The Fashion District, which will be the redeveloped Gallery mall, is still set to open Sept. 19, and “will be a gathering place for Philadelphians,” Pennsylvania Real Estate Investment Trust (PREIT) chairman and CEO Joe Coradino told analysts Wednesday.
The project will offer the first movie theater to open in Center City in nearly 30 years, as well as City Winery, a restaurant and live entertainment venue, Coradino said. “We cannot be more proud of what we are delivering at this project.”
At the same time, Coradino and his team reported numbers that missed quarterly consensus estimates, and PREIT’s stock fell more than 10% Wednesday.
“We see malls becoming less ubiquitous,” he added. “The challenge is to identify the optimal mix of uses, which is unique to each property." At the Fashion District, this means adding REC Philly, a co-creating space for musicians and artists to collaborate, and Uniquely Philly, which will enable four Philadelphia small businesses to sell their unique wares.
PREIT, a Philly-based mall operator, and Santa Monica, Calif.-based Macerich partnered in 2014 to begin the Fashion District project, estimated to cost $400 million to $420 million. It will span Market Street between Eighth and 11th Streets with 838,000 square feet of retail space.
The mall has been under construction since 2016, and executives told analysts Wednesday that it will be more than 60% occupied in terms of tenant openings by Sept. 19. In the next few weeks after that, three large tenants, including AMC Theatres and Round1 Bowling & Amusement, will open, pushing the property to more than 70% occupied. Within a year, executives estimate, they will have 90% occupancy.
There are close to 50 tenants at the Fashion District, which is still under construction, said Robert F. McCadden, PREIT’s executive vice president and chief financial officer.
The company expects that the project will bring in more than $700 of sales per foot with more than “35 million annual customers within blocks,” Coradino said. The company recently announced dozens of new tenants, including American Eagle Outfitters and Hollister Co.
On Wednesday, PREIT released its earnings for the second quarter, which ended June 30, after the markets closed and executives spoke to analysts on a conference call about the results. PREIT’s stock dropped 10.21% ($0.68) to $5.98.
Same-store net operating income, or NOI, is the rental revenue received from tenants, less the operating expenses. This is a telling metric to evaluate the health of a real estate investment trust, such as PREIT, over time because it disregards onetime factors such as buying or selling a mall, natural disasters, or construction.
The company reported its same-store NOI, excluding lease terminations, fell by $1.3 million, or 3%, in its second quarter.
“Since the end of the first quarter, we’ve experienced additional bankruptcies impacting our portfolio,” Coradino said. “Year-to-date, 72 stores have been affected, resulting in a $1.7 million impact to the quarter.”
Still, average comparable sales per square foot at what PREIT considers its top six properties rose 5.3% to $633 during this time. The top six malls include the Willow Grove Park and Cherry Hill Malls.
Here is a list of expected businesses to open in the Fashion District: