Facing almost $1 billion in debt, Philly mall owner PREIT emphasizes strong sales and high occupancy

It isn’t the best time to be the largest mall owner in Pennsylvania, especially with a debt load of almost $1 billion coming due at the end of 2023.

That’s why the Pennsylvania Real Estate Investment Trust (PREIT) has spent the last few years shedding weaker properties and adding medical, residential, and experiential entertainment in locations where retail sales have softened.

“We’ve got a quality portfolio,” Joseph F. Coradino, CEO of PREIT, said in a recent interview. “At the end of the day, it’s as good as the assets you own. That’s an important point because when one thinks about investing in a [Real Estate Investment Trust] you get caught up in extraneous details.”

In recent years, PREIT has faced the devil’s own details.

A major bet on the Fashion District, a high-end renovation of Center City’s Gallery mall in collaboration with Macerich, soured rapidly after the pandemic struck mere months after it opened. It is currently 79% occupied, the second weakest performer in PREIT’s portfolio after the half-vacant Exton Square Mall — which the company is struggling to sell.

In 2020, PREIT executed a bankruptcy reorganization during the worst part of the pandemic and emerged a month later with a plan to sell its weak properties and diversify its offerings at its malls. But the company still owes $996 million to its creditors in a challenging lending environment. (On its first-quarter earnings call, PREIT noted that it had successfully extended the mortgage loan on its prized Cherry Hill Mall.)

PREIT’s share price, meanwhile, fell dramatically from over $166 five years ago to $2.60 last December when it was delisted from the New York Stock Exchange. As of late May, the price had fallen further still to a mere 55 cents.

After a year of the fastest interest rate increases in decades, and the continued struggles of the larger mall industry despite strong general retail sales, PREIT has its work cut out for it, said Brenda Nguyen, associate director of market analytics at CoStar Group, a commercial real estate data tracker.

“They definitely have an uphill battle, but they’ve been very actively trying to diversify and reposition themselves,” she said.

Coradino would not comment in detail on the possibility of another bankruptcy filing, or a sale or merger of the company — although he emphasized that all options are on the table.

“We’ve retained an investment banker [PJT Partners], and we continue to look at all the possibilities to drive shareholder value,” Coradino said, “and we’ll continue to do so as we look toward the end of the year. … We’re focused on finding ways to refinance our credit facility.”

Despite the debt load, Coradino argued that many of PREIT’s fundamentals are sound.

It employs more than 25,000 people across its holdings and runs over 4 million square feet of space in the Greater Philadelphia market alone.

With the exception of Exton Square Mall and the Fashion District, occupancy is strong across much of PREIT’s portfolio. After a substantial dip when many tenants closed during the pandemic, Coradino said, the malls are as lively as they were in 2019. Their total occupancy levels at PREIT’s core locations — not including Exton Square Mall — are 93.5%.

Sales at PREIT’s malls compare well to national trends, which range on average between $400 and $500 a square foot. The company’s core malls do over $600 in sales per square foot (although it’s worth noting that’s fallen slightly since this time last year).

The company’s top performer, Cherry Hill Mall, does $940 in sales per square foot. Foot traffic in PREIT’s malls is up over 7% since this time last year, and up 20% from this time in 2021.

Coradino said PREIT’s portfolio is healthier today because it sold off 20 lower-performing malls to concentrate on markets in the Philadelphia and Washington, D.C., metropolitan areas, as well as some holdings near military bases in Florida and Virginia.

On the company’s first-quarter earnings call, CFO Mario C. Ventresca named the Exton and Plymouth Meeting malls as examples of sites the company would still like to sell. The Philadelphia Business Journal reported in early May that a sale of Exton Square Mall to Brandywine Realty Trust had fallen through.

Coradino told The Inquirer that PREIT itself would probably have to handle the renewal of the beleaguered Exton Square and that its fate would be his main focus at the recent International Conference of Shopping Centers in Las Vegas.

“With Exton, we’ve kind of decided that the best group to develop it is us,” he said. “We’ve identified several tenants that we’re working with.”

At Plymouth Meeting — which has among the lowest occupancies of the core malls at 85.4% — Coradino said PREIT’s efforts to diversify into residential development have been stymied by local politics. The company wants to add 750 housing units to the site.

“Plymouth is the one where we’re banging our head against the wall,” Coradino said. “Plymouth has just been a bear. The township’s been unresponsive. What do the kids say? ‘We’ve been ghosted.’ ”

In general, Coradino says it’s been much more difficult to add residential offerings to ailing mall complexes in Philadelphia’s suburban collar counties than it is in Maryland, Virginia, or even New Jersey.

Last year, PREIT said it had plans for 5,200 apartment units across six sites to add a new revenue stream to bolster malls where sales were down. So far, less than half of those have been permitted with a majority of the momentum in Fairfax County, Va., and Prince George’s County, Md.

“In Virginia, they welcome you with open arms … and it’s not that different in Prince George’s County,” Coradino said. “I live in Pennsylvania. I live in Montgomery County. That hasn’t helped. … It’s a very difficult environment to navigate.”

Local leaders in Pennsylvania can look to Moorestown in South Jersey as a model of what Coradino wants PREIT to accomplish in their backyards.

The Burlington County mall had long been overshadowed by PREIT’s superstar, the sprawling Cherry Hill Mall, just four miles away on Route 38. In recent years, as the mall market bifurcated, Moorestown lost three of its four anchor tenants.

But PREIT was able to replace them with smaller retailers such as Michael’s and Five Below and a 165,000-square-foot Cooper University Health Care specialty-care facility. Almost 400 apartments and a hotel are on the way, too.

“It’s a complete transformation from something that could have gotten scrapped to a vibrant, viable, successful project,” Coradino said. “Our objective is to continue operating successful properties, increase their value over time, and maximize the value in whatever direction we choose.”