Q4 2020 Pennsylvania Real Estate Investment Trust Earnings Call

Ladies and gentlemen, thank you for standing by and welcome to the <unk> four to 'twenty earnings call. At this time all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session.

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

If you require any further assistance please press star zero.

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 from <unk> 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 <unk> makes today might be accurate only as of today March 12, 2021, and <unk> makes no undertaking to update any such statements also certain non-GAAP measures will be discussed <unk> has included reconciliations of such measures to the comparable GAAP measures in its earnings release another day.

Documents filed with the SEC.

<unk> of management on the call today are Joe core Dino per each chairman and CEO and Mario Ventresca CFO Joe.

Thanks, Heather and good morning, everyone. We're here today to make five key points, which signal a bright future for free.

That's clear.

As a result of the factors accelerated by Covid, but we're in a real estate business with an ability to attract a wide array of users and deliver a broader customer base to our properties demand is robust from uses for you on traditional retail, including life Sciences health care and self store.

George.

Business will return in a significant way for retailers restaurants, and entertainment in the brick and mortar format.

Quality real real estate will thrive into the future and our region, leading properties are gaining market share as weaker properties declined.

Both 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 new retailers, taking their place that is happening, but it is not today's headlines today's headline reads morals are accommodating a broad range of uses.

We have 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 submit this multi use vision.

Dartmouth Mall, we executed a lease with all day for 'twenty 1000 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 90000 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 'twenty two will serve the thousands of residents that have moved into the area in recent years.

At Morristown Mall, we obtained approval for the addition of a thousand 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 JC Penney vacated earlier this year tilt studios will open in the fall and will occupy a 100000 square feet. This full scale family Entertainment facility inclusive of games rides Boeing.

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 an hour and a half for a similar experience.

Woodland mall, we've executed a lease with a life hub this unique destination as a gathering place for physical mental social education on creative enrichment the.

47000 square foot facility will offer classes and interactive enrichment events that are designed to engage the whole shelf by expanding members' personal access to wellness experiences.

Now, we're particularly excited to announce that Cooper University health care on leading academic health system, and the Southern New Jersey, and Philadelphia region will open a specialty care facility in the former Sears location at Moorestown mall occupying over 165.

Square feet.

With this addition in the apartments and hotel plant 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 hour.

Patient health care facility.

At Plymouth meeting mall, we've now engaged CBRE to assist in executing our vision to bring a multitude of usage deployment of meeting ball. 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 net inventory worldwide.

Owing to the rich concentration at colleges universities and top to top tier healthcare institutions that have fostered innovation and biotech R&D.

A lack of available lab space is driving robust on solution demand, there's a great opportunity for Plymouth meeting and several other properties, including our Washington D. C properties that offer amenity rich environment in bullseye locations.

We are currently in discussions <unk> have NDA signed with over a dozen interested parties at two properties.

Yeah.

2020 was a year marked by adaptation we overcame great challenges store business, highlighting the resilience of the free team and the power of our portfolio, we've taken tremendous steps and dealing with traditional retail issues through our targeted strategy.

Of dispositions and anchor replacements and today boast our real estate portfolio of bullseye locations in 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 core site 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 and more than sweat pants, and cozy socks with CDC guidance that fully vaccinated people can gather without managed can as the vaccine rollout becomes more widespread and efficient we expect to see pent up demand and improving traffic and <unk>.

Force in fact, Maryland is eliminating restrictions on dining and retail capacity effective this evening.

In 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 out shining the competition and gaining and gaining market share.

A good example of this is capital city mall in Harrisburg, Pennsylvania market boasting half a million people people, where our property is clearly capture the flag as the dominant location in the market offering the only Macy's DSW, Dave and Busters and Victoria Secrets.

Traffic continues to be robust at the property.

On the property is fully leased this holiday season.

As competitive properties have closed weaken we're transitioning the lenders are property just seen demand from retailers and consumers increase expanding our trade areas. This is incurring at a number of properties in our portfolio, including Dartmouth woodland, Patrick Henry Valley view.

I'm on 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 the 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 use.

Uses and second our Philly and D. C market assets are the ones that we have identified from multifamily land sales five of which are on their contract for over 2000 units to be developed.

The end result of all of our work will be distinguished portfolio comprised of a diverse group of uses including life Sciences health care self storage grocers and more alongside 5000 apartments, all wrapped around a solid retail core yielding quality net.

<unk> 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 the 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 lifted 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 we'll 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 our quarterly same store NOI decline of 33, 3% and <unk> results that were impacted by these NOI decline.

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-19 period rents as our tenants business recovers.

As of December 31, we.

We recognized cash receipts, representing 80% of built second quarter through fourth quarter 2020 rents.

Including collection of prior month's rents, we collected 112% of billed fourth quarter rents.

The fourth quarter and for that matter of the third quarter at 99% of billed amounts collected both standout 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 a balance of $74 million in August 2020, and just $13 million more than our pre COVID-19 historical AR balance.

This reduction in accounts receivable balances coupled with the significant improvement in cash collection rates.

Women's Straits 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 build COVID-19 period brands.

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 two 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 two tenant bankruptcies.

Per to nine in the third quarter.

Our traffic continues to improve towards pre COVID-19 levels and has exhibited week over week growth.

For the past two 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 view Mont 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 valleys mortgage of $26 $1 million maturing.

Discussions are currently underway with the lenders to refinance these non recourse mortgages.

The company expects to close on asset sales over the next two years with $21 $8 million of gross proceeds anticipated in.

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.

Yeah.

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 'twenty. One 2021, we 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 <unk> associates.

Your line is open.

Good morning, everybody.

Great.

Bankruptcy, let's hope, we can do well going forward.

Could you explain the write down on on.

On fashion District.

If you are making.

Yes, I'm, sorry, I was on mute.

We.

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 assets that came in at a value that.

Our.

Investment in the equity of the assets.

The written down amount that you saw which required the $148 million write down.

Yeah.

Okay.

Your.

Equity investment how does does it have any value at this point on the balance sheet.

Yes, it does.

Yeah.

Yes.

For the moment.

Yeah.

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 on a real estate business day.

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.