PREIT, the publicly traded Philadelphia company that owns the Cherry Hill, Willow Grove, Moorestown, Exton and Plymouth Meeting malls, and opened Fashion District Philadelphia at the former Gallery in Center City last fall, is asking for a “forgivable” federal Paycheck Protection Program (PPP) loan to pay staff members.
PREIT last week furloughed 41 office staff and 62 property management workers — 37% of its total staff — to cut costs.
Even before state orders shut shopping malls as part of the costly national campaign to slow the spread of the coronavirus pandemic, PREIT was asking its banks for financial relief. The company was having a harder time paying what it owes, due to falling store traffic and rents as more Americans shop online, as well as PREIT’s own large debt load.
The company’s stock, which topped $25 in 2016, has lately traded below $1 a share.
The PPP program began April 3 as part of the sweeping $2.2 trillion coronavirus economic relief package enacted late last month. It allows employers to borrow up to $10 million over the next two months, and promises to “forgive” the loans at taxpayers’ expense if the money is used to pay staff and occupancy (rent and utilities).
PREIT officials didn’t respond to calls asking how much the company sought to borrow. Based on its payroll, including compensation calculated at up to $100,000 per year for each staffer, PREIT would likely be eligible for the maximum $10 million.
But it’s not clear how soon that can happen without Congress in session, banking-policy analyst Brian Gardner told clients of the investment bank Keefe, Bruyette & Woods on Wedneday.
PREIT is no stranger to public assistance. The company and its partner Macerich Corp. received more than $300 million in Philadelphia and school district tax breaks, future city maintenance commitments, and state aid as it updated the former Gallery mall. The Fashion District opened Sept. 19, and slightly more than 60% of the stores were open as the Christmas shopping season began to heat up.
Indoor malls such as the Fashion District and PREIT’s other Philadelphia-area and Mid-Atlantic malls were already financially stressed before the pandemic. As more store chains go broke, PREIT and other landlords have to work harder to find new tenants.
Some 42% of U.S. department stores are expected to default on their loans within a year, according to a report Wednesday by S&P Global Market Intelligence. Among the companies S&P rates most likely to default are Dave & Buster’s, a tenant at PREIT’s Plymouth Meeting mall, and Francesca’s, which has a store at Cherry HIill Mall. And Nordstrom’s, which has a large store at Cherry Hill, is “deteriorating” toward junk-bond status, notes Carol Levenson, analyst at Gimme Credit LLC.
The company has added restaurants and medical offices at some of its malls in an effort to diversify beyond women’s clothing and other staple mall items.
PREIT, however, is also one of the deepest in debt among publicly traded U.S. regional mall owners, owing more than $9 for every $10 in property value, according to a recent report from the real estate research firm Green Street Advisers.
Banks that already make federal Small Business Administration-guaranteed business loans report that they have received a surge in PPP applications from businesses who fear they won’t survive a long shutdown without aid.
The loans are targeted to businesses and locations employing up to 500 people. The United States has almost six million businesses with one to 500 employees, plus millions of independent contractors and firms with no workers.
But many borrowers have so far been frustrated by delays in receiving cash, as banks waited for the SBA to finalize all details of the program so lenders can disburse the money with assurance they are following the new law.