Owner of Fashion District and Cherry Hill malls posts $23M net loss from months of retail closures
The loss was driven by decreases in real-estate revenue from closures imposed by government stay-at-home orders and rent breaks for tenants.
PREIT, owner of the Fashion District and Cherry Hill malls, among others, reported a net loss of $23.1 million during the three months ended June 30, a period during which its properties were largely shuttered due to the coronavirus pandemic.
The figure, up from a net loss of $6.1 million during the same quarter a year ago, was primarily driven by decreases in real-estate revenue from closures imposed by government stay-at-home orders and rent breaks for tenants, the company said in an earnings report on Tuesday.
Total revenue was $56.8 million, a 30% drop from the year-ago quarter.
“The past few months have been intense and challenging. As a world, as a company, and certainly as a sector, our resolve continues to be tested,” PREIT chief executive Joseph F. Coradino said in a conference call with analysts after the report’s release. “As Thomas Paine said, ‘These are the times that try men’s souls.‘”
Shares of PREIT closed Tuesday at $1.21, down 3.97% from their close on Monday. The Russell 3000 Index, which counts PREIT as a member, ended the day down 0.79%.
Chris Kuiper, an analyst at CFRA Research in New York, said in a research note Tuesday that he expects PREIT to fall to $1 a share due to bankruptcies among its retail tenants as it works with its banks to keep its loans from falling into default.
“We think store closures and bankruptcies will continue to accelerate through the year as the recession unfolds,” he said. “Investors may be underestimating this risk along with the risk of rising bad debts and write-offs.”
Pennsylvania Real Estate Investment Trust, PREIT’s full name, is the biggest mall owner in Philadelphia and its surrounding counties, with 4.7 million square feet of space under management in the region, according to market tracker CoStar Group.
Its 21 malls in nine states include the Fashion District in Center City, formerly the Gallery at Market East; Willow Grove Park and the Plymouth Meeting Mall in Montgomery County; and the Cherry Hill Mall, Moorestown Mall, and Cumberland Mall in South Jersey.
Even before all its properties were ordered closed in March to help stem the coronavirus, PREIT and other retail landlords had been in a punishing, years-long struggle to keep their properties leased, as shoppers increasingly migrate from shopping malls to e-commerce sites.
PREIT’s malls began reopening in mid-May, with the last of its properties, the Fashion District, resuming operations last month. Some of the Fashion District’s biggest tenants — including AMC Theatres, the City Winery restaurant and performance venue, and the Round One entertainment arcade — remain closed, hampering traffic and revenue.
Since the beginning of 2020, the company has seen bankruptcies by such tenants as J.C. Penney Co., GNC Holdings and Ann Taylor-parent Ascena Retail Group affect 101 stores across its malls , Coradino said Tuesday.
Excluding J.C. Penney, the brands occupy about 388,000 square feet and pay gross rents of $12.5 million, although most of their stores are expected to remain open despite the bankruptcy filings, he said.
In light of these challenges, PREIT reiterated in its earnings release Tuesday that there was “substantial doubt about the company’s ability to continue as a going concern” if it were unsuccessful in maintaining solvency through measures that include renegotiating its bank loans. That disclosure first appeared in its last earnings statement, covering the first three months of 2020.
PREIT chief financial officer Mario C. Ventresca Jr. told analysts Tuesday that the company won’t have to pay back the $4.5 million loan it received in April under the Small Business Administration’s $659 billion Paycheck Protection Program. The program calls for the loans to be forgiven if the money was used to save jobs.
Coradino, meanwhile, said the company expected to sign an agreement later Tuesday for a $30 million bridge loan, to be paid back by Sept. 30, to “smooth over the impacts” of rent deferrals and temporary reductions extended to cash-strapped tenants while it works to negotiate a longer-term arrangement with its lenders.
The company said last month that its creditors had granted it a short-term reprieve from the financial-performance benchmarks known as “covenants” that the company must meet to keep its loans in good standing.
The new $30 million loan “really gives us the ability and the time to negotiate a longer-term deal with our banks,” Coradino said.