Pennsylvania Real Estate Investment Trust (PEI) 2020 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the PREIT 4Q '20 Earnings Call. (Operator Instructions)

I would now like to hand the conference over to your speaker today, Heather Crowell, EVP of Strategy and Communications. Thank you. Please go ahead.

Thank you. Good morning, and thank you all for joining us for PREIT's Fourth Quarter 2020 Earnings Call. We hope everyone is well.

During this call, we will make certain forward-looking statements within the meaning of federal securities laws. These statements relate to expectations, beliefs, projections, trends and other matters that are not historical facts and are subject to risks and uncertainties that might affect future events or results. Descriptions of these risks are set forth in the company's SEC filings. Statements that PREIT makes today might be accurate only as of today, March 12, 2021, and PREIT makes no undertaking to update any such statements. Also, certain non-GAAP measures will be discussed. PREIT has included reconciliations of such measures to the comparable GAAP measures in its earnings release and other documents filed with the SEC.

Members of management on the call today are Joe Coradino, PREIT's Chairman and CEO; and Mario Ventresca, CFO. Joe?

Thanks, Heather, and good morning, everyone. We're here today to make 5 key points, which signal a bright future for PREIT. It's clear as a result of the factors accelerated by COVID that we're in the real estate business with an ability to attract a wide array of uses and deliver a broader customer base to our properties. Demand is robust from uses far beyond traditional retail, including life sciences, health care and self-storage. Business will return in a significant way for retailers, restaurants and entertainment in the brick-and-mortar format. Quality real estate will thrive into the future, and our region-leading properties are gaining market share as weaker properties decline. Growth in suburban markets will catalyze demand for our offerings and for our multifamily and hotel densification effort.

So we're not going to talk to you about retailers closing and new retailers taking their place. That is happening, but it's not today's headline. Today's headline reads: malls are accommodating a broad range of uses. We are a real estate investment trust owning a portfolio of distinctive assets and high-barrier-to-entry markets, and we will continue to take advantage of our well-located real estate to chart the path forward.

Let's review what we're doing to cement this multiuse vision. At Dartmouth Mall, we executed a lease with Aldi for a 21,000 square foot grocery store, further delivering on the promise to solidify the region's retail node on our site. This new-to-portfolio grocer is expected to open in the fall. At Mall of Prince Georges, we signed a new lease with a 90,000 square foot self-storage facility in space that has never been fully utilized, delivering a new source of revenue. The facility, which will open in Q1 '22, will serve the thousands of residents that have moved into the area in recent years.

At Moorestown Mall, we obtained approval for the addition of 1,000 multifamily units as part of our effort to ignite our multifamily densification effort. At Magnolia Mall in Florence, South Carolina, we have already executed a lease to replace a JCPenney that vacated earlier this year. Tilt Studios will open in the fall and will occupy 100,000 square feet. This full-scale family entertainment facility, inclusive of games, rides, bowling and other family experiences, is a first-to-market offering. Residents of Florence, South Carolina, nearly 70% of which have children, would have to drive 1.5 hours for a similar experience.

At Woodland Mall, we've executed a lease with Life Hub. This unique destination is a gathering place for physical, mental, social, educational and creative enrichment. The 47,000 square foot facility will offer classes and interactive enrichment events that are designed to engage the whole self by expanding members' personal access to wellness experiences.

Now we're particularly excited to announce that Cooper University Health Care, a leading academic health system in the Southern New Jersey and Philadelphia region, will open a specialty care facility in the former Sears location at Moorestown Mall, occupying over 165,000 square feet. With this addition and the apartments and hotel plan for the site, the property will further evolve its mix to create a one-stop hub, including dining, entertainment, fitness, a broad array of retail options and now a premier outpatient health care facility.

At Plymouth Meeting Mall, we've now engaged CBRE to assist in executing our vision to bring a multitude of uses to Plymouth meeting Mall. The expectation is to take advantage of the premier location of the property and robust demand in life sciences in the Philadelphia market. Greater Philadelphia is one of the largest life science markets by employment and lab inventory worldwide, owing to the rich concentration of colleges, universities and top-tier health care institutions that have fostered innovation and biotech R&D. A lack of available lab space is driving robust unsolicited demand. This is a great opportunity for Plymouth Meeting and several other properties, including our Washington, D.C. properties, that offer amenity-rich environments in bull's eye locations. We are currently in discussions and/or have NDA signed with over a dozen interested parties at 2 properties.

2020 was a year marked by adaptation. We overcame great challenges to our business, highlighting the resilience of the PREIT team and the power of our portfolio. We've taken tremendous steps in dealing with traditional retail issues through our targeted strategy of dispositions and anchor replacements, and today, post a real estate portfolio of bull's eye locations and high-barrier-to-entry markets that will stand the test of time. We're confident that we're at the precipice of a significant brick-and-mortar performance improvement. According to CoreSite research, in-person purchases of apparel, footwear and accessories are again outpacing online sales of these items. And there are finally reports that people are getting ready to get dressed in more than sweatpants and cozy socks. With CDC guidance that fully vaccinated people can gather without masks, and as the vaccine rollout becomes more widespread and efficient, we expect to see pent-up demand and improving traffic in full force. In fact, Maryland is eliminating restrictions on dining and retail capacity effective this evening, and New Jersey is easing indoor dining restrictions next week.

Our plan to diversify our offerings has crystallized over the past year. However, there will continue to be retail at the core of our properties. We've seen many of our properties rebound faster than competition as trends that were underway accelerated. We can now proudly state that our portfolio is comprised solely of first-ring suburban properties that are experiencing robust demand from alternative uses and region-leading destinations that are outshining the competition and gaining market share.

A good example of this is Capital City Mall in Harrisburg, Pennsylvania, a market posting 0.5 million people, where our property has clearly captured the flag as a dominant location in the market, offering the only Macy's, DSW, Dave & Buster's and Victoria's Secret. Traffic continues to be robust at the property, and the property was fully leased this holiday season. As competitive properties have closed, weakened or transitioned to lenders, our properties have seen demand from retailers and consumers increase, expanding our trade areas. This is occurring at a number of properties in our portfolio, including Dartmouth, Woodland, Patrick Henry, Valley, Viewmont and Willow Grove Park malls. Across this group of properties, we have seen competitive malls and anchor closings and tenants relocating to our site.

This opportunity within our portfolio will be aided by a continued shift in population to the suburbs, and we stand to benefit on multiple fronts. First, we offer comprehensive collections of shopping, dining, entertainment, fitness, groceries and other alternative uses. And second, our Philly and D.C. market assets are the ones we have identified for multifamily land sales, 5 of which are under contract for over 2,000 units to be developed.

The end result of all of our work will be a distinguished portfolio comprised of a diverse group of uses, including life sciences, health care, self-storage, grocers and more alongside 5,000 apartments, all wrapped around a solid retail core, yielding quality mixed-use assets that justify improved cap rates. As our vision is actualized, we fully expect that the valuation of our portfolio will improve as a result of cap rates reflective of a quality portfolio with a revenue stream secured by a diverse mix of uses with investment-grade credit.

And now I'll turn it over to Mario.

Thanks, Joe. We are encouraged by the facts that are upon us. Collections continue to improve, signaling renewed health among our tenant base. Restrictions are lifting, and people are getting vaccinated, driving improved traffic, which is growing for the second straight week. People are beginning to travel again, and we are seeing a return to normalcy and will benefit from people craving experiences and tiring of being prisoners in their homes. The results that will be communicated today are reflective of a portfolio that is recovering from the impact of COVID-19 pandemic.

After the close yesterday, we announced a quarterly same-store NOI decline of 33.3% and FFO results that were impacted by these NOI declines, increased interest expense and restructuring expenses. Our results were in line with our larger peers from a same-store NOI and occupancy perspective, which demonstrates the relative health and strength within our portfolio. We never lost sight of our core business.

We continue to make progress on collecting COVID-period rents as our tenants' business recovers. As of December 31, we recognized cash receipts representing 80% of billed second quarter through fourth quarter 2020 rents. Including collection of prior months' rents, we collected 112% of billed fourth quarter rents. The fourth quarter, and for that matter, the third quarter, at 99% of billed amounts collected both stand out as stellar cash collection periods.

At the end of December, we had reduced our accounts receivable balances to $55 million. This is a reduction of $19 million from our peak AR balance of $74 million in August 2020 and just $13 million more than our pre-COVID historical AR balance. This reduction in accounts receivable balances, coupled with the significant improvement in cash collection rates, demonstrates that our tenants are back in business. We have finalized deferral or abatement transactions with over 95% of our national and local tenants. As a result of this effort, we expect to ultimately collect in excess of 85% of our billed COVID-period rents.

During the year, we aggressively reduced capital spending for redevelopment by $135 million and have just under $16 million in redevelopment spending slated for 2021. We also began to realize improvements in our results driven by our cost-saving measures in G&A and operating expenses that were implemented starting in the second quarter with the onset of COVID. Over the past 2 years, we have reduced head count and managed other general and administrative expenses and are forecasting that these will save the company $5 million annually.

In the fourth quarter, and so far this quarter, we're encouraged by a subsiding pace of bankruptcies. In the fourth quarter, we recognized only 2 tenant bankruptcies compared to 9 in the third quarter. Our traffic continues to improve toward pre-COVID levels and has exhibited week-over-week growth for the past 2 consecutive weeks across the portfolio, so we expect much of the operational impact from 2020 to be temporary in nature.

Since December, we have been active in the capital markets, having raised approximately $1.2 billion with the expansion of our credit facility and the refinance of the Woodland Mall mortgage. Regarding our near-term maturities, the Viewmont Mall mortgage matures at the end of this month with an outstanding balance of $67.2 million. In June, we have Red Rose Commons' $12.5 million mortgage and The Court at Oxford Valley's mortgage of $26.1 million maturing. Discussions are currently underway with the lenders to refinance these nonrecourse mortgages.

The company expects to close on asset sales over the next 2 years with $21.8 million of gross proceeds anticipated in 2021 and $54.2 million expected in 2022. The proceeds from all sales will be used to pay down our credit facility with 70% applied to our first-lien term loan and 30% applied to our revolver. We anticipate that through 2022, this will provide us an additional $26 million in borrowing capacity under our revolver. We are making significant progress on entitlements and anchor approvals for these projects. This will aid us in our effort to close these transactions as soon as practicable.

We ended 2020 with $91.6 million in liquidity, including availability under our revolver and unrestricted cash on the balance sheet. Based on our business plan and through careful evaluation of all capital spending, we will continue to have sufficient liquidity within the company. Given what we have outlined here, we are confident that 2021 will see strong NOI growth. Over the longer term, the quality of our properties and their markets will produce consistently positive results.

With that, we will open it up for questions.

You have a question from Sheldon Grodsky with Grodsky Associates.

I'm glad you survived your bankruptcy. Let's hope we can do well going forward. Could you explain the write-down on Fashion District? Did you hear me?

Yes, I'm sorry. I was on mute. We went through our fourth quarter impairment testing, as we typically do, as part of our annual audit. We did receive an appraisal for the asset that came in at a value that put our investment in the equity of the asset at the written down amount that you saw, which required the $148 million write-down.

Okay. So I mean your equity investment, has it -- does it have any value at this point on the balance sheet?

Yes, it does.

There are no further questions at this time.

Thank you very much, and thank you all for being on the call. In closing, I'd like to state, really where I began, it's clear that as a result of the factors accelerated by COVID that we're in the real estate business. Demand is robust for uses far beyond traditional retail. Business will return in a significant way for retailers, restaurants and entertainment. Quality real estate will thrive into the future, and growth in suburban markets will catalyze demand for our offerings.

With that, I again thank you for being on the call, and have a great day. Bye now.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.