Q2 2021 Pennsylvania Real Estate Investment Trust Earnings Call
Okay.
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Hello, and welcome to the free <unk> 21 earnings call all.
All lines have been placed on mute to prevent any background noise.
After the Speakers' remarks, there will be a question and answer session.
I would like to ask a question. During this time simply press Star then the number 1 on your telephone keypad. If you would like to withdraw your question press the pound key.
Thank you I would now like to turn the call over to MS. Heather Crowell. Please go ahead.
Good morning, and thank you all for joining us for free second quarter 2021 earnings call. 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.
Descriptions of these risks are set forth in the company's SEC filings statements at <unk> today might be accurate only as of today August of 2021 and free it makes no undertaking to update any such statements.
Also certain non-GAAP measures will be discussed free has included reconciliations of such measures for the comparable GAAP measures in its earnings release and the other documents filed with the SEC.
During the call management will answer questions from analysts and fund investors. We also invite individual investors to submit questions via email to investor info at <unk> Dot com.
Members of management on the call today are Joe Gorder, Dino for each chairman and CEO and Mario Ventresca our CFO.
No.
Thank you Heather and good morning, everyone, what a great quarter.
We're back.
Our release this morning marked an inflection point in the turnaround of our business and the evolution of free it's now clear that the work we have done in creating a stronger portfolio by disposing 19, lower productivity properties repositioning 19 anchor boxes to over 3 dozen new tenants and secure.
The differentiated tenant base that is comprised of 30% open air tenants. She is driving results are.
Of our repositioning effort has yielded a concentrated high quality asset base and covenant markets with high barriers to entry that is attractive to an array of tenants and users driving continued growth for the company.
Leasing activity liquidity receivables sales traffic and NOI are all exceeding our internal expectations and we are on track to deliver 13% to 15% same store NOI growth this quarter.
For the year this quarter same store NOI is up 62%, yes, 62%.
<unk> was up 267% over the 2020 quarter, a reflection of the return from the lows of the year ago.
In July core mall traffic reached 93% of 2019.
The portfolio Rolling 12 sales are estimated to have reached the new high at $5.49 per square foot an increase of 1.3% over last reported comp sales in February or.
Our leasing pipeline indicates vigorous demand for our space at 1.2 million square feet exceeding any of the past 5 years.
For more total lease space is strong at 92, 6% our balance sheet is improving as we look the harvest capital with the opportunities to rebid of our multifamily contracts ahead of us.
This quarter's results were outstanding and validate the commitment and determination of the pre teen 2 I wanted to whom I want to extend sincere. Thanks for their relentless efforts delivering results across the platform the <unk>.
Set us up for success.
<unk> was ahead of our plan of 10 cents per share for the quarter, 267% ahead of 2020 results quarterly same store NOI growth grew by 62%, which results in approximately 13% same store NOI growth during the first half of the year.
Compared to Q2.19 of our same store NOI results reflect the 5% increase over 2019.
Consumers are demonstrating a clear desire to return to in person shopping and our focus on bringing the mix of tenants to our properties that meet the changing needs of today's consumer is clearly resonating with customers from grocery stores 2 apartment buildings to medical facilities and more our property.
Of established themselves as the 1 stop shop for communities you're seeking.
The core mall traffic, reaching 93% in July and for properties exceeding 2019 customer traffic for the past 3 months and robust sales increases in May and June.
Currently 30% of our rent roll has the derived from open air tenants, including tenants such as whole foods all of the Dick's Sporting goods, Burlington Homegoods capital Grille yard House Cooper University Health care edge fitness planet fitness tilt in Dave <unk> Buster's Demi.
Straight in the evolution of our portfolio from traditional enclosed mall retail to diverse destinations tailored to their respective communities. Following our focused effort to create a long term.
Stable business model. These tenant addition to act as a catalyst driving increased NOI sales and the strong traffic alongside dramatically improve the underlying tenant credit.
Our properties are of handily outpacing national sales trends, which is driving results.
According to the National Retail Federation June sales were down 1.9% for May and up 12, 1% year over year.
Sales growth is particularly pronounced in our portfolio with June sales growing 10% over may and 16% over June 2019, with over 80% of our properties reported increased sales.
Based on our internal estimates portfolio of sales are estimated at $5.49 per square foot.
<unk> 64 per square for 1 point of meetings excluded when the basis that the space is being marketed for alternative uses including technology and life Sciences.
Notably this exceeds our list of reported Rolling 12 sales for core malls at $5.42 per square foot evidenced the robust returned in person sharpie.
We're also anticipating the strong back to school season, with the National retail Federation predicting spending will grow it by 9.4% for students through high school and for 9% for back to college, we are well positioned to benefit from this as we introduce a new rewards program.
<unk> and new tenants across our portfolio.
The improved environment, driving tenant strength and financial stability has directly impacted our results contingent rents we agreed to as part of our Covid recovery transactions are exceeding expectations leasing activity, including our pipeline of leases being finalized and strong at 1 point.
2 million square feet. This is more new space and we leased in any of the past 5 years and approaching double our 2019 leasing performance, yes, double our 2019 leasing.
Future revenue from signed leases for over $10 million annualized the tenants signing leases range from popular price fashion concepts jewelry specialty food purveyors and large format entertainment options.
1 of the anchor front, we're pleased to report that we have signed 2 new leases turned 7 at Morristown, which will open. This October turned 7 is the specialty discount retailer that offers a wide array of brand name merchandise, including housewares ready to wear apparel and accessories.
Source of unique market products from online suppliers, bringing this online product into an off line environment.
We're also pleased to report the executed execution of the lease with Phoenix theaters that wouldn't the mall is 1 of the new <unk>.
Theaters being built we believe this demonstrates the strength of our position in this market.
We're also on the cusp of executing the lease to replace the former Jcpenney at Willow Grove Park to bring family entertainment to the to the mix of this iconic suburban Philadelphia asset.
With the exception of just 1 anchor space that.
Debt, we intend to demolish a portion of in favor of residential development all of our anchor spaces now least of.
All of our anchor space is now leased.
At Dartmouth Mall, and Dartmouth, Massachusetts construction continues on the new all of the set to open next year.
Drilling into this property stories of critical piece of what defines free quality assets in strong markets and this market. There is the right sizing of retail space and clear evidence that we're winning the battle for tenants and customers because of the work we have done.
Here, our anchor repositioning program began 2 decades ago. When we replaced aims with filings that later became Macy's today, Burlington and all of the of replacing the former Sears.
<unk> sits where pay it used to and 5 below and Buffalo Wild wings replaced Ruby Tuesdays in catchments. These proactive re merchandising efforts allowed us to continue to cement our place at the top retail and leisure draw in the region, serving nearly half of million people.
Not 1 but 2 competitive evolves of permanently closed in this region with 1 having already been demolished, leaving Dartmouth mall is the only enclosed retail offering and of 30 mile radius.
As testimony to our success, we are 96% occupied with tenants generating double digit sales growth in June.
The strategic re merchandising tech reverberates across our portfolio of Cherry Hill Mall, our Crown Jewel, where sales estimates are nearing $900 per square foot, we have a robust leasing leasing effort underway to take this fashion destination to the next level.
We have over 37000 square feet of new leases signed or being negotiated including exciting clicks, the big bricks retailers peloton and purple and new to market retailer. Many so all of which highlight the value of placing the store in a compelling market at this top tier.
The asset <unk>.
Terry Hill continues to generate resounding consumer interest with traffic at 98% of 2019 for May June and July and now get this 1 June sales of Cherry Hill Mall registered of 40% increase over June 2019.
Our properties continue to evolve while maintaining their vital contributions to the communities they call home sales.
Thousands of jobs and hundreds of community events depend on our properties and our efforts to create 1 stop shops for our consumers are meeting with success.
Our strategy to emphasize our portfolio of unique positioning and creates value for all stakeholders when coupled with strong results and an improved balance sheet.
We are clearly capitalizing on the improving environment in our operating results and taking critical steps to improve our balance sheet, we recently announced closing of 5 mortgages.
Taking care of our near term maturities, we are intently focused on creating opportunities to harvest capital for a multi pronged approach 1 advancing our multifamily entitlement process for that.
Bring these transaction the closing to simultaneously re bidding several opportunities in order of realized improved pricing 3 pursuing additional densification opportunities, including senior living in hotels for exploring other asset sales and joint ventures and for.
5 working to demonstrate improved valuations based on the composition of our tenancy.
Our collection of properties designed to attract a broader array of consumers strengthening the opportunity for our tenants and our underlying rent roll the.
For the reasons for our success are clear and distinct we are capitalizing on the recovery.
Of course, we've positioned ourselves well to meet the needs of the modern consumer by virtually eliminating lower quality tertiary market properties and repositioning 19 that anchor boxes with over 3 dozen new tenants or new tenants are more productive and have better underlying credit with 30%.
Of the rent roll comprised of open air tenancy.
We have re merchandize the majority of our properties for uses including fluid markets dining entertainment fitness value retail and health care, which drives traffic and sales. The results. We are seeing are consistent with our expectations, which were unfortunately in Iraq.
The by Covid, but we're now poised for continued growth in 'twenty, 1 and 'twenty 2 with that I'll turn it over to Mario Mario.
Thanks, Joe we are continuing to see a rapid recovery of our business with incredible new leasing activity collections levels that are exceeding our liquidity forecast of <unk>.
Sharp return of consumer spending and overall improved perception of the space the.
To summarize key points demonstrating our progress the.
The company continues to generate positive net cash flow from operations.
The strong tenant performance is significantly impacting our results and driving improved collections.
Occupancy is forecast to continue to increase which is expected to drive 13% to 15% 2021 same store NOI growth.
Net cash from operating activities totaled $34.5 million for the 6 months ended June 32021.
Compared to net cash used in operating activities of $3.7 million for the 6 months ended June 30 of 2020.
This is primarily attributable to strong collection efforts and resolution of outstanding accounts receivable.
Liquidity is tracking ahead of our original business plan.
We ended the quarter with cash non restricted bank accounts of $29.7 million.
When including capacity under the revolver total liquidity was $104.9 million.
As of the end of the second quarter.
Tenant performance and financial strength is improving with sales exceeding underwritten expectations.
The national sales trends are encouraging and driving results as Joe mentioned, the sales growth is particularly pronounced in our portfolio.
Year to date bankruptcy remained muted with only 1 insignificant bankruptcy during the quarter.
Concurrently leasing volume continues to improve with leases signed in the negotiation the accounting for $1.2 million square feet.
172% of 2019 levels.
More than any of the past 5 years.
We currently have an executed pipeline of 500000 square feet of transactions for future occupancy.
Which represent over $10.8 million in annualized future rents.
This morning, we reported results that demonstrate the sharp turned to the positive.
Following a year impacted by pandemic and bankruptcy related store closings.
During the second quarter, we recognize the anticipated inflection point in same store NOI growth.
Due partly to the timing of Kobe closures in 2020.
On a quarterly basis, we are reporting NOI growth excluding lease termination revenue.
Of 53, 9% compared to the same period last year.
Translating to a 16, 6% increase when 2022nd quarter.
Normalized for the $10.5 million and rental abatements granted.
On a year to date basis same store NOI has grown by 9.4% excluding lease termination revenue.
Improved tenant health is driving a meaningful increase in contingent rent for rent that is derived as a percentage of tenant sales ex.
Exceeding our internal projections by approximately $600000.
For 5.6% year to date.
The $11.2 million in contingent rent year to date represents a massive 241% increase over the same period of last year.
This all culminates in 10 per share of positive <unk> for the quarter compared to negative <unk> in the second quarter of 2020.
During the quarter, we were active in the debt markets, having refinanced 5 loans with proceeds aggregating $175.2 million at our share.
Also during the quarter as a result of our strong collections initiatives, we reverse the previously accrued bad debt expenses at our same store properties, resulting from favorable COVID-19 period settlements.
This resulted in the $3 million pickup.
In total for the quarter, including the bad debt reversal, we recognized an improvement of $8.1 million in credit losses over the year.
Over the last year.
Collections remained strong showing sequential improvement for the fourth straight quarter. We ended the second quarter collect the 88% of our build brands and 127% of our rent roll when including collections of primarily deferred rent payments.
This resulted in a reduction of accounts receivable balances of 5.9% or $2.6 million from the end of the first quarter, leaving us with a total accounts receivable balance of $37.8 million.
Which is in line with pre Covid AR balances.
Strong operational performance macroeconomic factors, increasing tenant health and the outstanding effort put forth by the pre teen are all contributing to the significant sequential improvement in collection rates since the onset of the pandemic.
Current month collections with the exception of November of 2020 have increased for every month in the past 14 months.
For the second quarter, we collected 88% of current rents the.
The momentum continued in July with 91, 4% collected.
Broaching, our historical averages.
As we look ahead.
With pent up demand for goods and services and a full pipeline of leasing comps should continue to improve leading to an anticipated 13% to 15% same store NOI growth this year.
Our cash flow and liquidity forecast of improved and are continuing to improve.
And we believe we have surpassed the inflection point, where NOI is growing.
There is positive momentum in the space such that we should see cap rate compression and improved asset valuations we.
We are pleased with where we are currently and see continued reasons for optimism.
With that we'll open it up for questions.
At this time I would like to remind everyone. If you would like to ask a question. Please press Star then the number 1 on your telephone keypad, we'll pause for just a moment to compile the Q&A roster.
Once again, if you would like to ask a question. Please press diamond of number of line.
Your first question comes from the line of David Ross shelf.
I do apologize there are no questions at the size.
I would now like to turn the call back over to Mr. <unk> for closing remarks.
Thank you <unk> and thank you everyone.
Economic and portfolio indicators are decidedly positive and we are proactively taking advantage of these factors to improve our results to recap leasing activity is beyond the impressive our liquidity picture is improving and there are a myriad of possibilities to continue to create value for our stakeholders.
And free future. Thank you very much for being on the call today.
This.
Today's conference you may now disconnect.
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The floor.
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