YTD Leasing Activity exceeds Total 2016 Activity
Opening 350,000 square feet of anchor space in balance of 2017
Progress on capital plan through executed agreements of sale for $75 million
Philadelphia, PA, August 8, 2017 – PREIT (NYSE: PEI) today reported results for the quarter and six months ended June 30, 2017. A description of each non-GAAP financial measure and the related reconciliation to the comparable GAAP financial measure is located in the tables accompanying this release.
|Six Months Ended
|(per share amounts)||2017||2016||2017||2016|
|Net loss per share – basic and diluted||$(0.79)||$0.06||$(0.89)||$0.03|
|FFO per diluted share and OP unit||$0.38||$0.42||$0.73||$0.83|
|FFO, as adjusted||$0.39||$0.43||$0.74||$0.85|
|FFO from assets sold in 2016 and 2017||—||$0.04||—||$0.10|
|FFO, as adjusted for assets sold||$0.39||$0.39||$0.74||$0.75|
- Same Store NOI increased by 1.6% for wholly owned properties and 0.3% for the entire portfolio, including joint venture properties, compared to prior year and in line with management expectations.
- Same Store NOI for the quarter was impacted by $1.6 million as a result of bankruptcies and $0.3 million as a result of co-tenancy claims.
- Sales per square foot reached $468, a 2.2% increase over the prior year.
- Non-anchor leased space for malls was 91.9%, 190 basis points over quarter end physical occupancy.
- Average renewal spreads for tenants under 10,000 square feet were 3.7% for the quarter and are 4.9% year-to-date through June 30, 2017.
- Leases executed for future occupancy exceed 1 million square feet, more than double the pipeline of executed transactions as of June 30, 2016.
- Bank Leverage as of June 30, 2017 was 49.1%
- Agreements of sale were executed for Logan Valley Mall, our interest in 801 Market office condominium and a land parcel at Exton Square.
- Key anchor leases signed or opening: DICK’s Sporting Goods at Capital City, DICK’s Sporting Goods, Field & Stream and HomeGoods at Viewmont and Burlington at Magnolia will all be opening this quarter; Belk at Valley Mall signed for 2018 opening.
We are pleased with our results for the quarter, highlighted by the performance in our wholly owned portfolio, the strong tenant demand evidenced by record leasing activity and the pace of progress on our value-creating redevelopment projects, demonstrating our success in re-shaping our portfolio. It is clear that in this constantly evolving and sometimes challenging retail environment, our portfolio of high quality properties located in compelling markets is improving in spite of the headwinds.
Primary Factors Affecting Financial Results for the Quarters Ended June 30, 2017 and June 30, 2016:
- Net loss attributable to PREIT common shareholders was $54.7 million, or $0.79 per basic and diluted share, compared to net income attributable to PREIT common shareholders of $4.2 million, or $0.06 per basic and diluted share for the quarter ended June 30, 2016.
- Impairment of assets of $38.4 million and $15.5 million was recognized on Logan Valley Mall and Valley View Mall, respectively, for the quarter ended June 30, 2017 compared to impairment of assets of $14.1 million recognized on Washington Crown Center in the quarter ended June 30, 2016.
- Gains on sales of interests in real estate were $20.9 million in the quarter ended June 30, 2016 compared to losses of $0.3 million in the quarter ended June 30, 2017.
- Same Store NOI increased to $60.2 million for the quarter ended June 30, 2017 compared to $60.0 million for the quarter ended June 30, 2016.
- Non Same Store NOI decreased $1.8 million primarily due to properties sold in 2017 and 2016.
- FFO, as adjusted, for the quarter was $0.39 per diluted share and OP Unit, compared to $0.43 per diluted share and OP Unit in the prior year. Net dilution from assets sold in 2017 and 2016 was approximately $0.04 per share.
- Interest expense decreased by $2.6 million primarily due to a decrease in our average debt balance and lower average interest rates. The average debt balance was reduced due to the application of cash proceeds from property sales and our 2017 Series C Preferred Share Issuance. Dividends paid to preferred shareholders increased by $3.1 million.
Primary Factors Affecting Financial Results for the Six Months Ended June 30, 2017 and June 30, 2016:
- Net loss attributable to PREIT common shareholders was $61.3 million, or $0.89 per basic and diluted share, compared to net income attributable to PREIT common shareholders of $2.0 million, or $0.03 per basic and diluted share for the quarter ended June 30, 2016.
- Impairment of assets of $38.4 million and $15.5 million was recognized on Logan Valley Mall and Valley View Mall, respectively, for the six months ended June 30, 2017 compared to impairment of assets of $14.1 million recognized on Washington Crown Center in the six months ended June 30, 2016.
- Gains on sales of interests in real estate were $22.9 million in the six months ended June 30, 2016 compared to losses of $0.4 million in the six months ended June 30, 2017.
- Same Store NOI was $119.2 million for the six months ended June 30, 2017 compared to $119.1 million for the six months ended June 30, 2016.
- Non Same Store NOI decreased $8.8 million primarily due to properties sold in 2017 and 2016.
- FFO, as adjusted, for the six months was $0.74 per diluted share and OP Unit, compared to $0.85 per diluted share and OP Unit in the prior year. Net dilution from assets sold in 2017 and 2016 was approximately $0.10 per share.
- Interest expense decreased by $6.7 million primarily due to a decrease in our average debt balance and lower average interest rates. The average debt balance was reduced due to the application of cash proceeds from property sales and our 2017 Series C Preferred Share Issuance. Dividends paid to preferred shareholders increased by $5.3 million.
All amounts referenced as primary factors affecting financial results above include PREIT’s proportionate share of partnership revenues and expenses.
Acquisitions and Dispositions
In June 2017, we sold non-operating parcels located at Beaver Valley and Valley Malls for an aggregate of $4.2 million, and recorded aggregate gains of $0.5 million.
In July 2017, the Company acquired the former Macy’s parcel at Moorestown Mall for $8.9 million. The Company also secured control of the Macy’s parcel at Plymouth Meeting Mall through a long term ground lease.
In May 2017 we borrowed an additional $150.0 million on the 2014 7-Year Term Loan. As of June 30, 2017, the amount outstanding on our Term Loans is now $550.0 million in aggregate.
The following tables set forth information regarding sales per square foot and occupancy in the Company’s mall portfolio, including unconsolidated properties:
A reconciliation of portfolio sales per square foot (1) can be found below:
|Comp store sales for the year ended June 30, 2016||$458|
|Organic sales growth||1|
|Impact of asset sales||9|
|Comp store sales for the year ended June 30, 2017||$468|
(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.
|Leased as of:||Occupancy as of:|
|June 30, 2017||June 30, 2017||June 30, 2016|
|Malls excluding held for sale:|
|Total including anchors(1)||93.9%||92.6%||93.5%|
|Total excluding anchors(1)||91.8%||89.9%||90.4%|
|Total including anchors(1)||93.9%||92.7%||94.0%|
|Total excluding anchors(1)||91.7%||90.1%||91.1%|
(1) Includes both consolidated and unconsolidated properties. We own a 25% to 50% interest in each of our unconsolidated properties and do not control such properties. Our percentage ownership is not necessarily indicative of the legal and economic implications of our ownership.
The Company is revising its February 23, 2017 FFO guidance to give effect to employee separation expenses incurred in the second quarter of 2017 and narrowing the range, introducing guidance for FFO as adjusted to give effect to these factors and revising its estimate of GAAP earnings to give effect to asset impairment charges recorded in the second quarter of 2017, among other factors. FFO for the year ended December 31, 2017 is expected to be between $1.64 and $1.70 per diluted share; FFO as adjusted is expected to be between $1.66 and $1.72, while net loss is expected to be between $(0.89) and ($0.80). A reconciliation between GAAP net loss and FFO is as follows:
|Estimates Per Diluted Share||Lower End||Upper End|
|Net loss attributable to PREIT common shareholders||$(0.89)||$(0.80)|
|Depreciation and amortization
(includes the Company’s proportionate
share of unconsolidated properties),
and other adjustments
|Employee separation expenses||0.02||0.02|
|FFO, as adjusted||$1.66||$1.72|
The guidance set forth above, does not give effect to the anticipated sales of Logan Valley Mall and an office condominium at Fashion Outlets of Philadelphia. Assuming that such sales close before the end of the third quarter, FFO and FFO as adjusted would be reduced by $0.04 per diluted share and net loss attributable to PREIT common shareholders would be increased by $0.04 per diluted share, including an estimated gain on sale of $0.06. Such gain would be excluded from FFO and FFO, as adjusted.
Our 2017 guidance is based on our current assumptions and expectations about market conditions, our projections regarding occupancy, retail sales and rental rates, and planned capital spending. Our guidance is forward-looking, and is subject to risks, uncertainties and changes in circumstances that might cause future events, achievements or results to differ materially from those expressed or implied by the forward-looking statements. See “Forward Looking Statements” below.
Conference Call Information
Management has scheduled a conference call for 11:00 a.m. Eastern Time on Wednesday, August 9, 2017, to review the Company’s results and future outlook. To listen to the call, please dial 1-877-201-0168 (domestic toll free), or 1-647-788-4901 (international), and request to join the PREIT call, Conference ID 49107107, 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 best results when listening to the webcast, the Company recommends using Flash Player.
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.
PREIT (NYSE:PEI) is a publicly traded real estate investment trust that owns and manages quality properties in compelling markets. PREIT’s 23 million square feet of carefully curated retail and lifestyle offerings mixed with destination dining and entertainment experiences are located primarily in the eastern U.S. with concentrations in the mid-Atlantic’s top MSAs. Since 2012, the company has driven a transformation guided by an emphasis on portfolio quality and balance sheet strength driven by disciplined capital expenditures. Additional information is available at www.preit.com or on Twitter or LinkedIn.
Certain summarized information in the tables above may not total due to rounding.
Definitions of Non-GAAP Measures
Funds From Operations
The National Association of Real Estate Investment Trusts (“NAREIT”) defines Funds From Operations (“FFO”), which is a non-GAAP measure commonly used by REITs, as net income (computed in accordance with GAAP) excluding gains and losses on sales of operating properties, plus real estate depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures to reflect funds from operations on the same basis. We compute FFO in accordance with standards established by NAREIT, which may not be comparable to FFO reported by other REITs that do not define the term in accordance with the current NAREIT definition, or that interpret the current NAREIT definition differently than we do. NAREIT’s established guidance provides that excluding impairment write downs of depreciable real estate is consistent with the NAREIT definition.
FFO is a commonly used measure of operating performance and profitability among REITs. We use FFO and FFO per diluted share and unit of limited partnership interest in our operating partnership (“OP Unit”) in measuring our performance against our peers and as one of the performance measures for determining incentive compensation amounts earned under certain of our performance-based executive compensation programs.
FFO does not include gains and losses on sales of operating real estate assets or impairment write downs of depreciable real estate, which are included in the determination of net income in accordance with GAAP. Accordingly, FFO is not a comprehensive measure of our operating cash flows. In addition, since FFO does not include depreciation on real estate assets, FFO may not be a useful performance measure when comparing our operating performance to that of other non-real estate commercial enterprises. We compensate for these limitations by using FFO in conjunction with other GAAP financial performance measures, such as net income and net cash provided by operating activities, and other non-GAAP financial performance measures, such as NOI. FFO does not represent cash generated from operating activities in accordance with GAAP and should not be considered to be an alternative to net income (determined in accordance with GAAP) as an indication of our financial performance or to be an alternative to cash flow from operating activities (determined in accordance with GAAP) as a measure of our liquidity, nor is it indicative of funds available for our cash needs, including our ability to make cash distributions. We believe that net income is the most directly comparable GAAP measurement to FFO.
We also present Funds From Operations, as adjusted, and Funds From Operations per diluted share and OP Unit, as adjusted, which are non-GAAP measures, for the three and six months ended June 30, 2017 and 2016, respectively, to show the effect of such items as provision for employee separation expense and loss on hedge ineffectiveness, which had a significant effect on our results of operations, but are not, in our opinion, indicative of our operating performance. We also present FFO on a further adjusted basis to isolate the impact on FFO caused by property dispositions.
We believe that FFO is helpful to management and investors as a measure of operating performance because it excludes various items included in net income that do not relate to or are not indicative of operating performance, such as gains on sales of operating real estate and depreciation and amortization of real estate, among others. We believe that Funds From Operations, as adjusted, is helpful to management and investors as a measure of operating performance because it adjusts FFO to exclude items that management does not believe are indicative of our operating performance, such as provision for employee separation expense and loss on hedge ineffectiveness.
Net Operating Income (“NOI”)
NOI (a non-GAAP measure) is derived from real estate revenue (determined in accordance with GAAP, including lease termination revenue), minus property operating expenses (determined in accordance with GAAP), plus our share of revenue and operating expenses of our unconsolidated partnership investments. NOI does not represent cash generated from operating activities in accordance with GAAP and should not be considered to be an alternative to net income (determined in accordance with GAAP) as an indication of our financial performance or to be an alternative to cash flow from operating activities (determined in accordance with GAAP) as a measure of our liquidity. It is not indicative of funds available for our cash needs, including our ability to make cash distributions. We believe that NOI is helpful to management and investors as a measure of operating performance because it is an indicator of the return on property investment, and provides a method of comparing property performance over time. We believe that net income is the most directly comparable GAAP measurement to NOI.
NOI excludes other income, general and administrative expenses, provision for employee separation expenses, interest expense, depreciation and amortization, gains on sale of interest in non operating real estate, gain on sale interest in real estate, impairment of assets, project costs and other expenses.
Same Store NOI is calculated using retail properties owned for the full periods presented and excludes properties acquired or disposed of or under redevelopment during the periods presented. Non Same Store NOI is calculated using the retail properties excluded from the calculation of Same Store NOI.
Financial Information of our Unconsolidated Properties
The non-GAAP financial measures of FFO and NOI presented in this press release incorporate financial information attributable to our share of unconsolidated properties. This proportionate financial information is also non-GAAP financial information, but we believe that it is helpful information because it reflects the proportionate contribution from our unconsolidated properties that are owned through investments accounted for under GAAP using the equity method of accounting. Under such method, earnings from these unconsolidated partnerships are recorded in our statements of operations prepared in accordance with GAAP under the caption entitled “Equity in income of partnerships.”
To derive the proportionate financial information from our unconsolidated properties, we multiplied the percentage of our economic interest in each partnership on a property-by-property basis by each line item. Under the partnership agreements relating to our current unconsolidated partnerships with third parties, we own a 25% to 50% economic interest in such partnerships, and there are generally no provisions in such partnership agreements relating to special non-proportionate allocations of income or loss, and there are no preferred or priority returns of capital or other similar provisions. While this method approximates our indirect economic interest in our pro rate share of the revenue and expenses of our unconsolidated partnerships, we do not have a direct legal claim to the assets, liabilities, revenues or expenses of the unconsolidated partnerships beyond our rights as an equity owner in the event of any liquidation of such entity. Our percentage ownership is not necessarily indicative of the legal and economic implications of our ownership interest. Accordingly, NOI and FFO results based on our share of the results of unconsolidated partnerships do not represent cash generated from our investments in these partnerships.
Forward Looking Statements
This press release, together with other statements and information publicly disseminated by us, contain certain “forward-looking statements” within the meaning of the federal securities laws. Forward-looking statements relate to expectations, beliefs, projections, future plans, strategies, anticipated events, trends and other matters that are not historical facts. When used, the words “anticipate,” “believe,” “estimate,” “target,” “goal,” ”expect,” “intend,” “may,” “plan,” “project,” “result,” “should,” “will,” and similar expressions, which do not relate solely to historical matters, are intended to identify forward looking statements. We caution investors that any forward looking statements presented in this presentation and the documents that we may incorporate by reference into this document are based on management’s beliefs and assumptions made by, and currently available to management. These forward-looking statements reflect our current views about future events, achievements or results and are subject to risks, uncertainties and changes in circumstances that might cause future events, achievements or results to differ materially from those expressed or implied by the forward-looking statements. In particular, our business might be materially and adversely affected by uncertainties affecting real estate businesses generally as well as the following, among other factors: changes in the retail and real estate industries, including consolidation and store closings, particularly among anchor tenants; our ability to maintain and increase property occupancy, sales and rental rates, in light of the relatively high number of leases that have expired or are expiring in the next two years; increases in operating costs that cannot be passed on to tenants; current economic conditions and the state of employment growth and consumer confidence and spending, and the corresponding effects on tenant business performance, prospects, solvency and leasing decisions and on our cash flows, and the value and potential impairment of our properties; the effects of online shopping and other uses of technology on our retail tenants; risks related to our development and redevelopment activities; acts of violence at malls, including our properties, or at other similar spaces, and the potential effect on traffic and sales; our ability to identify and execute on suitable acquisition opportunities and to integrate acquired properties into our portfolio; our partnerships and joint ventures with third parties to acquire or develop properties; concentration of our properties in the Mid-Atlantic region; changes in local market conditions, such as the supply of or demand for retail space, or other competitive factors; changes to our corporate management team and any resulting modifications to our business strategies; our ability to sell properties that we seek to dispose of or our ability to obtain prices we seek; potential losses on impairment of certain long-lived assets, such as real estate, or of intangible assets, such as goodwill, including such losses that we might be required to record in connection with any dispositions of assets; our substantial debt and liquidation preference of our preferred shares and our high leverage ratio; constraining leverage, unencumbered debt yield, interest and tangible net worth covenants under our principal credit agreements; our ability to refinance our existing indebtedness when it matures, on favorable terms or at all; our ability to raise capital, including through joint ventures or other partnerships, through sales of properties or interests in properties, through the issuance of equity or equity-related securities if market conditions are favorable, or through other actions; our short- and long-term liquidity position; potential dilution from any capital raising transactions or other equity issuances; and general economic, financial and political conditions, including credit and capital market conditions, changes in interest rates or unemployment.
Additional factors that might cause future events, achievements or results to differ materially from those expressed or implied by our forward-looking statements include those discussed herein and in our Annual Report on Form 10-K for the year ended December 31, 2016 in the section entitled “Item 1A. Risk Factors.” We do not intend to update or revise any forward-looking statements to reflect new information, future events or otherwise.
** Quarterly supplemental financial and operating **
** information will be available here **
CONTACT: AT THE COMPANY
EVP & CFO
SVP, Corporate Communications and Investor Relations