a very low cost financing and in the best case scenario what would you get from the Citi?

Joseph F. Coradino

Well, first of all hi, Ki Bin. The answer to your question is a combination of grants, tiffs, low interest etcetera and I think it would really compromise, for me to answer your question with specificity would sort of compromise or discussions with the Citi. So, I think I would rather point on that one and get back to you all as we are in a better position to do so.

Ki Bin Kim – SunTrust Robinson Humphrey

Okay, fair enough. Any update on when that could be if from a timing a perspective?

Joseph F. Coradino

Well, I would just say that we are, Macerich and ourselves are, we are running at full speed already, I think it’s a great partnership and we are on it and it’ll be as soon as possible and we are looking to move into the fall with fully ramped up in our discussion with the Citi and be back to you some time shortly after that.

Ki Bin Kim – SunTrust Robinson Humphrey

Okay and, quick one here, is that a full – a pure 50:50 joint venture or does Macerich get some kind of promote, is there any kind of promote in just going to one party or another?

Joseph F. Coradino

It’s a 50:50 joint venture right down the middle.

Ki Bin Kim – SunTrust Robinson Humphrey

Okay, alright. Thank you.

Joseph F. Coradino

Thanks Kevin

Operator

Next we have Ben Yang of Evercore.

Benjamin Yang - Evercore Partners

Hi good morning. Thanks. Joe, hi how are you doing? Curious, how much more work you guy need to do to hit your sense to NOI guidance, I know you guys did a lot of leasing this year, you mentioned Voorhees and Washington Crown, taking space the significant uptick in occupancy, but would you say that 100% of the leasing is done at this point to hit that target?

Robert F. McCadden

Yes Ben, as Joe mentioned, we have about 575,000 square feet of executed leases that we’re working to get those tenants open for the year. Maybe 25,000 of that related to 2015 openings, but I would say substantial leasing that we need to do to hit our numbers in place and we are networking on preparing the spaces if we haven’t return over to the tenants to turn them over once schedule meet that those NOI goals for the year.

Benjamin Yang - Evercore Partners

I mean how about like risk of tenant fallout or percentage rent kind of falling on the lower sales, I mean is that also baked into the numbers that you’re putting up there?

Robert F. McCadden

Yes, I think it's based on our expectations any tenant fall as well. I mean we usually bake that into our original guidance and updated as the year progresses.

Benjamin Yang - Evercore Partners

And what is that expectation, can you share that with us?

Robert F. McCadden

No, I mean, it’s baked into to our bad debt numbers and we have – a reserve for vacancy if you will.

Benjamin Yang - Evercore Partners

Okay. And then just final question, another question on joint venture with Macerich. Are you potentially in discussions to do more JVs with them maybe on future development or your development or even some pending acquisition given. I think you stated publicly that you would be willing to take on partner at Springfield Town Center?

Joseph F. Coradino

We are not in any other discussions with Macerich at this time. I think our venture at this point is myopically laser focused on the redevelopment of the gallery.

Benjamin Yang - Evercore Partners

Got it and are you willing to potentially take on a partner at Springfield if the opportunity arises?

Joseph F. Coradino

Well, as I mentioned in my script if you look at the capital that we have gotten from the gallery as well as a number of other of our sales, and we sell an additional $125 million in properties that are currently in process for sale, we end up after the acquisition at Springfield will leverage below 50%, I think about 49.5%. So, the need to sell Springfield Town Center becomes a lot less critical to us going forward from a capital perspective. I wouldn’t say that that we’re ruling it out, I would say it’s something that will continue to look at as we look at our capital needs over the next, over the coming months. But certainly approaches in a position where we are firmly in the driver seat as it relates to any discussion about Springfield Town Center and I would add to that that the re-shop is going exceedingly well and so as you think about the transaction with Vornado really absorbing with the construction risk, the development risk and the re-shop continuing to move at a brisk space. Essentially de-risks the project. So again we’ll continue to think about it, we’ll continue to sort of consider it, but the urgency of it is certainly much less pronounced.

Benjamin Yang - Evercore Partners

Got it. Thanks Joe.

Joseph F. Coradino

You’re welcome.

Operator

Next we have Christy McElroy of Citi.

Christy McElroy – Citi

Hi, good morning guys.

Joseph F. Coradino

Hi Christy.

Christy McElroy – Citi

In regards to the Macerich JV, I understand that both companies will be dealing the development, the leasing, the management, but did you sat down with them and thought about shrinks and nature of your organization, you actually said Joe in your opening remarks each partner will bring our best how do you expect to divide that responsibilities along the way, given that you both have development leasing and management capabilities, I’m just trying to get a sense of our other partnership will work from logistical standpoint?

Joseph F. Coradino

Short answer is yes, we have done that, longer answer is we’re to sell guys and as a result we really see our role in the development process as being focused on the lease modifications, public financing entitlements etcetera. Macerich will lead the development effort and obviously will be responsible for visioning and execution of the development strategy.

As you take a step beyond that from a leasing perspective they will be responsible for the majority of the leasing although we will play a role in the leasing from both a restaurant and food perspective again given our relationships and our success in that arena. So yes there has been a very – these discussions are going on for about a year there’s been a very clear agreement between us as to the allocation of responsibilities that is really driven by the strengths of ourselves and Macerich.

Christy McElroy – Citi

In our vision we seen a rendering if you had a vision, so what the Center will potentially look like the retail industry front that potential for adding hotel and multifamily as Macerich onboard with vision or do you effectively go back to the joint board architecturally and kind of redesign things at this point before moving forward?

Joseph F. Coradino

I wouldn’t say it is going back to the drawing board because there is obviously a lot of the work that we’ve done is a value from a system’s perspective etcetera. But I would think that there is Macerich and ourselves right now are doing the certain amount of rethinking of the project, so I think it’s somewhere between throwing away what we have and utilizing it. We will obviously take advantage of all the knowledge that we have about the property and some of the work, but again, I think that as we look forward though probably be a certain amount of rethinking and re-visioning of the redevelopment of the Gallery.

Christy McElroy – Citi

And then on Springfield, given the leasing progress that both you and Vornado have made in recent months, has there been any change, any original expectation that the Center would yield just north of a 4% by Q1 ’15, so at this point where would you expect the yield to be when – take down the asset?

Robert F. McCadden

Christy, I think we’ll probably provide some updated information in the market along the same timeframe that Joe mentioned making some announcements about some of the major tenants, I think it will be premature to release that information so we can actually announce the tenant line up, so look for that probably sometime in this quarter.

Christy McElroy – Citi

Okay and then just lastly Joe, you talked about raising capital doing JVs, like you did with the gallery, selling noncore assets and executing yourselves from power synergy lease potentially other JVs you sold about that $125 million of equity in the Springfield deal and the stock was below the level of what it is today, now that the stocks come off, you start thinking about re-advertising through a secondary offering and if not, is there a price that starts to get interesting to you?

Joseph F. Coradino

No. Let me you restate that, no. No, absolutely not, I think at this point we are focused on our disposition program, we’ve had a lot success thus far two more assets under agreement placed in additional one on the market Palmer Park, we actually have an offer on our land parcel, one of our land parcels and we are making progress on the -- as you said extricating ourselves from the power centers that really our focus at this point and as I mentioned I believe in a bench question. We’ll continue to look at and consider other opportunities to raise capital, one that we are not focused on right now and don’t anticipate going to the equity markets.

Christy McElroy – Citi

Thank you.

Joseph F. Coradino

You are welcome. Thank you.

Operator

(Operator Instructions) Next we have Nathan Isbee of Stifel. Please go ahead.

Nathan Isbee – Stifel, Nicolaus & Company, Inc.

Hi, good morning.

Joseph F. Coradino

Hi Nate.

Nathan Isbee – Stifel, Nicolaus & Company, Inc.

Hey. As you explored the Gallery JV, did you get into any pricing discussions with other partners perhaps more a capital focused partners, I guess I’m just trying to understand how much the Macerich development experience in the operational side of things impact of the pricing on this JV?

Joseph F. Coradino

Well, first half, as I mentioned we did talk to others regarding Gallery and I think it would be very difficult, we had some discussions with pure capital partners but I think it would have ended up in a worst result then the one that we concluded with Macerich given the risk profile associated with the redevelopment of the Gallery, you have been through the Gallery, I think that what Macerich brought to the table it is not to be repetitive but obviously their skill set associated with urban mixed use high rise developments. But, they shared a vision with us. A vision of what the Gallery can be, a vision of what it can be, understanding tremendous sort of demographics that exists between the convention center and the constitution center and the transit station in the population at downtown Philadelphia.

Remember these folks are stepping into a transaction with no lease modification in place and with no public financing in place. So, we think in addition to the skill set, they shared our vision and understand the potential of the project. I think if you look, if you think about pure capital partner that would have been very difficult to communicate.

Nathan Isbee – Stifel, Nicolaus & Company, Inc.

Sure. And then I guess the decision to look for a partner like Macerich was this specific to any challenges you encountered in to-date in the planning process or was this just prudence on your part as you see the size and scope of what this could ultimately lead to?

Joseph F. Coradino

I think the latter of your point, I don't think it was related to a particular obstacle or barrier that we confronted, I think personally my family was in Southern California. My brother has been out there for 35 years and I – place a number of times and I have always admired what that was and what it is into a certain extent, Third Street promenade wasn’t all that different in market east 15 years ago.

And so, I saw a certain amount of sort of situations that they had confronted and had successful conclusions that I liked. I obviously took a look at the work they did at North bridge the fact that they were successful in the yearly transaction I took a look at the work they were doing at Tyson and I think it was the result of all that in terms of creating highest invest value for the gallery and for our shareholders I liked the Macerich transaction and I think I said earlier it was a – I mean I reached out to them.

Nathan Isbee – Stifel, Nicolaus & Company, Inc.

Okay. Thanks and then just one last question on Springfield. Do you expect or you any least stage negotiations to add a junior anchor?

Joseph F. Coradino

Really not in a position to comment on that right now.

Nathan Isbee – Stifel, Nicolaus & Company, Inc.

Alright. Thank you.

Joseph F. Coradino

By the way, you were – you live near Springfield, what do you think of it? I am not suppose to do that. I am sorry.

Nathan Isbee – Stifel, Nicolaus & Company, Inc.

I had a chance to go there few weeks ago. We will talk offline.

Operator

Next is a follow-up from Ki Bin Kim of SunTrust.

Ki Bin Kim – SunTrust Robinson Humphrey

Thanks. I have realized some of the detail around the plans for gallery pretty sensitive, but and then I know there was no real dollar amount that you came up initially on how much the development would be. But, Macerich decision if I keep it in simple terms, is there vision compared to what you had in mind, is it more dense, is it more dollar without giving anything away, is it just a bigger thing with them, what they have in mind?

Joseph F. Coradino

I don't think at this point Ki Bin we are really in a position to articulate what the ultimate vision will be. I think it's something that we will come to together. And I think we want to be careful that we want to get our public financing and our lease modification in place before we really communicate what's it's going to be. But, I think again I think Macerich is experienced and will make the end product exciting and more a better return and a better IRR going forward than it had been with just us, sort of spear heading venture.

Ki Bin Kim – SunTrust Robinson Humphrey

Okay. And on your copter with your development out there, I think (inaudible) at 50% partner you figured 25% just curious who is the last 25% partner?

Joseph F. Coradino

I think that’s the question you have to ask Simon?

Ki Bin Kim – SunTrust Robinson Humphrey

Okay. Alright. No worries. Just one last question on some of the occupancies transact that you have mentioned that to be pending in the second half. If I remember correctly, the way you guys report occupancy is really purely based on a physical basis, I know you have done leasing that are evolving more Town, if you look at things that are concrete and should be coming to second half, what should we expect in this kind of non-anchor occupancy number excluding non-core of 90.2%, I mean, in more tangible terms, where should they go in the second half?

Robert F. McCadden

You should see it end the year north of 93%.

Ki Bin Kim – SunTrust Robinson Humphrey

300 basis points more just on the non-anchor?

Robert F. McCadden

Yes.

Ki Bin Kim – SunTrust Robinson Humphrey

Alright. Thank you.

Operator

Well this time we are showing no further questions. We will go ahead and conclude the Question-and-Answer session. At this time, I would like to hand the conference back over to management for any closing remarks.

Joseph F. Coradino

Thank you all for participating today. And the highlight of this call obviously the announcement of our joint venture with Macerich and the Gallery, but let’s not ignore the (inaudible) of our achievements over the past couple of years. We sold seven assets, we have two under contract, our operations have been strong with leasing spreads and occupancy levels on par with our peers, we are well on our way to creating the company with a high quality portfolio consisting a trophy assets in top markets. We are delivering on our commitments to transform this company and we aren’t resting.

Our future is bright, we are filled with optimism, we remain committed to driving shareholder value and it’s going to be a busy summer. Thanks.

Operator

And we thank you sir, and to the rest of the management team for your time. The conference call is now concluded, at this time you may disconnect your lines, thank you and have a great day to everyone.

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