Commenced Process to Implement Pre-packaged Plan that Received 95% Support from Lenders
Core Mall Total Leased Space reached 93.4%
Collections continue improving toward normal levels
PREIT (NYSE: PEI) today reported results for the three and nine months ended September 30, 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.
“We are pleased to be moving closer to a normal state in our business while moving forward with strengthening the Company’s balance sheet and positioning it for long-term success through our prepackaged plan. Our court-approved expedited case timeline should allow us to emerge and quickly move to the next phase of our evolution bringing new and innovative uses to our properties as the landscape continues to rapidly evolve,” said Joseph F. Coradino, Chairman and CEO of PREIT. “We look forward to the upcoming Holiday season, meeting our shoppers’ demands through an array of shopping options and opportunities to visit with Santa.”
- Same Store NOI, excluding lease termination revenue, decreased 33.0% for the three months ended September 30, 2020 compared to September 30, 2019.
- The quarter was impacted by a decrease in revenue of $16.5 million primarily resulting from bankruptcies and related store closings, an increase in credit losses for challenged tenants, the accounting for rental abatements as well as decreased percentage sales revenue resulting from mall closures related to the COVID-19 pandemic.
- Cash collections continued to improve, increasing to 127% of billings in October. During the third quarter cash collections totaled 99% of billings.
- Core Mall total occupancy was 93.2%, a decrease of 120 basis points compared to September 30, 2019. Core Mall non-anchor occupancy declined by 200 basis points from last year.
- Core mall non-anchor Leased space, at 89.4%, exceeds occupied space by 30 basis points when factoring in executed new leases slated for future occupancy.
- Through September 30, 2020, average renewal spreads declined 2.5% for spaces less than 10,000 square feet.
Leasing and Redevelopment
- 134,000 square feet of leases are signed for future openings, which is expected to contribute annual gross rent of over $6.0 million.
- Leasing progress continued with 197,000 square feet of new stores opened in the core portfolio and 82,000 square feet opening at Fashion District between May 1 and October 31, 2020.
Property Re-openings and COVID-19 Response
- Core mall traffic at comparable properties is approximately 68% of 2019 non-holiday averages
- Cash collections for April through October totaled 74% of billings for those months.
- Deferral agreements have been reached with 79% of PREIT’s key national tenants by number.
- In continuous support of its tenants, PREIT has developed and implemented its own contactless pick up solution, Mall2Go, and has developed a branded parking lot activation series, Park and Play, that has resulted in two dozen events being held between late July and mid-September across its portfolio.
- 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.
The Company launched sMALL surprises, an innovative e-commerce platform delivering curated surprise packs from our mall retailers based on the recipient’s interests.
Primary Factors Affecting Financial Results for the Three Months Ended September 30, 2020 and 2019:
- Net loss attributable to PREIT common shareholders was $35.7 million (which takes into consideration the accrual of preferred dividends that accumulated during the quarter but have not been paid), or $0.46 per basic and diluted share for the three months ended September 30, 2020, compared to net income attributable to PREIT common shareholders of $17.4 million, or $0.22 per basic and diluted share for the three months ended September 30, 2019.
- Same Store NOI, including lease terminations, decreased by $14.8 million, or 29.1%. The decrease is primarily due to lost revenues from bankrupt tenants, an increase in credit losses, accounting for rental abatements 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.
- Non Same Store NOI decreased by $3.1 million, 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. Other decreases in NOI from Non-Same Store properties is due to the conveyance of Wyoming Valley Mall during the third quarter of 2019 and derecognition of property at Valley View Mall during the third quarter of 2019.
FFO for the three months ended September 30, 2020 was $0.12 per diluted share and OP Unit compared to $0.63 per diluted share and OP Unit for the three months ended September 30, 2019. Adjustments to FFO in the third quarter of 2020 were related to gain on derecognition of property related to Valley View Mall and less than $0.01 per share of provision for employee separation expenses. Adjustments to FFO in the 2019 quarter included $0.38 per share of debt extinguishment gains related to the conveyance of Wyoming Valley Mall and $0.04 per share of Insurance recoveries.
• General and administrative expenses decreased by $1.1 million compared to the third 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 September 30, 2020 and 2019 is included on page 15.
Debt Restructuring and Chapter 11 Process
On October 7, the Company executed a Restructuring Support Agreement (RSA) with over 80% of our lenders supporting either an out of court or in court “prepackaged” restructuring of our bank facilities. On October 17, we completed the expansion of our Bridge Facility by $25M to a total of $55M to maintain liquidity through the restructuring timeline.
On November 1, 2020, the Company filed voluntary Chapter 11 petitions in order to implement its prepackaged restructuring plan, which is supported by 95% of its lender group.
Multifamily Land Parcels: The Company has 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. One of the two parcels was placed under contract in the third quarter.
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.
Non-Core Malls: In August 2020, Valley View Mall was transferred to a special servicer as part of our non-core property disposition program.
Due to COVID-related mall closures impacting a significant portion of the year, the Company is not reporting tenant sales at this time.
On March 31, 2020, the Company withdrew its financial outlook for 2020 provided in its February 25, 2020 earnings press release. The Company is not providing updated guidance at this time.