Q2 2020 Pennsylvania Real Estate Investment Trust Earnings Call

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Ladies and gentlemen, thank you for funding by young welcome to the please click on copper and coal at this time all participants on the mood.

After the speakers presenting Sean there'll be a quick jump on on sufficient.

To ask a question during the session you will need to press star one on your parents' home.

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I'd now like to have the conference over to one office because students Heather Crowell. Thank you. Please go ahead and mobile.

Thank you. Good morning. Thank you everyone for joining us for freight second quarter 2020 earnings call. We hope everyone is staying well during this call we will make certain forward looking statements other than 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.

Uncertainties that might affect future events or results.

Scriptures of these risks are set forth in the company's SEC filings.

Shipments that freight mix today might be accurate only as of today August 11, 2020, and freight mix no undertaking to update any such statements.

Also certain non-GAAP measures will be discussed freight has included reconciliations of such measures to the comparable GAAP measures and its earnings release and other documents filed with the FCC.

Members of management on the call Center, Joe Coradino for its chairman and CEO and Mario Ventresca CFO, we will limit today's call. The 30 minutes. Our prepared remarks will last approximately 15 minutes and then we will take questions to allow transfer everyone will allow one question one follow up for color. Thank you in advance for respecting our taxes rain Joe.

Thank you Heather.

Thank you all for joining US you actually Miss you guys and hopefully we'll see you soon and we also hope that you continue the species.

The past few months had been intention challenge.

As a world as a country and certainly as sure as instructor or resolve continues to be trust.

It's important to note that our results reflect the closure of our malls for an average of 86 days nearly the entire quarter.

As we entered the third the third month through the quarter, we only five properties open.

Nonpayment of brand of course impacted our results and our liquidity position.

As Tom is paying shed these are times to try and then soles.

So we're going to focus for this call on the recovery of our sector and the steps, we're taking you get stronger.

As is today all of our properties are open.

This is a modified opening includes capacity restrictions use prohibitions in a more challenging shopping experience, we're getting close to a goal on probably in the Red zone.

While we share details on our quarter and you may be tempted to compare them across the sector.

But broadly speaking, we really didnt have a quarter, we were not open for business.

That said upon reopening we've been pleased with traffic and shopping patterns occurring across the portfolio.

We've seen a purposeful shopper.

Carrying multiple bags, we've seen our market dominant properties recover quickly.

Comparatively improving your market positioning upon reopening.

Some examples capital City mall, which is essentially the only mall in Harrisburg York market, where there were once three malls is generating traffic in the 70% to 85% range of prior traffic is 98.6%.

Couponite, which is which is great under stabilized circumstances, we've got a oil team customer there and many tenants report, beating their July sales goals.

At Patrick Henry Mall, this pretty amazing we continue to see traffic at an impressive a 105% of average Patrick Henry is the only mall on the Hampton Roads Peninsula.

Boasting seven military bases and we're reaping the benefits of addition by subtracting.

By subtraction boasting the only remaining Macy's on the peninsula.

Throughout the portfolio areas of strength include athletic shoes self care jewelry in athleisure.

Back to school spending is expected to break records this year as parents prepare for.

Combinations of enclaves and add home learning.

We believe the diverse tenancy, we have in place positions us well to capitalize when the shift in trends.

We do note that properties that rely more heavily on dining and entertainment.

That remain restricted by partial opening of restaurants, and non operating movie theaters have been slower to recover traffic.

Which indicates that that these are popular venues that we expect will regain traction as they become fully operational.

We're also excited to see new tenants in our portfolio. Yes, there are tenants opening in our portfolio Kate Spade industrious Francesco.

Open.

It fashion district.

For Tempur Pedic and Jamba open their woodman talbot's outlet restore cryo therapy, and Plum is performing Arts center opened at Plymouth meeting.

And we also had a number of key tenants under construction still though.

Plated fitness at Morris town, Sola and shake Shack at Plymouth meeting.

White House Black market it wouldn't Lynn Peterson, our Dan at Willow Grove, Blaze Pizza capital City, and Miller rail how similar Prince Georges. So we are beginning to regain some level of normalcy and continue to open stores in our properties.

Fashion District, which opened on July 3rd is 69% reopened that number is affected by round, one AMC and city winery continuing to be closed when they open the number increased to nearly 80%.

When you include executed leases for stores that will open this year.

We expect to exceed 90% occupancy at fashion district by year end.

We're pretty excited about that by the way that's.

In a long road to Ho and one where we think.

We'll continue to.

To generate positive trends.

We believe we've installed among the best safety precautions in the industry and our mindful of the changing nature of restrictions and requirements.

As of August 783.1% of our core portfolio has reopened which has impacted of course by theaters remaining closed.

Across the portfolio traffic is registering 68% of pre Cove. It averages and grew nearly every park property for the past two weeks, it's noteworthy that 12% of our tenants report outperforming pre coded sales.

Openings in your strength are an important precursor to improving collections. We were among the last to be able to open a majority of our portfolio.

Cash collections are improving not yet meeting occupancy levels.

On April through July our cash collections were 53%.

As more of our properties opened than we execute deferrals with key national tenants. These figures are improving.

We expect the ultimately collect 85%.

Co the period rents.

That would be.

April May June and July.

Since the beginning of 2020, we've seen bankruptcy filings that impacted our 101 stores in our portfolio operating at a 2.4 million square feet.

If we exclude JC Penney these stores occupy about 388000 square feet and pay gross rents of 12.5 million.

Regarding JC Penney.

We believe we fared well was only two of 14 stores.

On the closing list, we expect the minimize our capital outlay on these locations by taking advantage of there.

Placement within their respective properties and not replacing them with an anchor what was in line retail and decommissioning the rear portion of the store or simply moving to non retail usage in one case residential.

The impact of the pandemic and resulting closure of our properties for an extended period of time has had an impact on our liquidity.

As you sonar release, we did get temporary covenant relief and we're pleased today to report that we've also signed documents for $30 million bridge loan that is expected to close before the end of today and run for a period of time.

During which we hope to finalize a long term transaction.

As we had previously reported we continue to work with our bank group the structural long term modification to our credit facility.

When you look at the future of our businesses to natural at a time like this to focus on the worst case.

However, taking a more constructive approach, we're seeing occupancy in traffic exceed our expectations as evidenced by both construction project progress and recent openings. So there is cause for optimism regarding our core business.

Having said that we're also experiencing bankruptcies and store closings, which are giving rise to interest from a variety of alternative uses.

As of this call, we're negotiating agreements with a healthcare provider of food market are in discussions with several fulfillment and logistics operators and are exploring opportunities to incorporate researching lab facility at our properties digital courses in addition to multi.

Finally in hotel uses that are already underway.

This interest in this is an important point is rooted in the quality of the locations and the underlying demographics associated with a portfolio with a concentration in high barrier to entry markets like Philadelphia and DC.

In the final analysis, we own quality reached real estate that is suitable for a vast array of alternative uses.

And one thing that isn't changing is that our whole. These are vital contributors to the communities. They call home thousands of jobs and hundreds of community events depend on our properties infections to pandemic began we hosted three dozen community in charitable events at our properties.

This summer we're hosting another two dozen community events branded park and play an outdoor event series that spans a variety of activities ranging from driving movies virtual concept.

Concepts to unique crab and sea food festival and more.

As people grapple with uncertainty they crave normalcy.

People in places they are familiar with and bring them come comfort.

Thats, what our properties offer.

Now I'll turn it over to Marissa.

Thank you Joe as Joe noted the results that are being communicated today are reflective of a portfolio that was essentially closed for the entire second quarter.

During the quarter, we came together at the team working from our homes to mobilize in combat the impacts of coded on our company.

In that regard we've made tremendous strides although we recognize there is much more that we need to accomplish.

For the second quarter, we reported an AFFO loss of six cents per share and AFFO losses adjusted of six cents per share.

For the six month of the year, we reported FFO of eight cents per share and FFO as adjusted of nine cents per share.

Same store NOI during the quarter decreased by $17.4 million.

The primary drivers decline in our wholly owned portfolio Recoded 19 mall closures associated renovate and percentage sales revenue declines.

The 11, and a half million dollars and lost rent from bankruptcies of 2.2 million.

No we elected to record the renovate mint upfront in their entirety during the second quarter.

The impact of these onetime reductions in Hawaii, and FFO is 14 cents per share.

We also recorded in increasing credit losses of $3.7 million.

Offsetting some of this with came and real estate tax expense savings of just under $2 million.

Non same store NOI decreased by $2.7 million due to the sale of whole foods at Exton.

And the closure of several anchors and valley view and Exton square malls.

Interest expense was $1.6 million higher due to.

A higher level of borrowing.

Then the second quarter of last year.

We also focused on managing our cash expenditures in addition to previous onetime savings in gene and operating expenses totaling $4.7 million, we made permanent overhead reductions.

We laid off 31 employees and this is expected to save the company approximately $4 million annually in gene a expenses.

We also reduced planned capital spending for 2020 by $26 million.

During the quarter nine of our tenants filed for bankruptcy protection the store count impacted by second quarter bankruptcies was 51.

In 2.1 million square feet contributing approximately $10.2 million an annual revenues.

Several tenants filing for bankruptcy during and after the second quarter were significant in both the number of stores and square footage such as JC Penney.

GNC, New York in company and the Ascena brands.

We expect that most of the stores impacted by bankruptcy will remain open.

In April we received the four and a half million dollar Paycheck protection program loan under the cares that for which we expect to be granted complete forgiveness of the obligation.

We also during the quarter negotiated forbearance arrangements for mortgages on six wholly owned into joint venture properties.

And on July 24th we obtained waivers through August 30, Onest 2020 on certain covenants and approval to enter into a $30 million bridge facility that as Joe said, we expect to close today.

For the duration of this agreement which expires.

The earlier of September Thirtyth, 2020, or completion of a long term credit facility expansion.

Dividends will be suspended.

We have been engaged in discussions with our bank group regarding this recast of the credit facility.

Looking ahead, including our joint venture assets, we have over 325000 square feet of executed leases in our pipeline for future openings.

Most of which are scheduled to open in 2020.

And we will contribute a $11.7 million of annualized revenues at our share. This revenue will come online in hit RPL.

Towards the back half of this year.

During June we completed our single tenant Outparcel sales initiatives after closing on the remaining $14.4 million in Outparcel sales with FCP and recorded a gain on sale of 9.2 million in the second quarter for the six outparcels.

The out parcel sale efforts gross proceeds totaled $27.8 million.

As Weve reported in the past, we have five purchase and sale agreements with for institutional investors for the sale of our land dedicated to multifamily development.

We continue to make progress toward entitlement of this land.

That will lead us to a closing.

We have been extending due diligence in closing dates on these deals while we've been working through the zoning and anchor approval processes.

We will also continue to extend due diligence as a result of cobot 19 related financing market challenges for the sale leaseback transaction for the five properties for $154 million.

This is now forecast to close in 2021.

And with that we'll open it up for questions.

Okay. Excellent reminder, to ask a question given to press star one on looking at home. So we'll draw. Your question. Thank you press the pound all Hodgkin.

Some by when comparing to Q on analyst.

Your first question Kong Plum Creek, CE, Mark LR Alphaseven the lines up.

Hi, good morning, Thank you.

Joe you made a comment that you expect Taylor I think ultimately collect 85% as a current period ran its.

Just as I think about the 15, what do you expect the majority of that remaining 15 could be.

As you think about a permanent impairment tier I know I going forward as you think about.

Occupancy lastly suffered during the quarter that you'll continue to add to see and then permanent route relief.

Thank you put in place.

Christy that that's when when we.

Embarked upon.

Thinking through our our Covis period rents.

We decided that the.

Retailers, who are local and we define them as having no less than a certain number of stores.

That they own that we were going to abate.

Some of their rent.

And they were both specialty retailers carts.

Et cetera, as well as just local retailers, who might operate one restaurant or something of that short where they're kind of living out of the cash register and for those tenants. We were more willing to date. So the bulk of those dollars.

Come from that and are really a a one time code that as Dan If you will.

Okay. So is there any permanent rent relief as they think about you know what Eric company. We can you just going through the bankruptcy process or outside of bankruptcy at your granting at this point.

At this time no no again, we're through about.

60%.

Our.

Negotiating let's call them, our key national tenants.

Some of which includes deferral I might add a number of tenants upon reopening that we were negotiating with tonnage it's more than one or two just decided.

We're not going to negotiate original pay the rent.

And they paid all the background.

So were about 60% through.

With probably another 10%.

As 10 or 15% at hand.

And that that next 25%.

Is going to its going to involve some bang in so to speak and hopefully we will resolve it outside of litigation.

That's a course of action.

We are not.

Going to be shy to take.

If necessary.

Okay. Thanks, and then just in terms of the then you add $30 million caramel on can you just give us a few more details like the rate the term any warren adequately for lender is there any security against alone and ended up it's effectively I guess, giving your working capital as Greg to get to the asset sale closing.

Well essentially as you said, it's a $30 million deal.

It's at LIBOR, plus about 800 fits.

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And.

It's a short term bridge it matures September thirtyth.

And again allows us to sort of smooth, though over the impact of those deferments and abatements during that period of time and really gives us the ability and the timing.

To negotiate on longer term deal.

With our banks.

Okay. Thank you.

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Hey, Dan if you look like to ask a question Chris Paul one on your kind of homes.

Your next question comes from Michael Mueller of Jpmorgan Your line of yet.

Yes, Hi, just two quick ones here one how these brand collections trend in July compared to that whole, 53% Cold period, and then can you just give us an update on the timeline for the land sales.

Marrow im going to turn that one over to you.

Yes, Mike it's Mario as it relates to July we actually.

On a total cash received basis, meaning.

Tenants that paid their July rent and.

And a portion or all of their background.

We ended up collecting a 106% of our July billings during the month.

Got it okay.

And then anything on the asset land sale timeline.

Yes, I would say the the asset sales.

Okay.

At this point the asset sales are really being driven by entitlements.

And we're making progress on those.

The monster both progress.

Right.

Well, a grogan point of this meeting at Morris town.

And our properties in DC, both malls, Prince Georges in Springfield Town Center.

And our.

We did push them out a bit.

But the expectation is.

They will come to closing and I think the schedule now is.

Yes, two will close.

The second quarter of next year with the balance ratably through the second quarter of 2022.

Got it okay. Thank you.

Good luck.

There are no for that system called this time I turn the call back over to represent.

Well, thank you all for participating in the call.

We will continue to.

Stay in touch again look forward to at some point seeing one another.

You know again, we think we've created a portfolio are the impact from from bankruptcies has been.

Not nearly as devastating as we thought it was going to be two JC penney's, we have a a portfolio that we think is.

Able to withstand the impact of coded.

And we look forward to.

Continuing to have the company grow stronger as we get to the other side of this and thank you all state safe and stay strong.

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

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