Pennsylvania Real Estate Investment Trust (PEI)

Q2 2012 Results Earnings Call

July 31, 2012 11:00 AM ET

Executives

Shawn Southard – Director, Corporate Communications and IR

Ron Rubin – Executive Chairman

Joe Coradino – Chief Executive Officer

Ed Glickman – President

Bob McCadden – Chief Financial Officer

George Rubin – Vice Chairman

Bruce Goldman – General Counsel

Analysts

Craig Schmidt – Bank of America

Cedrik Lachance – Green Street Advisors

Quentin Velleley – Citi

Michael Bilerman – Citi

Michael Mueller – JPMorgan

Jeff Lau – Sidoti & Company

Presentation

Operator

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Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Pennsylvania Real Estate Investment Trust Second Quarter 2012 Earnings Conference Call. During today’s presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions. (Operator Instructions)

The conference is being recorded today, July 31, 2012. I would now like to turn the conference over to Mr. Shawn Southard. Please go ahead.

Shawn Southard

Thank you, Ian. Good morning, everyone. 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 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 31, 2012. And PREIT makes no undertaking to update any such statements.

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

It is now my pleasure to turn the call over to Ron Rubin, Executive Chairman of PREIT.

Ron Rubin

Thanks very much Shawn. Welcome to the Pennsylvania Real Estate Investment Trust second quarter 2012 conference call. Speaking on the call today are Joe Coradino, CEO; Ed Glickman, President; and Bob McCadden, CFO; also in the room, our Vice Chairman, George Rubin; and General Counsel, Bruce Goldman.

Today, we will discuss our performance this quarter, which I’m pleased to report was a very solid one. We generated positive results in several key metrics reflecting our continuing efforts to improve the fundamentals of our business.

I’ll now turn the call over to the company’s new CEO, Joe Coradino.

Joe Coradino

Thank you, Ron, and good morning, everyone. In my new role as CEO, PREIT has a clear vision and mission, with a keen focus on the core business. Our priorities are clear, operational excellence, balance sheet improvement and improving the quality of our portfolio.

We’ve set forth specific goals for our team in this regard. Our near-term goals had to generate same store NOI growth in excess of 2% and we see gross rent renewal spreads in excess of 3%. In long run, we are working toward achieving comp store sales of above $400 square foot and non-anchor occupancy in excess of 90%.

During the quarter we’ve already made strides in improving our operations. As FFO, same store NOI, comp sales and occupancy all improved. We’ve also made progress reducing leverage and our plan is to reduce it below 60%. To that end in April, we completed a $115 million preferred share offering and used the proceeds to pay down debt and reduce leverage.

Specifically, in June we repaid our outstanding exchangeable notes at maturity. Additionally, during the quarter, we paid the initial dividend on our new preferred shares at 6.7% increase to the quarterly dividend on common shares.

To further reduce leverage, we have listed our three wholly-owned power centers for sale in addition to the non-core assets already listed. We’re taking the multi-prong -- prong approach to improving portfolio quality.

In this regard, we’ve already announced that we have non-core assets for sale and we are in active negotiation for the potential buyers on four of the five properties, and at suspended marketing [deal Valley Mall] and so we have clarification regarding the pending Marshall Shale tax credit legislation in the region that may affect the property.

We are also developing targeted asset specific merchandizing plants at a number of our key assets with sales in excess of $350 per square foot and they include capital city, most town, will grow in the few months, as part of an overall strategy to drive sales above $400 a square foot.

Our portfolio presents us with a unique opportunity to improve performance through re-merchandizing efforts, minimizing capital outlay. With this overview in mind we turn to some specific thoughts about the balance of the year.

We’ve acknowledge the forecast about the pace of sales growth for the remainder of the year mixed. Retailer’s sentiment however has remained unchanged and they are aggressively looking for new opportunities across their platforms.

We are seeing this throughout our portfolio not just those properties would sales above $400 per square foot, but also a properties with stable performance and demographics. Leasing spreads were particular focus during the quarter and I’m pleased with where we are heading.

The base rents are down year-over-year this reflects transactions entered into in 2010 and ’11, direction here has changed. On a year-to-date basis, we’ve executed 44% more new deals compared to the same period in 2011 and currently, we also have 40% more transactions in our leasing pipeline than we did a year ago.

Accompanying the improvement in our sales is a pipeline more robust than before, with improved renewals spreads and I anticipate overall increases in base rents as we move into 2013.

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