Pennsylvania Real Estate Investment's (PEI) CEO Joseph Coradino on Q1 2018 Results - Earnings Call Transcript

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About: Pennsylvania Real Estate Investment Trust (PEI)
by: SA Transcripts

Pennsylvania Real Estate Investment Trust (NYSE:PEI) Q1 2018 Earnings Conference Call May 2, 2018 12:00 PM ET

Executives

Heather Crowell - SVP, Corporate Communications & IR

Joseph Coradino - Chairman & CEO

Robert McCadden - EVP & CFO

Analysts

Christine McElroy - Citigroup

Ki Bin Kim - SunTrust Robinson Humphrey

Karin Ford - MUFG Securities Americas

Caitlin Burrows - Goldman Sachs Group

Michael Mueller - JPMorgan Chase & Co.

Floris van Dijkum - Boenning and Scattergood

Michael Bilerman - Citigroup

Linda Tsai - Barclays Bank

Operator

Good morning. My name is Stephanie, and I will be your conference operator today. At this time, I would like to welcome everyone to the PREIT First Quarter 2018 Earnings Conference Call. [Operator Instructions]. Heather Crowell, Senior Vice President of Strategy and Communication, you may begin your conference.

Heather Crowell

Thank you. Good morning, thank you all for joining us for PREIT's First Quarter 2018 Earnings Call. During this call, we'll make certain forward-looking statements within the meaning of the 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, May 2, 2018, and PREIT makes no undertaking to update any such statements.

While there's certain non-GAAP measures will be discussed, PREIT has included reconsideration of such member to the comparable GAAP measures in its earnings release and other documents filed with the SEC. Members of management on the call today are, Joe Coradino, PREIT's Chairman and CEO; and Bob McCadden, our CFO.

I'll now turn the call over to Joe Coradino.

Joseph Coradino

Thank you, Heather, and good morning, everyone. Welcome. An earnings call is a time for us to update you on our business and its future as it relates to our strategy, not only for the quarter but over the long term. Our strategy has always been one that takes a long view and we feel good about the business and where we're headed.

We started our last call with the quote, "Hungry dogs run faster.'' which really epitomizes our approach to business. We're proven at that were not reliant. We created a strong portfolio that differentiates the company, and we're certain that if you own quality properties in strong markets, opportunities continue to avail themselves. A powerful proof point to this strategy, four years ago or NOI-weighted sales were 402 per square foot. We've now surpassed the critical threshold of $500 a square foot, a 25% increase in just four years with room there and going forward.

Our efforts to improve our portfolio are paying off as we've shed weaker properties and proactively replaced department stores with driving foot traffic, sales and occupancy, which gives way to strong renewal spreads and NOI growth. We coupled with our strong pipeline of executive leases with their worst attendance. We have demonstrated our portfolio is well positioned to thrive and grow into the future, but I hunger is in and she did. It can't be and it won't be. We'll not let a broad narrative tell a false tale about a great company with a fundamentally strong portfolio of properties located in top markets with impressive growth profiles. While it has been a challenging time in our business, we are proud of what we've accomplished by constantly pushing the envelope and embracing speed to execution.

We believe recent strong tenant sales tenant sales are an indicator that the negative headlines are getting stale, and our strong - and our tireless efforts to redefine the traditional mall experience are paying off. Consider these accomplishments. Our NOI-weighted sales per square foot now stand at 501 per square foot, with room to run. Same-tenant sales were up by 2.2% in March alone. We've grown sales in Q1 by 7.4%. We have our first property exceeding $700 a square foot and we'll go apart. Our top 5 assets, which generate nearly 40% of our NOI, for the first time averaged over $600 per square foot in sales.

And all of these has occurred while there are number of department stores in transition. Our performance will only improve as the placement tenants take occupancy. We've now signed leases for 11 of the 12 department stores we had available, and we're on the cusp of executing leases with five tenants to fill the remaining box. A noteworthy achievement, particularly given the size and scale of our portfolio. As you know, we've been very active in recapturing boxes, replacing underperforming department stores were ahead of announced closures. So we successfully avoided competing for tenants in a high-supply environment. And the facts are quite impressive.

Last year, we opened 10 tenants in five former department store boxes. This year, we'll open seven tenants in four former anchor spaces. And in 2019, we'll open at least 10 defendants in three former anchor spaces.

Anchor closures have provided an opportunity to bring exciting new - in many cases new to market retail, dining, entertainment, health and wealth and destinations that are reflective of our shoppers lifestyle. We expect the new anchors, we have disparaged through our portfolio, will generate at least 3x the sales volumes that the previous tenants did, highlighting the continued opportunity to draw new customers and increase productivity for our existing tenants.

As a reminder of the economic results and into our benefit, by breaking up the boxes and challenging the traditional anchor definition, we're generating market rents that are, on average, 8x what we were generating previously. We're doing it with better credit tenants and we're diversifying our income stream.

This year, the boxes will generate incremental $3 million of gross revenue and another $4.8 million in 2019. These results are again reflective of the power of a portfolio of high-quality locations. As well grows, we signed the deal with luxury movie theater with claim rate during the week to a top-performing property, which now boasts sales that recently equipped $700 per square foot, and a tenant mix that includes Bloomingdale's, Primark, cheesecake factory and Apple among others. Occupying the portion of the former JCPenney space, the movie theatre allow for 12 screens and extraordinary experience, including a premium restaurant and full border with the reserves and ceilings. We'll complement this with additional entertainment and dining experience in this top-performing property.

As a result of our widely recognized successful disposition program and anchor recapture effort, our exposure to Bon-Ton liquidation is minimal, with only two stores. And our options are maximized spanning retenanting of dispositions. And we have repented interest in both boxes and are evaluating the bid forward. We have a strong foundation for revenue growth, with a pipeline of executed future leases totaling $10 million and 664,000 square feet in our same-store NOI portfolio. 75% of the leases in our same-store portfolio are with tenants representing the new mall experience with 30% Dining and Entertainment, 17% fast fashion, 16% off-price, and 13% health and wellness.

It's noteworthy that we've just signed 6 forever 21 laser for 65,000 square feet. In addition to recently executed leases with five below express and Burlington stores, another indicator that our portfolio today presents itself differently to the retailers. Our renewal spreads during the quarter were 7%, having secured increases for the percentage of for all tenants. While bearing from quarter-to-quarter over the longer term, our spreads tell the story of our improving position across the retail landscape. As retailers continue to confront challenges, we're able to grow rents and attract new tenants as our portfolio grew compelling to those retailers.

Moving to our Q1 results. Our top line revenue growth was in line with our expectations as we continue to open and sign new stores. Same-store NOI was incrementally impacted by an unexpectedly long an activity in the Northeast. Excluding the impact of the snow, utilities and bankruptcy-related debt, our same-store sales were flat compared to Q1 '17. And we are pleased to be able to reaffirm our same-store NOI guidance expectations for the full year indicative of the improving environment we're seeing.

Now as a reminder, we have $3 million of incremental revenue coming on line from anchor replacements in 2018. And progress continues at all of our redevelopment and anchor replacement projects, including Fashion District, where construction is well along and we're continuing moving leases through the continuum with commitments from approximately 75% of the space. With the compact portfolio of strong assets, generating over $500 a square foot in sales, located in high-barriered entry markets with strong population and household incomes, we have a unique opportunity to continue to evolve our portfolio redefine with mix use affiliations to maximize the value of the underlying real estate and enhance the profile of the assets. Look into the future. We will continue to create a truly distinctive position as we evolve the more makes, limiting the underperformers and replacing them with compelling retail and social experiences, covered increasingly digital world. This also provides us with the opportunity to take advantage of our strong locations to exploit multifamily and hotel additions at our properties. Because of our high concentration in top MSAs, we estimate that we can add between 5,000 and 7,000 multifamily residential units and have identified several opportunities. With the right structure, we can further intensify - and diversify our revenue stream, enhance our capital position and add value to our real estate.

With that, I'll turn it over to Bob.

Robert McCadden

Thanks, Joe. I want to review our earnings guidance first. Move on to operating results for the quarter and the progress that we've made against our capital plan. As Joe mentioned, we're reaffirming our FFO guidance for 2018 with FFO per share expected to be between $1.50 and $1.60. We're adjusting our GAAP earnings, take effect of the final gain on sale of 907 Market Street and adjustments to depreciation expense. We expect the GAAP loss between $0.17 and $0.29 per diluted share. We're also reaffirming our same-store NOI guidance in the range of one in the quarter to two in a quarter percent, based on the expectations that we would mitigate the impact of unanticipated first quarter events. We've telegraphed we expected the first quarter to be our weakest. If you recall, the 2017 bankruptcies did have a material impact in the first quarter of '17.

For the full year, bankrupt tenants debt replacements are expected to reduce 2018 revenues by an incremental $2.4 million on top of the $5.6 million impact we experienced in 2017. That number is up about $1 million from year-end, reflecting the anticipated closings of the two Bon-Ton's, two toys stores and two Babies stores at our joint venture properties. Co-tenancy adjustments are expected to be approximately $2.7 million in 2018 compared to $1.3 million in 2017, reflecting the full year impact of anchor closings.

That number is also up approximately $700,000 from year-end, reflecting the incremental impact of Bon-Ton closings.

Reaching the NOI GAAP, we anticipate the higher revenues, normalization of our operating expenses, including bad debts, as the year progresses. We also anticipate some bankruptcy recoveries and temporary leasing our space, impacted by the unexpected closings. We initially assumed lease termination revenues of $1.5 million to $3.5 million for the year, and we expect to be at higher-end of that range. This contributes to the FFO growth we expect to record later this year.

Capital expenditures, including redevelopment spending, recurring Capex and tenant allowances are still expected to be in the range of $220 million to $240 million.

Finally, our guidance does not assume any other operating asset sales or capital market transactions other than financings in the ordinary course of business.

Turning to operations. We reported FFO per share of $0.28, which is below the streak, primarily due to the timing and cadence of NOI and G&A expenses. As mentioned previously, we still expect to be within our initial FFO guidance range of $1.50 to $1.60 for the full year. Same-store NOI at minus 1.6% was impacted by weather-related expenses of $600,000 and bankruptcy-related bad debts of $500,000. If you normalize for these items, same-store NOI was in line with our expectations for the quarter. Key takeaways from the first quarter's operating performance include, top line revenue growth, in-line with our internal budget and occupancy levels modestly above plan due to early openings of several large-format tenants. The $1.7 million of incremental revenue contributed by anchor replacements and new tenant openings offset the negative revenue impact from the 2017 bankruptcies and cotenancy adjustments.

We ended the quarter with same-store mall occupancy of 93.2%, up 50 basis points from March of '17. Nonanchor occupancy was up 40 basis points compared to last year at 91.1%. Total lease to occupancy was 94.9%, and nonanchor lease occupancy was 92.4%, reflecting the strong pipeline of signed leases not yet in and occupancy.

As we look forward at our same-store properties, we have a pipeline of leases totaling 664,000 square feet that will open in 2018 and 2019, contribute approximately $10 million in annualized rent at our share. Of this amount, tenants paying annualized rents of $6.5 million will open later in 2018 with the balance next year. The increase in G&A expenses relate primarily to incentive compensation costs. A portion of was due to timing for certain words as we issued our employee long-term stock grants among early this year, and we had a unusually short amortization [indiscernible] divorce, which were issued in late 2017. The company's first quarter 2017 results were also reflected the favorable impact of bonus accrual adjustment from year-end 2016.

With respect to our capital plan. Since the end of our - since year-end, we've continued to tap the unrecognized value in our asset through various refinancings and asset sales. Our Fashion District joint venture at 97 Market Street, generating approximate $20 million of proceeds and a $2.8 million gain at our share. We also received more than $10 million of earned out proceeds for the mortgage lender to my board, following the successful opening of Dick's, Field & Stream and HomeGoods. In March, the venture that Gloucester Premium Outlets refinanced it's previous mortgage loan, extending the initial maturity date of the new financing to 2022. We now have no mortgage maturities until July of 2020 within two years from now.

By the end of this quarter, we expect to complete a recast of our $400 million unsecured credit facility and $300 million of unsecured term loans ahead of the scheduled maturities in 2019 and 2020. We continue to make progress on the plane sales of several land parcels, including the parcel adjacent to the newly opened Mall. As part of our densification initiatives, a third-party will develop approximately $350 million - 350 multifamily housing units on its site. This transaction is expected to generate proceeds of approximately $10 million and close later this year.

In March, the Fashion District joint venture the remaining amount available under its new five-year term loan, and we received distributions from the venture totaling $123 million during the quarter. At the end of March, we had over $100 million of cash on hand and $190 million of available borrowing capacity under our credit facility. Our liquidity position remains strong.

At the end of March, our bank leverage ratio was 51.7%, and our net debt-to-EBITDA was approximately 8.1x, in-line with our expectations. With over 89% debt either fixed or swapped, we continue to be well positioned to manage through a period of rising interest rates. And last week, we announced that our board had approved the 21% - $0.21 share common dividend for the second quarter. Our rolling 12-month basis, our FFO payout ratio is 55%, and our FDA payout ratio is 86%.

Finally, with respect to development, we invested $23 million on our redevelopment and anchor replacement program in the first quarter, and expect to spend another $155 million to $165 million over the remainder of this year in-line with our prior guidance.

So before we open up for questions, I want to turn it back to Joe.

Joseph Coradino

There's clearly a disconnect between valuation of our company in our share price. Our share price is inordinately pressured by short interest. We're confident our business is solid. Fundamentals are improving. We have access to capital and a great portfolio. We think there are ways to influence the short-sellers including the refinancing our credit facility, which is underway, executing our business plan within our guidance range, maintaining our dividend even increasing it over time, in bringing JV partners when densification projects. Now, we'll open it up for questions.

Question-and-Answer Session

Operator

[Operator Instructions]. Your first question comes from Christy McElroy with Citigroup.

Christine McElroy

Just getting that reaffirmation of guidance. You mentioned you're expecting Q1 be your weakest, but did the quarter coming below your own expectations? And what do you think where the major pieces of the stream is?

Joseph Coradino

So Christy, other than the kind of few nonappealable items, we were in line with our internal expectations. I think principally, focused on our top line revenue growth. We were basically spot on our internal budget for the first quarter. I think The Street may have missed just in terms of both cadence of our NOI. I think we expect to have first half of the year, probably a little bit than we did last year, and with the ramp-up of NOI and FFO in the second half of the year, following the opening of anchor replacements in other seasonal lease up.

Christine McElroy

Okay. And then just regarding the nonanchor renewal spreads, the negative 4.5% in Q1. That number continues to slip, and I know it's just a long quarter. But can you give us some context on what you're spreads are? So what sort of the comparable number for that for nonanchor leases that are currently slated to commence in 2018? So just - again, 4.5% is just the one quarter, but for all of commencements everything that you have done for 2018, what is the spread on that?

Joseph Coradino

We're expecting our average rent spreads to be in the mid-single digits for the balance of the year based on what we have on our pipeline.

Christine McElroy

Mid-single digit positive?

Joseph Coradino

Right.

Christine McElroy

And then just for clarification on the percentage of deals, the spreads have negative 22%. Does that represent leases where the co-tenancies being triggered, so converting to the percentage around leases?

Joseph Coradino

In some cases, yes. In other cases, it's just renegotiate leases for tenants set. If you look at the term, typically the one-year terms. So essentially keeping tenants in place as we identify the replacements.

Operator

Your next question comes from Ki Bin Kim with SunTrust.

Ki Bin Kim

Can we just go back to your full year. It seems like your NOI guidance of 1.75% in midpoint. I think in your opening remarks you've mentioned that there were a couple of unexpected things, like weather obviously. But I think you mentioned bankruptcies as well. Given that shouldn't - I guess how comfortable are you with hitting the midpoint of that guidance or should we expect because on some of the unforeseen events to come in at a lower end?

Robert McCadden

At this point, we're still comfortable where we are. And when we think what we were a year ago, we weren't at a much different place. Although, we had a much more challenging second quarter, which we expect to outperform this year. So I think when you look at where we're at the end of June, I'd ask you to kind of reassess your expectation of our performance. I think we feel pretty comfortable where we're at this point in time.

Joseph Coradino

Yes, Ki Bin, there's still a good deal of levers that we can push at this point as it relates to partnership marketing and specialty leasing, top ups, et cetera. There's - we feel good about it.

Ki Bin Kim

Okay. And how should we - you've done good job of reducing the anchor spaces proactively. Yet, you still guys hit by a little bit of cotenancy losses this quarter, and I think you said something around $3 million for the year. How should we think about the cadence of the cotenancy losses? And how that carries yourself throughout the year?

Robert McCadden

You're probably going to see some rolldown of that in the fourth quarter as we open up some of the anchor replacements. And you see kind of an uptick in really the third quarter and then it come back down in the fourth quarter.

Ki Bin Kim

Okay. And going back to Christie's question about lease spreads. If I remember correctly, if the renewal lease or renewal lease does not extend the life of the lease. And amendment - and really amendment to that lease is not report to spreads, I guess is that correct? First question. And second, if that was included, how would that impact you're reportedly lease spreads?

Robert McCadden

The number of pieces that for are relatively de-minimis relative to total leasing volume that we did for the quarter. So we don't have that information, but I wouldn't expect it to be materially impacting our reported spreads.

Operator

Your next question comes from Karin Ford with MUFG Securities.

Karin Ford

Just going back to the same-store NOI guidance for the year. It sounds like the puts and takes out that are you're going to have about $1.7 million of additional bankruptcy impact and cotenancy impact, and then that's offset by $1 million perhaps more of lease termination fees. Is that sort of the way to think about what's changed from December in the same-store?

Robert McCadden

Well, I guess in the same-store numbers, we do not include lease termination fees that if you're looking to reconcile our FFO guidance, we'll keep certainly look at that. But as Joe mentioned, we've number of levers to pull. We also think that there be some normalization expenses. So if you look at our history of the last few years both in terms you have hard winter that may impact store removal costs and utilities, but we find ways to make that up through across a rationalization and elsewhere. And we have seen our rates to bankruptcy recoveries, payments are not an easy to predict, but we typically taken the conservative view and write off of the full amount of any prepetition amounts, and later on and we get those recoveries that help to get mitigating the impact, but it occurs in the different quarter.

Karin Ford

Do you have a rough estimate to what the nonrecurring operating expenses were in 1Q?

Robert McCadden

Sure. We had about $600,000 of snow removal and utilities. And about $500,000 of bankruptcy-related bad debts.

Robert McCadden

And the plans are there to replace that. It's not being hold for. It's being measured and having a plan in place that the team is executing.

Karin Ford

Great. You mentioned the sale performance, which was clearly good in the quarter. How do you reconcile that with what looked to be substantial occupancy - sequential occupancy decline in several of the properties? Was that occupancy decline due to anchor replacement activity you're doing? Or is this just something else that we should think about?

Robert McCadden

Yes, it's somewhat normal seasonal cadence of occupancy. Typically, the fourth quarters is obviously going to be your highest occupied quarter. And then occupancy trends down as some temporary tenants fall out of occupancy. And they, in fact, come back into your statistics at the end of the year. But on a quarter-to-quarter basis, again, compared to March of '17, total occupancy was up 50 basis points and nonanchor up 40 basis points. And the other thing is sales is kind of a leading indicator. So obviously, we can't immediately capture the benefit of increased sales portfolio in the same quarter it occurs, but it does certainly give retailers the confidence that - to open source in our properties and to move more aggressively on their expansion plans.

Joseph Coradino

And, Karen, I would add to that that occupancy is in line with our budget. We are in line with the budget to Bob's point. There is a lag between rising sales in occupancy, but it will necessarily follow.

Karin Ford

Joe, in your comments when you were talking about the apartment opportunity and identification and Fashion District, it sounded like - you mentioned that you can possibly diversify your revenue stream. Are you considering maintaining ownership in the residential piece of that?

Joseph Coradino

We are flexible, and we would be opportunistic as it relates to that. In some cases, we use our land as our equity in the deal and maintain some level of ownership. In the case of let's say in the previous examples that involve giving a script, that's the one where we'll realize $10 million in the sale. But again it's going to be different. We see it as an opportunity to enhance our capital position. So we are not of the minor we're going to make a major investment in any of these projects, but rather use the value of the link, because we take a case like Springfield Town Center or Fashion District in Philadelphia where we have created significant value from residential perspective. And we will want to realize that value and to minimize if at all making any kind of a capital investment.

Karin Ford

Got it. Last one for me. I know it's early, but do you have any sense for what additions you might have the capital budget given the recent Bon-Ton activity?

Joseph Coradino

Well, as it relates to that, right now I don't think we have a lot of options in front of us with respect to Bon-Ton stores, and which might include dispositions and could include reconnecting. So at this point my think we're looking at our options and going to make a decision that is the best course of action and given our capital objectives.

Operator

Your next question comes from Caitlin Burrows with Goldman Sachs .

Caitlin Burrows

In your March presentation, and then you brought it up again now in your prepared remarks. You are expecting to see an incremental $3 million impact from the anchor replacements this year versus '17 and another $4 million impact in '19. I was just wondering if you could go through some of that expected timing during 2018. And I think maybe you said that $1.7 million is already in for 2018. Is that right?

Robert McCadden

The $1.7 million was just for the first quarter, that was the benefit that we received, not only from anchor replacements but also from new tenant openings. So effectively, even though we absorb the impact of cotenancy and bankruptcies, we still delivered revenues kind of in line with our expectations. So you're going to see some part of that. Obviously, the fourth quarter '17 openings, we get the full year benefit in 2018. And we'll also get incremental benefit in the - really in the second, third and fourth quarters. You think about we have HomeGoods and five below opening in the second quarter of '18. We have home sense of Town opening in the third quarter, and we also have a number of tenants at Mall One Life Fitness till as well as others opening in the fourth quarter. So we've experienced some of it. We'll see an uptick in the second quarter. There's might be an uptick in the third quarter, and a larger impact in the fourth quarter.

Caitlin Burrows

Okay. Got it. And I was just wondering in terms of sales growth. I know that sales growth in your portfolio has been pretty strong over the past few years, but the cash in early spread continue to be frequently negative. So I'm just wondering why these prayers aren't reflecting that sales with that we have seen?

Robert McCadden

I think part of it is related to dealing with some tenants that have probably longer term, won't be in our portfolio. But then interim as we kind of worked through the transition, and see the benefits of many of the redevelopments that would expect those numbers to turnaround in the relatively near-term.

Caitlin Burrows

Okay. And then just another one on the sales side. It looks like - when you look at percent rents as a percent of bast rents in the quarter, 1Q seem to be the lowest in a while. I was just wondering how that percent rents a line item tied out to the strong reported sales growth numbers. And whether you expect that too - that ratio to improve later in the year?

Robert McCadden

That was really a function of timing. The tenant that reported in the first quarter of '17 because we had an extended close at the end of the year, we picked up their 2017 sales in our fourth quarter results. So it's really a timing issue. It was no significant erosion in the amount of percentage rents, it was one of timings.

Caitlin Burrows

Okay. And then maybe just the last one, and I think you might have touched on this before. But in terms of the renewal spreads going forward. I know in the past you mentioned getting to mid- to high-single digits as a maybe normalized rate. Could you just confirmed is that on our average basis that you're expecting that?

Robert McCadden

That is, correct.

Operator

Your next question comes from Mike Mueller with JP Morgan.

Michael Mueller

Two questions. So going back to the rent change on the percentage on new leases. For full year 2017, it was like down about 30%. I think it was down low-20s this time. First of all, should we look at that as the spread is getting better? Or just take a step back and say, it's still down 20% and that's going to persist at that level for some time?

Robert McCadden

No, I think that's you see the kind of processing of some of these tenants through the portfolio. Again, as I mentioned, this is, I guess, referring back to cadence comment. We have seen strong sales performance at a number of our - many of our properties. But I see this more of a temporary phenomena as we kind of reposition the portfolio. And these are tenants - again, if you look at the terms of these deals, they are short-term in nature. So these are not tenants that we expect to see 2 or 3 years from now in our portfolio.

Joseph Coradino

Yes, we're kind of walking on - Bob is walking on a little bit in answering this question. I mean essentially, you're keeping a couple of tenants in place through a percentage in , if you will, with the ability to press the button and exit them and recapture the space. So it's a way to keep the space occupied while we're finding replacements. And that's a fairly usual technique that is being used. We think with the auto sales growth we're experiencing with the new anchors we're bringing into the properties that are replacing those tenants, it's going to be something - well, nothing is easy. It's going to be something we can accomplish in the near term.

Robert McCadden

But at the end of the day, if you look at our average rents - on Page 13 of our supplemental, the average rents, including larger format - larger and smaller format tenants were up 1% from last year. So despite the fact you may identify a specific renewal spreads. Overall, we're still moving the ball forward in terms of increasing the amount of rent we get per square foot in a portfolio.

Michael Mueller

Got it. Okay. And then Bob, when you're talking about expectations for the balance of the year being for mid-single-digit spreads. Was that cash basis or GAAP basis?

Robert McCadden

That's GAAP basis.

Michael Mueller

Okay. And then I guess final question here. Yes, I think it was mentioned there was about $3 million of incremental revenue coming on line this year for anchor leasing - anchor re-leasing initiatives. Is there an annualized number? Or is that calendar year number in terms of what hits this year?

Robert McCadden

That's a calendar year number.

Michael Mueller

Okay. And how back-end loaded would you say that $3 million is?

Robert McCadden

I think we've seen - as I mentioned earlier, we've seen some of it from the 2017 openings. Yes, I would say maybe half of it will come in the back-end.

Michael Mueller

Okay. So about half is in place now you say, and about half is to come later?

Robert McCadden

Right. Because the openings in '18 will have much bigger impact on the '19 performance.

Operator

Your next question comes from Floris van Dijkum with Boenning.

Floris van Dijkum

Question Joe, as I look at your portfolio, it appears that your top 10 assets have on average better sales growth as well as better occupancy than your - the bottom 10 that you list in your supplemental. Is it right to assume that your troubled tenancies are located in the bottom - with the bottom half of your portfolio?

Joseph Coradino

Well, I mean that would be an easy assumption to make. Certainly, the top 10 assets are performing better. But we have some good quality assets throughout the - that lower half of the portfolio. If you look at the examples like Mall where we've got a Macy's back, and we're going to be putting three tenants in that Macy's space that's currently under construction. Cap City Mall is a mall where we added a Dick's Sporting Goods. And we're about to open up a - the only in Harrisburg market. So the bottom line is, I don't want throw the or the here. Patrick Mall is another good asset. And Mall, which is sitting at the pretty bottom of the portfolio. I've never been really comfortable assessing that on a sales per square foot basis, because so many of the successful tenants are well above 10,000 square feet. And again, that's another place where that Macy's is going to be replaced with five new exciting first-to-market tenants. So I think we've got a little time before we make - say yes, to your question, because there's work being done.

Floris van Dijkum

Okay. And is there any more updates that you can give us regarding potential board composition or any other corporate things the you can share?

Joseph Coradino

Well, we just made a change to our board. Report on children apps, that's a new board member. And Ronald Rubin is going to be stepping down at the annual meeting. And the year before that, we booked George Alburger. So we have three new directors on in a four-year period. And we'll continue to look at governance issues and try to improve the company from all perspectives.

Operator

Your next question comes from Ki Bin Kim with SunTrust.

Ki Bin Kim

Couple of clean up questions here. Do you have a sense of the NOI coming online from FOP this year? And what we should expect for the next year?

Robert McCadden

We had a - I think our initial guidance, we had a relatively modest amount that was included in our '17 - I'm sorry, our 2018 guidance.

Ki Bin Kim

Okay, so not much. And the occupancy swings - nonanchor occupancy swings that you're five malls at is that just a timing issue or does that last for a couple more quarters?

Robert McCadden

You might see some of those for a couple of quarters, but we'd expect by the end of the year some of those gaps to decrease to narrow.

Ki Bin Kim

Okay, and what was the cause of that?

Robert McCadden

Just some typical seasonal leasing and some tenants that we've - we're planning to replace.

Ki Bin Kim

Okay. And then just last question on the jewelry tenant base, like Just - can you provide any color on how those sales are doing, and just overall kind of commentary? And I know the kind of a branded pages generally higher command looks typically in the top prime location in the malls. This is just creates all of things which are finding so far?

Robert McCadden

So our jewelry category up in the month of March, 2.4%. On a rolling 12 basis, down modestly. But still performing extremely well, if you look at it as a group.

Operator

Your next question comes from Christy McElroy with Citigroup.

Michael Bilerman

It's Michael I don't know if you have sort of numbers handy just in terms of the ramp in FFO? I think you mentioned the $0.29 was generally in line with what your thought, but what that does do is that it implies the pretty steep plans to meet the 150 to 160 for the year. Simple average is $0.40 to $0.44 a quarter. Now part of that is you do have seasonality in the fourth quarter while you'd probably pick up $8 million to $10 million in seasonal revenues. But that - even accounting for that, it's still a pretty fast rise to get there. So I don't know if there's buckets either on a per share or on a dollars basis that you can sort of share with us. I don't know if there's anything recovery or onetime that help to bridge the gap, going from effectively $0.29 or $23 million of FFO, there is a pretty steep ramp in 2018. Can you give some of the details?

Robert McCadden

Mike I just recognize that. We're talking about the dollar amount of the decreases. It's less than $1 million, right, in terms of our difference between kind of a breakeven quarter from an NOI perspective and where we ended up. So we don't think that's insurmountable mountain decline. If you think about both Joe and I talked about, we expect some of these things to be self-correcting, right. As our history has shown, when we have a large embedded expense in one quarter, they tend to level out based on our expectations. weather-related expenses, again, we found that more often than not we are kind of mitigate those through additional cost savings or at the end of the year and return to kind of even out. And we do have, as I read through earlier, even the number of anchor replacements opening as early as the second quarter, more in the third quarter and then a big slug in the fourth quarter. So you will see, certainly, the cadence of NOI and FFO much more back-ended. I don't have the information to share with you in front of me, but we also have some significant lease terminations that we expect three quarters and the second quarter to Best Buy mobile and Tijuana. And again that will - you would expect to see those boasting our second quarter FFO results.

Michael Bilerman

So lease term fees for the year are now projected to be what, relative to that the first quarter?

Robert McCadden

Well, we expect - we recently provided guidance of $1.5 million to $3.5 million. I think we're now leading to expect those numbers to be through the upper end of that range.

Michael Bilerman

Right. But it doesn't - I guess when you step back from it doing $0.29 in the first quarter and maintaining the 150 to 160, how much of those sort of things that you think will reverse versus the leasing activity that's already been done? Can you - do you have sort of helping that things will reverse as not - I'm not about hearing that certain response. I rather be much more in the second bucket.

Robert McCadden

No, no. But that's - we're talking about - it's not a significant amount we're talking about in terms of then - again, the scale of the company says that you have couple of unusual items that skew the results. But we have, again I mentioned, of the new store openings, $6.5 million of that at an annualized rate will come on stream in 2018. That's not a full - if you look at the full benefit of that. But certainly, those leases will be coming on and there's signed leases not yet in occupancy.

Joseph Coradino

Michael, I mean the bottom line is we've looked at our performance. We have a plan in place that includes a number of things, including the anchors that will be moving in some form been moving in earlier with impacts of pickups there, especially leasing, failing some of the vacant boxes that they're back at a divine and et cetera, partnership marketing. So there's a plan in place. And we are comfortable with and it's not hope. So let's not get caught up on that. Probably, bad word to be used. This is a carefully considered plan, it's been executed. And we believe that we will maintain our guidance.

Robert McCadden

Right. And I think it's just that - it's always a question of how you get to the number around the number itself, right. And the last thing we would want is for things to pop up over the next few quarters of all like, there was $0.05 of this or $0.03 of that or $0.10 of this. And you realize that was coming and so. We just step back from $23 million of FFO in the quarter. You're projecting $117 million to $125 million for the year. That's 19% up for the year in the first quarter. So that implies a much larger ramp towards the end. We're just trying to put all the pieces in place of how much does the anchor leasing represent on a calendar year 2018 basis and also on the annualized basis, because you will see the benefit in 2019. How much of it lease onetime or other expense items that have happened. Just how much of its leasing fees relative to the first quarter. Just trying to be very perspective about understanding that ramp in earnings and clearly getting the benefit into '19 as well. It sounds like a lot of these things are more permanent in nature. That's all.

Operator

Your last question comes from Linda Tsai with Barclays.

Linda Tsai

When you look at your top 20. Do you have a sense of how much more store rationalization might take place over the next few years? The tenants you highlighted signing this quarter, five below in Burlington are not on the list, although Forever 21 is. And with the top tenants comprising 38% of annualized gross rents. Would you expect concentration to decline materially over time as the mix gets more diverse?

Joseph Coradino

Well, first of all, I think it's - Linda, this is Joe. It's noteworthy that 60% of our top 20 tenants had positive sales growth in the quarter. And when you mentioned something like Forever 21, we think that a large part of that rationalization has to do with larger stores, larger format stores where they moved into former Mervyns locations, mostly on the West Coast. Our - as we just announced that we signed half a dozen Forever 21s for the total of about 35,000 square feet. Our average size for our Forever 21 is 8,000 to 12,000 feet, not 60,000 or 70,000 or 80,000 feet. And in that case - I think from another, one you would probably report on your list would be . And we have worked through - and they seemed - there as - leases come up and we're working through and have worked through much of the issues that have occurred through [indiscernible] is another one that we've worked through the issues are with, and we actually will end up getting positive spreads from it.

Linda Tsai

So in your view the rest going forward in the medium term?

Joseph Coradino

We don't have a great deal of concern. We think this is a much better year. And part of it is, the portfolio that we're putting forth at this point, which is a the is compelling to retailers. We sit with a significant number for our assets in Philly and DC markets. And I could go through asset by asset, but even once that are not in the Philly and DC markets are in strong markets. Dark Myth, which is the Boston Providence SMA. So in any event, we don't have a high degree of concern at this point. We're navigating our way through the issues. And as they come up, we're feeling pretty well.

Operator

There are no further questions at this time.

Joseph Coradino

If there are no other questions, thank you all for participating on the call, and enjoy the rest of your day. Bye now.

Operator

Thank you. And this concludes today's conference call. You may now disconnect.