PREIT, the area’s biggest owner of malls, traded at a decades-long low Monday, a day after it announced it had filed for bankruptcy to seek approval for a restructuring plan involving $150 million in new borrowing.
Shares of PREIT, whose full name is Pennsylvania Real Estate Investment Trust, opened at $0.40 on the New York Stock Exchange, its lowest price since May 1973, the earliest date for which pricing is available, down from $0.50 on Friday.
It recovered ground over the course of trading on Monday to close again at 50 cents.
Even before the coronavirus, PREIT and other retail landlords had been in a punishing, yearslong struggle to keep their properties leased, as shoppers increasingly migrate from shopping malls to e-commerce sites. Loss of business due to the pandemic has compounded those troubles.
Another publicly traded retail landlord, CBL Properties of Nashville, Tenn., also announced a Chapter 11 bankruptcy filing on Monday. It owns 107 shopping centers and other retail properties nationwide, including in Monroeville, Gettysburg, and Stroudsburg.
PREIT said in a news release Sunday night that it had filed its Chapter 11 petition to pursue what it described as a prepackaged restructuring plan, but that its operations would continue without interruption.
When the company first outlined the plan two weeks ago, it had said it aimed to avoid bankruptcy by persuading all of its creditors to back the proposal. It ultimately received support from 95% of them, short of the complete agreement it needed, it said Sunday.
Under the deal, PREIT would put up properties that it owns free and clear as collateral for its $919 million in existing unsecured debt and the $150 million in new borrowing. That would mean PREIT’s lenders could foreclose on those properties if it defaulted.
PREIT chief executive Joseph F. Coradino said Sunday that the company looked “forward to quickly emerging” from bankruptcy court with the plan’s approval. The firm hopes the arrangement will buy it time to rejuvenate its business by replacing little-trafficked sections of its malls with other uses, such as apartments, health clinics, and warehouses.
With the vast majority of creditors reportedly supporting the plan, “they should be able to sail through bankruptcy pretty quickly unless there’s something lurking behind the curtain,” said Ted Gavin, managing director of bankruptcy consulting firm Gavin/Solmonese in Wilmington.
PREIT listed $2.38 billion in assets and $2.03 billion in debt on its petition for bankruptcy. Its biggest unsecured creditor was Wells Fargo Bank, with two claims against the company totaling $913 million.
Other creditors include cleaning-and-maintenance firm Service Management Systems Inc., with a $1.12 million claim, as well as Lower Allen Township in Cumberland County and Scranton, to which it collectively owes $636,718 in taxes.
Since its bank lenders presumably agreed to the deal assigning them PREIT’s unencumbered assets in exchange for new debt, investors will be watching how generously the mall landlord pays its nonlender — or “trade” — creditors for signs of how long the bankruptcy will last, Gavin said.
If PREIT proposes paying those creditors less than they are owed, challenges to such a plan could slow the process, he said.
“That will really be the thing to watch here: Are they going to reorganize on the backs of their trade creditors, or are the trade creditors going to get out whole?” he said.
A PREIT spokesperson did not immediately respond to a request for details on what it will propose.
PREIT 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.
The company disclosed in October that it was in danger of being delisted from the New York Stock Exchange because its stock had, on average, fallen to less than $1 a share over 30 consecutive days, breaching an exchange requirement.
Chris Kuiper, an analyst at CFRA Research in New York, said he expected PREIT to trade at $0.50 over the next 12 months, down from a previous target of $1. But he also moderated his rating of the stock’s from “strong sell” to “sell.”
The company’s bankruptcy filing — and the additional borrowing and relaxed repayment schedule it may enable — “could potentially put [PREIT] on a better footing,” Kuiper said. “However, this does not change the fundamentals or outlook for the operating business, which we think will continue to deteriorate, and is undergoing a massive and permanent transformation.”