Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message| ()  

Executives

Shawn Southard – Director, Corporate Communications

Ronald Rubin – Chairman and CEO

Edward A. Glickman – President and COO

Robert F. McCadden – EVP and CFO

Joseph F. Coradino – President, PREIT Services, LLC and PREIT-RUBIN, Inc.

Analysts

Quentin Velleley – Citigroup Inc.

Nathan Isbee – Stifel Nicolaus & Company, Inc.

Benjamin Yang – Keefe, Bruyette & Woods

Cedrik Lachance – Green Street Advisors

Jeff Lau – Sidoti & Company

Michael Mueller – JPMorgan

David Wiggington – [Inaudible] Securities, Inc.

Pennsylvania Real Estate Investment Trust (PEI) Q4 2011 Earnings Call February 23, 2012 10:00 AM ET

Operator

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Pennsylvania Real Estate Investment Trust’s fourth quarter 2011 earnings conference call. During today’s presentation, all parties will be in a listen-only mode. Following a presentation, the conference will be open for questions. (Operator Instructions).

This conference is being recorded today, Thursday, February 23, 2012.

I will now issue the conference over to the host, Mr. Shawn Southard. Please go ahead, sir.

Shawn Southard

Thank you, good morning. During this call, PREIT will make certain forward-looking statements within the meeting of the Federal Securities laws. These statements relate to expectations, beliefs, projections, trends, and other matters that are not listed as facts and are subject to risks and uncertainties that might affect future events or results. The descriptions of these risks are set forth in the company’s SEC filings.

Statements that present today might be accurate only as of today, February 23, 2012. And PREIT makes no undertaking to update any such statements.

Also certain non-GAAP matters will be discussed. PREIT has included reconciliations of such measures to the comparable GAAP measures and in earnings release and other documents filed with the SEC.

It is now my pleasure to turn the call over to Ron Rubin, PREIT’s chairman and CEO.

Ronald Rubin

Thank you very much, Shawn. Welcome to the Pennsylvania Real Estate Investment Trust’s 2011 year-end conference call. Joining me on the call today are Ed Glickman, President, Bob McCadden, CFO, and Joe Coradino, the President of our Management company and head of our retail operations. Also in the room today for Vice Chairman are George Rubin and General Council, Bruce Goldman.

Today, we will discuss our fourth quarter and 2011 results, the status of our current projects and our expectations for 2012. After we conclude our remarks, the call will be opened for your questions.

As noted in our press release, the company is expecting NOI and FFO growth in 2012 as portfolio fundamentals continue to improve. We are pleased that our portfolio has experienced it’s eighth consecutive quarter of same-store sales growth, reaching a new high with improvement at 31 of our malls. This growth, during a period of economic instability, is reflective of solid demographics and investments made to improve the quality of our assets.

Particularly noteworthy is that almost 2/3rds of the company’s NOI now comes from properties with sales of greater than $350 per square foot; many of which were redeveloped, up from 52.3% in 2010 and 44.6% in 2009.

As you will hear during this call, the company’s efforts are being recognized by our shoppers and our tenants. People are shopping and new and exciting tenants are joining our properties. We’re moving ahead optimistically but cautiously, maintaining a disciplined approach.

As a real estate company, we understand the importance of location and our properties have premiere locations in their respective markets. We will continue to be innovative to please our consumers, to attract tenants and to benefit our shareholders.

As we work to execute our game plan, we will continue to improve our balance sheet, place our tenants in service, increase our NOI’s, all as part of our strategy to create greater value for our shareholders.

With that, I’ll turn the call over to Ed Glickman.

Edward Glickman

Thanks, Ron, and thank you all for participating in our call.

We’re happy to report that the company had an excellent fourth quarter and ended the year on a positive note. All of the company’s major metrics were positive and many beyond our original expectations.

FFO is up. Comp store sales are up. Same-store NOI was up. Occupancy was up. Coverage was up. And leverage was down. The breadth of these positive results proves that our performance is more anecdotal.

We believe that we are beginning to realize on our investments in a way that confirms our original strategy, that we could reposition well-located, but under-utilized retail assets to create special places that are central to the many dimensions of our customer’s lives. And in doing so, to create meaningful value.

To say that executing this strategy in the face of the recent economic crisis has been difficult would be a gross understatement, but we are beginning to see the light.

On the Operating side in 2011, we believe that there has been a palpable positive change in the direction of our leasing momentum. We chose to take the risk of shortening lease terms in place of locking in low rents on long-term leases hoping that sales performance would improve and this has definitely been the right call. Comp sales are now higher than our peak in 2007 and our occupancy cost has dropped by 40 basis points to 12.4%. Rising comp sales against declining occupancy costs are positive indicators for future performance.

As an example of the positive shift in direction that we have experienced, we renewed a record amount of square footage last year, over 1.4 million, facing a higher-than-usual expiration schedule and significant back draft from the board of store closings. Nevertheless, we moved from a minus 3.6% spread to a positive 1.9% spread. In fact, after all was said and done, we ended the year with a slight increase in occupancy.

In addition to the quantity of leasing that was accomplished in 2011, we are also proud of the number of landmark transactions that have positioning high potential properties for a new round of growth.

With these creative transactions such as the newly announced Mercy Health transaction of Plymouth Meeting, we are realizing our vision for the mall of the future; a central location at which our customers can fulfill their important needs. We believe that even as the economy recovers, complimentary synergistic uses that lever the many retail and entertainment amenities of our properties will be an important part of our future growth strategy.

As we have stated previously, we intend to focus on organic growth and be very cautious in our capital expenditures. In total, during 2011, we were able to reduce debt while making progress on our business plan.

Regardless of our intent to de-lever, we remain an active participant in the mortgage market. And have been able to improve the financing on a number of our assets, which had maturing loans.

In 2011 and to date in 2012, we were able to refinance a number of properties with excellent results. Most recently, we refinanced Capital City Mall for $65 million at 5.296%. This CMVS transaction on a $350-per-square-foot asset resulted in $17 million of additional proceeds and a rate reduction of over 200 basis points. At present, we have $220 million of availability on our line of credit.

In 2012, we will have a heavier capital expenditure program as we begin to move forward with our previously-announced plan for Willow Grove, 801 Market Street, and Moorestown Mall. We will also be redeeming our outstanding $137 million convertible bonds. And refinancing the $230 million mortgage on Cherry Hill Mall.

Our current plan is to pay off the convert using our line of credit, and then to refresh our capacity on the line of credit using excess proceeds from the refinancing of the Cherry home mortgage. We anticipate that we will have ample liquidity in place to cover our existing capital requirements and to operate our business.

On the asset side, we continue to consider the sale of part or all of the number of our properties. Our goal for these transactions, if they occur, would be to further reduce leverage. The reduction of leverage continues to be one of our key long-term goals and the highest non-operational priority for excess cash flow.

Lastly, there has been a lot of news lately regarding department stores. PREIT prides itself on long-standing and profitable relationship with our anchor of tenants. Over the last three years, we have successfully renewed all 45 of the anchors whose leases have expired. Among our 108 anchor stores, 29 are Sears, 23 of which are leased, with base rents representing 1.7% of total annualized minimum rents. We have a good relationship with Sears and have no reason to believe that that won’t continue. Of the 29 stores in our portfolio, none have been designated to close.

We thank you for your continued interest in PREIT. And with that, I give you Bob McCadden.

Bob McCadden

Thank you, Ed. Funds from operations was $36 million or $0.63 per diluted share compared to $32.2 million or $0.56 per diluted share in last year’s quarter.

Same store NOI for the quarter was $80.7 million, an increase of $1.8 million or 2.2% compared to the $78.9 million generated last year.

The increase in real estate revenues and NOI in the quarter was driven by strong holiday sales resulting in a $0.7 million or 21% increase in percentage sales revenues, and higher promotional revenues at many of our properties.

We also benefited from lower CAM expenses and continued improvement in our provisions for bad debts.

Lease termination revenue was $1 million in the quarter compared to $0.5 million last year. Excluding lease termination revenues, same store NOI increased by 1.6% for the quarter and 1% for the full year.

Our G&A expenses were $300,000 lower than last year’s quarter and flat for the entire year.

Other expenses also included about $400,000 of costs associated with the successful Moorestown referendum.

Interest expense was $2.1 million or 5.6% lower than last year’s quarter reflecting an impact of lower average balances and lower interest rates on refinanced mortgages and the credit facility.

Outstanding debt at the end of the year, including our partnership debt was $2.367 billion, a decrease of $35 million from last year. The effect of interest rate on borrowings including amortization of deferred financing costs, debt premiums and discounts as of December 31, 2011 fell to 5.87%, a decrease of 27 basis points from December 31 of 2010. At the end of the year, 95.2% of our debt was either fixed or swapped to fixed. Our bank leverage ratio was 66.91%, slightly lower than the ratio at the end of last year.

Pre to net loss for the quarter was $0.6 million or $0.01 per share. Last year, we recorded a loss of $8 million or $0.15 per diluted share.

Regarding our outlook for 2012, we expect that GAAP earnings per diluted share will be a net loss between $0.67 and $0.75.

We expect FFO per diluted share to be in the range of $1.85 to $1.93 per share.

Let me bridge the gap from 2011’s operating results. Same store NOI net of lease terminations was $280.3 million in 2011. We expect same store NOI growth of up to 1.5% excluding lease termination fees. In 2011, we recorded lease termination fees of $1.9 million. Our guidance range assumes termination fees of $1.5 million on the lower end to $2.5 million on the higher end.

Interest expense will be impacted by a full year of lower rates on our credit facility and property mortgages that were refinanced in 2011 and 2012 and lower non-cash interest adjustments as a result of the redemption of our exchangable notes and lower debt premium amortization.

G&A expenses are expected to be 2% to 3% lower in 2012 as compared to 2011.

Other income in 2011 included $1.5 million from the Centaur bankruptcy settlement. And $600,000 of development and consulting fees that are not expected to recur in 2012.

Recurring capital expenditures and [inaudible] are estimated to be in the range of $35 to $45 million reflecting an expected increase in leasing activity. Our guidance does not contemplate any acquisitions, property sales, or capital market transactions other than the repayment of exchangeable notes and mortgage loan refinancing in the ordinary course of business.

With that, I’ll turn the call over to Joe.

Joseph Coradino

Thanks, Bob. We are pleased with the progress we’ve made in the execution of our goals for 2011. We’ve seen an improvement in our operating metrics with comp sales, renewal spreads, and occupancy all moving in the right direction.

We also concluded a significant number of major transactions during the recent months, which will positively impact our performance in the latter part of 2012 and 2013.

This market had a historic high for sales productivity in our portfolio and the eighth consecutive quarter of sequential growth in comp store sales with 31 of our 38 malls having sales increases over last year.

The number of malls in our portfolio reporting sales over $400 grew to six during 2011. Pre-registered sales of over $500 a square foot with Cherry Hill Mall leading the pack at $599 a square foot.

Of note, three of our secondary market assets, Crossroads, Darthmouth, and Valley malls recorded comp sales increases ranging from 13% to 16%. These centers are benefitting from increased consumer traffic driven by our recent tenant upgrades.

Total occupancy at the end of the year was 93%, an increase of 50 basis points compared to 92.5% reported for the fourth quarter of 2010. In line occupancy ended the year at 90.2%, up 240 basis points from the third quarter and 20 basis points higher than the fourth quarter of 2010.

During the quarter, our renewal transactions withn terms of five years or more were extraordinary registering positive spreads of 16.7%. Overall renewals were solid, generating rent increases of 4.5%. New leases with terms of five years or more that were signed for previously leased space were positive, registering renewal spreads of 8.1%. Overall for spaces previously leased, deals were signed at rents that were 4.4% lower than what the previous tenant was paying.

We are well positioned for occupancy growth in the latter point of 2012 and into 2013 as we have executed a number of impact transactions over the past several months.

In the aggregate, we have 455,000 square feet of space to open as a result of these large format transactions.

In December, we signed a lease with Philadelphia Media Network, owner and publisher of the Philadelphia Enquirer, Daily News, and Philly.com, for occupancy of 125,000 square feet of space at 801 Market. The building anchors the Gallery Marketees. PMM with its 600 employees will move into the new headquarters prior to July 15 of 2012. We also secured $8 million in public financing as part of the funding for this project. PMM’s move to 801 Market marks the latest development in the renaissance of Marketees, a vital component of Center City Philadelphia. The trend formation of Marketees will incorporate large format digital advertising on the exterior facade designed to reach thousands of people daily and also represent a new area of ancillary income.

Our initiative data healthcare facilities as an alternative use in the mall environment continues to gain momentum. Earlier this month, we signed an agreement to introduce Mercy Health System into Plymouth Meeting Mall. The 23,500 square foot two-level outpatient ambulatory healthcare facility is scheduled to open in 2012.

In the fourth quarter of 2011, we signed new leases for 40,000 square feet at Plymouth Meeting Mall including Charming Charlie and the previously mentioned Mercy Health. In addition, we opened 21,000 square feet during the quarter including Strawberries and the expansion of Dave and Buster’s.

We also announced the commencement of a multi-faceted repositioning of the 1.1 million square foot Moorestown Mall in Southern New Jersey paving the way for the transformation of the traditional mall into a vibrant dining, entertainment, and retail destination.

We also executed a lease with Regal Entertainment Group, the country’s largest theater operator to build a 12-screen Regal premium experience. The 56,000 theater will open at Moorestown Mall located in Southern New Jersey in time for the 2013 summer movie season.

On January 31, we announced an agreement with JC Penney to relocate and expand its anchor store in North Hanover Mall in Hanover, Pennsylvania. The new 83,000 square foot space will be 30,000 square feet larger than JC Penney’s current location. In conjunction with the relocation, the mall’s interior will be renovated to include new flooring, updated mall entrances, and energy-efficient lighting. The renovation and relocation is expected to be completed in anticipation of the JC Penney grand reopening in October of this year.

At Willow Grove Park, a 7,500 square foot bistro restaurant opened in November and Forever 21 opened their 18,000 square foot store in December.

Construction continues on the new JC Penney and Nordstrom’s Rack will open in the form of Strowbridge’s Box. Nordstrom Rack will open in May of this year. And JC Penney’s will open in September.

We’re particularly pleased add two new JC Penney department stores to our portfolio given the recent announcement of the exciting changes at JC Penney. We expect Willow Grove in North Hanover will be among the first stores in the country to incorporate this new prototype.

And finally at our flagship asset, Cherry Hill Mall, construction continues on the Grand Lux Café for a second quarter, 2012, opening. We opened Michael Core’s True Religion and Bobby’s Burger Palace during the fourth quarter. And we signed a lease with Pottery Barn and have several additional transactions in the pipeline, which will continue the positive trajectory that’s increased sales by $153 a square foot or 34% since the completion of its’ redevelopment in ’09.

With that, we’re ready for questions.

Question-and-Answer Session

Operator

Thank you, sir. (Operator instructions). And our first question comes from the line of Quentin Velleley with Citi, please go ahead.

Quentin Velleley – Citigroup Inc.

Hey, good morning, just a couple of questions maybe for Bob, in terms of the G&A savings which effective into guidance, you said said there were 2 to 3%, where are they sort of coming from, are they long-term savings that your making, or was there something in the 2011 number which was maybe a one-off that was keeping 2011 higher?

Robert F. McCadden

No, it’s actually we’ve had – if you look at the area where most of our G&A expenses are incurred, it’s really on the payroll side. So we’ve had some attrition in the company that we don’t expect to replace going forward.

Quentin Velleley – Citigroup Inc.

Okay, and then also on the guidance, in terms of the – some of your refinancing assumptions, it sounds like the exchangeable are going – which are maturing in March, I thing, and then you’re going to refi Cherry Hill I think in October. So basically, that $130 million of the exchangeable, is that going to sit on the line of credit until October, or are you trying to refinance Cherry Hill sooner to get some excess proceeds? And then maybe if you can just talk a little bit about Cherry Hill in terms of, I think, the current interest rate is in the mid-fives, are you going to do better than that, and what sort of excess price are you hoping to get?

Robert F. McCadden

[Inaudible], hey, a couple different pieces, the exchange in notes actually mature on June 1 of 2012. The Cherry Hill Mall mortgage doesn’t mature until October, but there is a belly period that we could actually prepay it. So, it’s likely that we’ll try to move up the refinancing of Cherry Hill Mall although that’s subject to a number of factors, including the quality of the capital markets at that time.

So it’s – I guess, the view today would be that we would use the credit facility to warehouse the payment of these exchangeable notes, and then we would replenish the line of credit as I mentioned from any refinancing proceeds in Cherry Hill Mall. But at this point, you know, we have 230 million dollars outstanding at maturity, it’s probably premature to talk about, you know, what the level of proceeds are because that the function of, you know, what leverage you want to put in the property, and to try to find that efficient point of financing that takes place. But we would expect it to be at somewhat lower level than the 5.5% on the current mortgage loan.

Quentin Velleley – Citigroup Inc.

Okay, and then maybe just lastly, if you were to look at the higher productivity assets, those assets that are above $400 a foot, does your all productivity assets around this around a $300 foot mark, could you maybe just provide some comments on that same-store NOI guidance that you’re looking at in 2012. What kind of differential would there be between those two, I guess, pools of assets?

Robert F. McCadden

Well, let me maybe put it in a different way, in 2000, earlier in 2011 and back in 2009, we had to take an impairment charges at a couple of properties; Orlando Fashion Square in ’09, and North [inaudible] Philipsburg this year, or in 2011, and given what Joe talked about in terms of where Moorestown, when we talk about taking a number of spaces off line to be the redevelopment of the property, if you were to take those four properties out, and exclude them from our same-store pool, you would actually see our same-store NOI growth probably a 120 basis points higher than what we have in our guidance. So it’s not necessarily a sales productivity issue, but clearly it’s been impacted by, you know, a handful of properties that are really dragged the overall performance of the company down from, you know, where it would otherwise would be.

Quentin Velleley – Citigroup Inc.

Okay, thank you.

Operator

Thank you, and our next question comes from the line of Nathan Isbee with Stifel Nicolaus, please go ahead.

Nathan Isbee – Stifel Nicolaus & Company, Inc.

Good morning, just staying on the same-store NOI guidance, what is the low end of your guidance range there?

Ronald Rubin

Probably about 0.5%.

Nathan Isbee – Stifel Nicolaus & Company, Inc.

Okay, and then on the Morrestown – I mean, Willow Grove, could you just give a little bit of color on what you plan is to spend over the next year on those assets in order to, as well as the Market Street asset, in order to get those tenants in?

Ronald Rubin

I don’t have the specifics for each property that I can provide to you, but roughly, we’ll spend somewhere in the 45 to $60 million on those assets in the next 12 to 18 months in total, not only those, but all of our capital spending other than recurring CapEx and allowances.

Nathan Isbee – Stifel Nicolaus & Company, Inc.

Okay, and then, Ed, you’ve mentioned asset sales in passing, can you give a little bit more color in terms of what you might be looking to sell, and if you think you have any possibility in the lower end of the portfolio especially given some of the cross lateralization that exists there?

Edward A. Glickman

Sure, we have one asset that’s been actively marketed, and is out in the market at the moment, and we’re preparing to market an additional number of the lower-end properties. So, we’re hopeful that sometime this spring we should have some motion on those properties.

Nathan Isbee – Stifel Nicolaus & Company, Inc.

And you figure enough flexibility there in terms of the balance sheet with a cross lateralization?

Edward A. Glickman

Sure, we think we have enough, we think that we have enough equity to cover whatever we have to do to remove those assets from the line of credit in order to [inaudible] buying them.

Nathan Isbee – Stifel Nicolaus & Company, Inc.

Okay, thank you.

Operator

Thank you, and our next question comes from the line of Ben Yang with KBW, please go ahead.

Benjamin Yang – Keefe, Bruyette & Woods

Yes, good morning, you guys are very active cutting property expenses the past few yesr, obviously help boost the same-store NOI a bit. So, just curious if you can talk about maybe for the cost savings that they’re pulling and maybe how much of it 2012 same-store NOI guidance relies on further cost savings? And on the same topic, if you think there is any ways that you have been under spending on maintenance CapEx at this point.

Ronald Rubin

No, I think some of the cost savings have been towards maybe the discretionary spending side, we clearly have, as I’ve mentioned with respect to corporate G&A, pretty [inaudible] we may be able to consolidate staff position in the field, we’ve been doing that. You know, through attrition, we’ve tried to reallocate work among the folks who have remained. You know, we’re still expecting, you know in our CAM and tax lines, we expect increases of probably 2 to 2.5%, and operating costs were over 2011. I don’t think we actually reduced any spending on required maintenance on our properties.

Edward Glickman

I don’t think if you visit our properties, or if you shopped our properties, you would find any indication of any sort of deferred maintenance. It’s just an approach that we are being very frugal as we move through the year, and any place that we can save dollars, we save them.

Benjamin Yang – Keefe, Bruyette & Woods

Okay.

Ronald Rubin

And just to add some color, Ben, I think the areas that we’re staying focused on in the last, you know, couple years have been energy procurement and as well as being very aggressive in trying to appeal any real estate tax increases that we’ve seen in our assets. So it’s a vary – those are areas were we’ve actually probably been able to, you know, benefit, but those are areas that I think to be continued to be sustained in the future as well.

Benjamin Yang – Keefe, Bruyette & Woods

Okay, but so, you plan to get the bare bones of property expenses, it sounds like they are actually going to creep up a bit in 2012, so is it fair to say, you know, your guidance for this year is really value driven by maybe top line rank growth at this point?

Ronald Rubin

Yes, we expect significant increase in our revenues this year.

Benjamin Yang – Keefe, Bruyette & Woods

Okay, great, and then just switching gears, I have questions on the Mercy Health deal you did at Plymouth Meeting, how do these economics work on that whole office? I mean, how long are the leases, how does the rent compare versus retail, and what do the TIs look like, CAM and quick entities, and just anything that might be relevant.

Edward Glickman

Look, given that’s it’s a one way transaction, I don’t want to get into specific details, but I could tell you that the transaction – the rent compares favorably, the transaction compares favorably to retail transactions at the property, and the tenant allowance, which is consistent with the office market in this region.

Benjamin Yang – Keefe, Bruyette & Woods

Okay, and are they having discussions to do more deals with Mercy Health, health in your portfolio, and how many malls do you think you own that could accommodate medical offices at this point.

Edward Glickman

Well, I think there are a number of discussions going on with health care providers for properties in this region and in others. And I think there is an opportunity to include them, you know, certainly across a significant number of properties, whether that’s, you know, 10, 12, 15, 20, that remains to be seen. But there are – we do believe in a synergy between health care and retail.

Benjamin Yang – Keefe, Bruyette & Woods

Okay, so, just final question, you said the upwards of 10 to 12 of the malls can have medical office, it it fair to say that’s at the lower tier of your portfolio?

Edward Glickman

I mean, clearly we are focusing our efforts on incorporating alterative views to this where we have vacancies and that tends to be in a lower tier of the portfolio, yes.

Benjamin Yang – Keefe, Bruyette & Woods

Okay, thank you.

Operator

Thank you, and our next question comes from the line of Cedrik Lachance with Green Street Advisors, please go ahead.

Cedrik Lachance – Green Street Advisors

Thank you, in regards to two mortgages, or the two most recent mortgages that you’ve put in place, so [Inaudible] City as well as New River Valley, can you give us the source of those are those CMBS or are those those regional banks?

Edward Glickman

Well, one of each, you know, we’ve had a – we’ve redid a mortgage that we had in place on De River, and Cassidy was a CMBS transaction.

Cedrik Lachance – Green Street Advisors

And in terms of the DLTVs on those, are you able to share was underwritten by the lenders?

Edward Glickman

We don’t put out any estimates on the property, but the amounts of the mortgage is public information.

Cedrik Lachance – Green Street Advisors

Okay, and in terms of Sears, I wonder if there’s [inaudible] repurchase and leases and boxes from the company – is it something that you’ve explored with Sears, is it something that you would like to do?

Ronald Rubin

We have not explored acquiring Sears stores, we have had discussions with them regarding reutilization to some of their excess space in their stores where we can bring other tenants, other uses to the property, and we continue to have an ongoing dialog with Sears on a number of levels, but not specifically acquiring stores at this point.

Cedrik Lachance – Green Street Advisors

Okay, thank you.

Operator

Thank you, and our next question comes from the line of Jeff Lau with Sidoti & Company, please go ahead.

Jeff Lau – Sidoti & Company

Hi, good morning, to expand on Ben’s question on, I guess in regards to the health centers, you know, as you continue to add new retailers and tenants, you know, to certain properties, are there any discussions of adding, you know, additional grocers or the necessity based retailers to any of the properties, and are those properties able to say house another Whole Foods like the Plymouth Meeting?

Ronald Rubin

Your question is can we incorporate other uses beyond just healthcare in the properties?

Jeff Lau – Sidoti & Company

Yes.

Ronald Rubin

Yes, I mean, that’s a – I mean, look our – we have launched a healthcare initiative, but we also are looking at a number of other uses in properties. We even put a junior college into our mall at New River Valley, a Social Security office into our property, and we are clearly looking at the grocery segment as an area that we think there is an opportunity to incorporate that into the mall environment. I mean, if you look at the Whole Foods at Plymouth, it’s really done wonders for that property, it’s one of their best performing stores in the region, if not the best performing store in the region and we think there’s some synergies that can be gained from that.

Jeff Lau – Sidoti & Company

Are there like any discussions that you can touch on that are, I guess, in the works, or…

Ronald Rubin

I would say we’re speaking with some of the smaller format grocery stores on a regular basis.

Jeff Lau – Sidoti & Company

Okay.

Ronald Rubin

And looking at opportunities throughout our portfolio.

Jeff Lau – Sidoti & Company

And, could you remind me what’s the limit on the credit facility?

Ronald Rubin

70% leverage.

Jeff Lau – Sidoti & Company

Leverage. Okay, thanks.

Operator

Thank you, and our next question comes from the line of Michael Mueller with JPMorgan, please go ahead.

Michael Mueller – JPMorgan

Yes, hi. Let me see, I have kind of two question into one here, but if – we’re going back to fourth quarter and just thinking about the upside versus the top end of, in the implied fourth quarter guidance, and percentage rents came in about a penny better than what they were last year, so can you break the rest up between, I think you talked about camera [inaudible], and then bad debts – I mean, was it one more than the other, and if you can pick up the cover ratio in 2012, where do you see that trend ending compared to 2011?

Ronald Rubin

Yes, I think the fourth quarter was due to a lot of this year’s additions to just the percentage rents. Obviously, we had favorable impact from – they didn’t have a lot of snow, and they were markets compared to a year ago, we had, you know, much heavier snow fall. You know, we continue to see savings on the electric and energy procurement side, you know, again, we’ve seen a downward trend in our [inaudible] to the point where our big debt expense for the year is probably more in line with our historical norms as opposed to probably twice the historical norms going back to 2009 and the early part of 2010. With respect to next year, you know, some of these favorable forces will continue to impact our results, and that’s been embedded into our earnings guidance.

Michael Mueller – JPMorgan

Okay, and do you think the recovery ratio is better than what it was in ’11?

Ronald Rubin

Yes, I think as we add, you know, some more nontraditional uses to our properties, many of those take the form of either a gross lease, or maybe an office type of lease where we have a base year with escalations, we actually still expect to see modest erosion in our recovery rates next year, well, the rate of decline is probably going to be much lower then it has been more recently.

Michael Mueller – JPMorgan

Okay, great, thank you.

Operator

Thank you, (Operator instructions). And our next question comes from the line of David Wiggington with [Inaudible] Securities, Inc., please go ahead.

David Wiggington – [Inaudible] Securities, Inc.

Thank you, good morning, Bob, just a – you were talking about 2012 in interest expense, I kind of didn’t follow what you were saying with respect to the first financing costs and amortization of the deferred financing cost and what not. So, when you look out at 2012 with respect to interest expenses, is the fourth quarter number a good starting point, and just backing in, or accounting for your refinancing that you do?

Robert F. McCadden

Yes, if you take the fourth quarter, the supplemental page and the 574 – the 594 rate that I talked about, our assets are 574, that should be a good rate for 2012. The difference is that we now have the mortgage on Capital City that we talked about, and then obviously factoring in the redemption, or the majority of the exchangeable notes, and [inaudible] of Cherry Hill Mall, but they are the only significant financing events that impacted our interest expense in 2012.

David Wiggington – [Inaudible] Securities, Inc.

Okay, and then just to respect of the assets sales again, have you observed, I guess, the demand for the types of assets you are looking to sell, or are you guys just kind of going to put them on the market and see what kind of interest is [inaudible]?

Robert F. McCadden

No, there’s actually been some inquiring on those properties, it really is just a question of price and it’s been [inaudible] the question of the buyers finding financing, but as we talked about in our own portfolio, we are getting a lot of calls regarding the availability of mortgage stat, and we think that that’s great lead for some more progress and being a little [inaudible].

David Wiggington – [Inaudible] Securities, Inc.

What types of – are you guys buyers – I mean, individual, are they institutions, or what?

Robert F. McCadden

We’ve received a lot of interests from opportunity buyers of all sorts related to our properties, and obviously those are the first folks who come into the market is more traditional financing becomes available to that [inaudible] there should be more buyers into the market.

David Wiggington – [Inaudible] Securities, Inc.

What type of, I guess, just based on what they’ve kind of inquired about and your expectations, what type of [inaudible] is there right now?

Robert F. McCadden

It’s too premature to give out that information.

David Wiggington – [Inaudible] Securities, Inc.

Okay, can you give us a sense of maybe the size of pool of assets that you may be looking to put on the market?

Robert F. McCadden

I think that will depend on how the market reacts to the properties that we’ve [inaudible], but there are a number of properties that we’ve talked about bringing to the market place, and again, we’ll see what kind of recession, what kind of price we can achieve and that will be the deciding factor for how far we go over.

David Wiggington – [Inaudible] Securities, Inc.

Okay, thank you.

Operator

Thank you, ladies and gentlemen, this concludes today’s conference call, at this time I’ll turn the call also back to Mr. Ron Rubin for any closing comments.

Ronald Rubin

Thank you all for joining us today, and for your continued interest in Pennsylvania Real Estate Investment Trust. We look forward to sharing our first quarter of 2012 results on our next conference call in April. Thank you, again, and have a good day.

Operator

Thank you. Ladies and gentlemen, this does conclude today’s conference call and thank you for your participation. You may now disconnect.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Pennsylvania Real Estate Investment Trust's CEO Discusses Q4 2011 Results - Earnings Call Transcript
This Transcript
All Transcripts