Core Mall NOI-Weighted Sales per square foot Reached $551 through February
Average Renewal Spreads for Wholly-Owned Properties were 4.5%
Total Leased Space Stable at 94.0%
Progressing with Mall Re-openings
PREIT (NYSE: PEI) today reported results for the three months ended March 31, 2020. A description of each non-GAAP financial measure and the related reconciliation to the comparable GAAP financial measure is located in the tables accompanying this release.
|Three Months Ended
|(per share amounts)||2020||2019|
|Net loss – basic and diluted||$(0.26)||$(0.30)|
|FFO, as adjusted||$0.14||$0.26|
|FFO from assets sold in 2019||–||$(0.01)|
|FFO, as adjusted for assets sold||$0.14||$0.25|
“As we slowly emerge from an unprecedented environment, we are focused on ensuring the safety and well-being of our associates and communities while enhancing near-term liquidity with a laser-focus on improving our balance sheet to position PREIT for long-term success,” said Joseph F. Coradino, Chairman and CEO of PREIT. “The PREIT team has been resilient and courageous as we navigate this challenging environment. We have pivoted quickly, making difficult decisions and focusing our efforts on supporting our communities of tenants, shoppers, retail employees and our staff.”
Coradino added, “PREIT was among the first companies in our sector to embark on a proactive effort to improve our portfolio through asset sales and anchor repositioning and redevelopment, completing the program ahead of industry peers and in advance of the COVID-19 pandemic. We believe our properties are well-positioned with mass-market offerings appealing to a value-focused shopper. These properties, with prime locations in their respective markets, are dominant retail hubs and we believe they will ultimately gain market share as they re-open.”
- Same Store NOI, excluding lease termination revenue, decreased 9.6% for the three months ended March 31, 2020 compared to March 31, 2019.
- The quarter was impacted by a decrease in revenue of $5.6 million primarily resulting from bankruptcies and related store closings, an increase in credit losses for challenged tenants prior to the COVID-19 pandemic as well as decreased percentage sales revenue resulting from mall closures related to the COVID-19 pandemic. This was partially offset by incremental revenues from anchor replacements and other leasing activity of $0.7 million in the quarter.
- Same Store NOI, excluding lease termination revenue, decreased 5% through February, in line with prior expectations.
- NOI-weighted sales at our Core Malls increased to $551 per square foot. Core Mall sales per square foot reached $542, a 4.8% increase over the prior year. Average comparable sales per square foot at our top six properties rose 4.8% over the prior year to $651 with two properties generating sales over $700 per square foot. Sales data is for the trailing twelve months ended February 29, 2020, the last full month of operations, for comparability purposes in light of the widespread COVID-19 related mall closures in March 2020.
- Core Mall total occupancy was 92.9%, a decrease of 180 basis points compared to March 31, 2019. Core Mall non-anchor occupancy declined by only 120 basis points from last year despite the impact from bankruptcies and chain liquidations that resulted in 71 store closures for an aggregate 274,000 square feet during the year ended December 31, 2019.
- Non-anchor Leased space, at 92.0%, exceeds occupied space by 170 basis points when factoring in executed new leases slated for future occupancy, excluding Fashion District Philadelphia.
- Average renewal spreads for the quarter in our wholly-owned portfolio reflected a 5.2% increase for spaces less than 10,000 square feet and 4.5% overall. Average renewal spreads for the entire portfolio were negative 1.6% for the quarter when joint venture properties are included.
- As part of the Company’s plan to improve liquidity during the COVID-19 crisis, we have initiated certain corporate actions including, but not limited to: staff furloughs, reducing the common dividend from $0.21 per share to $0.02 per share, a reduction in forecast capital expenditures of approximately $25.0 million, a reduction in forecast corporate G&A of $3.1 million, reduced property operating expenses during the closure period, achieved deferral on approximately $11.6 million in real estate tax payments and received forbearance on several mortgage payments.
- The Company continues to make progress on liquidity-generating capital transactions including its multifamily and hotel land sales, its outparcel sales and the multi-property sale-leaseback transaction. Timing of closing on many of these transactions is now expected to be later than previously forecast with details noted later in this release.
- As part of PREIT’s plan, during the quarter, the Company executed amendments to its Senior Credit Facilities. The Company continues its discussions with lenders to put in place a longer-term financing solution before September 30, 2020.
Leasing and Redevelopment
- Excluding Fashion District Philadelphia, 267,000 square feet of leases are signed for 2020 openings, which is expected to contribute annual gross rent of $11.3 million.
- During the first quarter, the following anchor replacement tenants opened: Dick’s Sporting Goods at Valley Mall, Burlington at Dartmouth Mall, Michael’s at Plymouth Meeting and Moorestown Malls.
Mall Re-openings and Community Support Initiatives
- Currently, the Company has re-opened three enclosed malls and plans to re-open a fourth on Friday, May 22, 2020.
- Details on the re-opening schedule and the new safety and social distancing protocols the Company is employing at its managed properties can be found here.
- Across its portfolio, the Company has hosted blood drives and food donation drives, provided meals to area essential workers, and donated much needed protective supplies. Read more about our efforts here.
- PREIT has continued to support the businesses that were able to remain open during the pandemic through several avenues including social media support highlighting dining establishments and other contactless pickup options at our properties as well as ecommerce platforms for certain retailers.
- Shop Local webpages were developed by PREIT, aggregating ecommerce sites for all the small businesses throughout our portfolio. The offerings highlighted not only to the local audience, but to customers of the entire PREIT portfolio, leveraging the Company’s marketing power for local business partners.
- Through PREIT’s SBA resources page and contact with tenants, the Company has continued to provide resources for smaller business to access the liquidity needed to make it through this challenging time.
- PREIT’s mall websites now include job portals to collect information to pass along to our retail partners.
Primary Factors Affecting Financial Results for the Three Months Ended March 31, 2020 and 2019:
- Net loss attributable to PREIT common shareholders was $13.5 million, or $0.26 per basic and diluted share for the three months ended March 31, 2020, compared to net loss attributable to PREIT common shareholders of $16.2 million, or $0.30 per basic and diluted share for the three months ended March 31, 2019.
- Same Store NOI decreased by $5.3 million, or 10.1%. The decrease is primarily due to lost revenues from bankrupt tenants, an increase in credit losses and a decrease in percentage of sales revenue due to COVID-19 related mall closures, partially offset by new store openings, including contributions from replacement anchors. Lease termination revenue was $0.3 million less than the prior year’s quarter.
- Non Same Store NOI decreased by $2.4 million, primarily due to the conveyance of Wyoming Valley Mall to the lender of the mortgage loan secured by that property in 2019 and; anchor closings as well as associated co-tenancy rents, decrease in other non-recurring revenue compared to the first quarter of 2019 and the sale of the Whole Foods parcel at Exton Square in 2019.
- FFO for the three months ended March 31, 2020 was $0.14 per share and OP Unit compared to $0.17 per diluted share and OP Unit for the three months ended March 31, 2019. Adjustments to FFO in the first quarter of 2020 were less than $0.01 per share of provision for employee separation expenses. Adjustments to FFO in the 2019 quarter included $0.06 per share of loss on debt extinguishment, $0.01 per share of provision for employee separation expenses and $0.02 per share of impairment of development land parcels.
- General and administrative expenses decreased by $0.5 million compared to the first quarter of 2019 due to lower payroll and incentive compensation expenses.
All NOI and FFO amounts referenced as primary factors affecting financial results above include our share of unconsolidated properties’ revenues and expenses. Additional information regarding changes in operating results for the three months ended March 31, 2020 and 2019 is included on page 16.
The Company executed agreements of sale for remaining expected gross proceeds of $281.0 million as detailed below.
Sale/Leaseback: In February 2020, the Company entered into an agreement of sale for the sale and leaseback of five properties for $153.6 million. Structured as a 99-year lease with an option to repurchase, the agreement provides for release of parcels related to multifamily development and is subject to ongoing lease payments at 7% ($10.75 million) with annual 1.25% escalations. Closing on the transaction is subject to customary closing conditions, including due diligence provisions and is forecast for late in the year.
Multifamily Land Parcels: The Company has three executed agreements of sale for land parcels for anticipated multifamily development in the amount of $107.3 million. The agreements are with three different buyers across five properties for 2,650 units as part of Phase I of the Company’s previously announced multifamily land sale plan. Closing on the transactions is subject to customary due diligence provisions and securing entitlements. One buyer for two other land parcels had terminated its agreement and PREIT has now executed letters of intent with another buyer.
Outparcels: The Company has executed an agreement of sale with Four Corners Property Trust for 14 outparcels, which we expect to generate $29.9 million in total proceeds. To date, the Company has closed on the sale of six of the parcels, totaling $13.4 million in proceeds. The remaining 8 outparcels are expected to close late in the second quarter or early in the third quarter of 2020 and are subject to customary due diligence provisions.
Hotel Parcels: The Company has executed two agreements of sale to convey land parcels for anticipated hotel development in the amount of $3.75 million. The agreements are with two separate buyers for approximately 250 rooms. Closings on the transactions are subject to customary due diligence provisions and securing entitlements.
The following table sets forth information regarding sales per square foot in the Company’s mall portfolio, including unconsolidated properties:
A reconciliation of portfolio sales per square foot (1) for the Core Mall portfolio can be found below:
|Comp store sales for the rolling twelve months ended March 31, 2019||$499|
|Organic sales growth||30|
|Impact of non-core malls||13|
|Comp store sales for the rolling twelve months ended February 29, 2020 (2)||$542|
|(1) Based on reported sales by all comparable non-anchor tenants that lease individual spaces of less than 10,000 square feet and have occupied the space for at least 24 months.|
|(2) Reported through February 29, 2020 due to COVID-19 pandemic related property closures for partial month of March 2020.|
On March 31, 2020, the Company withdrew its financial outlook for 2020 provided in its February 25, 2020 earnings press release.
Conference Call Information
Management has scheduled a conference call for 1:00 p.m. Eastern Time on Thursday,
May 21, 2020, to review the Company’s results and future outlook. To listen to the call, please dial 1-844-885-9139 (domestic toll free), or 1-647-689-4441 (international), and request to join the PREIT call, Conference ID 6664627, at least five minutes before the scheduled start time. Investors can also access the call in a “listen only” mode via the internet at the Company’s website, preit.com. Please allow extra time prior to the call to visit the site and download the necessary software to listen to the Internet broadcast. Financial and statistical information expected to be discussed on the call will also be available on the Company’s website.
For interested individuals unable to join the conference call, the online archive of the webcast will also be available for one year following the call.