PREIT, owner of the former Gallery at Market East and other big malls, is trimming the salaries of its chief executive and chief financial officer while suspending dividend payments as part of a deal with its lenders to stave off default as the coronavirus pandemic continues to take its toll on the troubled company.
The temporary 25% salary cut represents about a $38,000 reduction for chief executive Joseph C. Coradino. It comes after The Inquirer reported earlier this year that he had not joined other corporate leaders in taking a pay reduction to save cash during the health crisis, even as his company furloughed employees and received $4.5 million in relief money from the government.
PREIT’s new deal with Wells Fargo Bank NA and other creditors, meanwhile, gives the company a reprieve until at least the end of August from the financial-performance benchmarks — known as “covenants” — that the company must meet to keep its loans in good standing as it seeks to renegotiate that debt, it said in a regulatory filing late Friday afternoon. During that respite, which was formalized through amendments to its agreements with lenders, PREIT is barred from making dividend payments to shareholders, the company said.
“PREIT continues to take action to navigate the challenging operating environment, including steps to enhance the company’s liquidity, manage its debt obligations, and further strengthen its financial foundation,” Heather Crowell, a PREIT vice president, said in a statement.
“The voluntary 25% pay reductions taken by PREIT’s CEO and CFO are part of this effort and underscore management’s commitment to acting in the best interest of PREIT’s stakeholders and becoming stronger.”
Shares of Pennsylvania Real Estate Investment Trust, PREIT’s full name, closed at $1.08 Monday in New York, down 8.5% from Friday. The Russell 3000 Index, which counts PREIT as a member, was up 0.9% over that time.
Matt Frankel of Millionacres LLC, a real estate-focused division of finance website Motley Fool, attributed Monday’s stock dip to the loss of the dividend payments, which prompted investors to flee the company.
“For people who were holding on to it ... to try to get income, it doesn’t look like that’s what’s going to happen,” he said.
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 former Gallery in Center City, now known as Fashion District Philadelphia; 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 had been in a punishing, years-long struggle to revamp as shoppers increasingly migrate from shopping malls to e-commerce sites for everything from clothing to major appliances.
As business losses from the pandemic mounted in May, PREIT was prompted to disclose “substantial doubt about the company’s ability to continue as a going concern” if it was unsuccessful in its plans to raise cash through property sales and renegotiate its debt.
All of its malls had reopened by July 3, when Fashion District Philadelphia resumed operation. It also announced in July that it had sold a portfolio of properties at its malls that are detached from its main structures, known as outparcels. Those sales have earned it a total of $27.8 million since February.
The deal announced on Friday, meanwhile, buys PREIT some time to complete the debt talks with its banks, said analyst Frankel.
“It gives them some breathing room to negotiate,” he said. “It becomes less of an urgent situation.”
The deal runs from June 30 until Aug. 31 but can be extended until Sept. 30 if PREIT is successful in getting a new loan and has agreed on terms for permanent amendments to its existing loans before the end of August.
Separately from the deal with its lenders, PREIT said in its disclosure on Friday that Coradino and chief financial officer Mario C. Ventresca Jr. would each have their base pay cut by 25% from July 27 until Sept. 30, a duration of 65 days.
The salary cuts add PREIT to a roster of at least 600 companies on the Russell 3000 Index that have said they would reduce or defer executive compensation to help shore up their finances during the health crisis, according to Esgauge, a corporate-data firm.
Coradino’s 2020 base salary is $850,000, the same as it was in 2019 when the payment was part of a total compensation package worth $5.2 million, including stock awards, performance bonuses, and other earnings, the company has disclosed.
A 25% reduction to Coradino’s base pay for 65 days would cut $37,842 from his salary, according to Inquirer calculations. Any other additional compensation, which has yet to be determined for 2020, would not be affected by the reduction. But being largely stock-based, it will likely be lessened by the diminished value of company shares.
Ventresca earned $1.2 million in 2019, including a base salary of $405,600. His 2020 base salary of $450,000 would be cut by $20,034 under the reduction.
“These cuts are symbolic,” said Charles Elson, director of the Weinberg Center for Corporate Governance at the University of Delaware. “They’re trying to explain to their employee base that they are sharing in the pain of the company. ... The question is how they [the employees] will react if they actually do the math.”