Edward Glickman, president & COO and Robert F. McCadden, executive vice president and CFO, are presenting for Pennsylvania REIT at NAREIT's REIT Week.
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Below are notes from the session:
3:48: Glickman: The company continues on plan. ... Expecting year-end occupancy in the high 80s. Same-store NOI growth plus-or-minus 1.0 percent. ... On the capital side, on the last five years decade the company spent more than $1 billion in repositioning. Much of this was financed by debt. ... We found ourselves in an overlevered position. Since early 2010 the company has taken a number of steps to repair the balance sheet. ... Our intermediate goal is to bring the debt-to-gross-asset-value ratio down to about 60 percent.
3:50: McCadden: For the balance of '11 and into '12, we have a large number of expirations due to doing short-term leases in the 2008-2009 period. We have 60 percent near-term expirations at malls doing less than $350 per square foot. ... We've made an upward movement in overall portfolio occupancy and stabilized occupancy at these lower-sales assets. ... There is interest from retailers to open locations in some of those lower assets, but mostly looking at 2012. ... We see flattish renewal spreads in short term and sustained growth beyond that.
3:52: Glickman: One example is parent of Kay Jewelers, which has many stores with PREIT and they are looking for additional stores with the company. I use that as an example because jewelry was hurt deeply during the recession and has now staged a comeback. ... The mall is a place where jewelers can do well, even if sales for the property are below the national average. ... It's a good use for malls and one we see expanding. ... ICSC was interesting because after two years of pretty negative comments from retailers about their outlook, at this ICSC we saw a shift in momentum and the dialogue in past years was about protecting profits and cutting back and how to survive the recession. Now it's all about how to get growth.
3:55: McCadden: (In response to question about turning short-term leases into long-term ones.) At end of Q1 at $357 per square foot. … As of the end of December and into first quarter, we have a fair amount of tenants in holdover. … We are keeping tenants on in month-to-month basis. … In many cases, our view is that we are negotiating for renewal terms that are more commensurate with an improving economy than one that is in a downward cycle. … We would hope we could grab part of that uplift in renewal spreads in the latter part of 2011 and into 2012.
3:56: McCadden: (In breaking down the sales recovery at its malls.) You saw a lot more volatility at the higher end—steeper decreases and now greater improvements. Below $350 per square foot, they didn't fall as much and haven't risen as much. … Most of the volatility has been on the upper end of the portfolio.
4:01: Glickman: There have been two major portfolios that have been on the market—one by Westfield and one by GGP. PREIT has looked at a distance at both of those portfolios. We are not an immediate candidate for either portfolio, there might be assets in one or both portfolios that might be attractive to the company. … We're more focused on organic growth and improving NOI. … The positive fact of having these portfolios trading is that it will set a benchmark and will (help improve the financing market for B and C malls)…. The more trading in these assets, the more vibrant the market is, the better it is for the company. Our thinking is that it will start help revaluing other assets and help in two ways—valuation and help us in trading assets out of our portfolio.
4:11: Glickman: The highest-concentration of sales-per-square-foot would be Apple, which is probably without peer. It might be a multiple of 30X its next competitor. Beyond that it might be jewelers, who can get (a lot out of small spaces). … We mix all sorts of products to have a merchandise mix that will make a productive, efficient, but utilitarian shopping experience. … People want to experience shopping, have a good time, but get what they need done. So we provide a panoply of services. … In many properties we are expanding to a Town Center concept to add uses that are not traditional retail. … We view it as the future of the business in all but the rarified atmosphere of the highest-productivity malls. … We view mixed-use as a future direction for some of our projects. … We've already put into some of our properties—and intend to do more—health care (i.e. places to get well care, not acute care) as well as wellness related things like fitness centers. Beyond that we're talking about county or community services where you can pay a bill. … Community colleges are becoming important, so they're looking for additional space. Think about taking an old theater and turning it into community college space. It has lecture halls and our food court becomes their dining hall.
End of session