Q2 2022 Pennsylvania Real Estate Investment Trust Earnings Call

Closing Remington and JD sports.

At this property are an impressive $771 per square foot.

As compared to June 30 of last year, we've increased our non anchor occupancy by 620 basis points to 94, 6%.

And we will further evolve this asset with the opening of tilted 10, bringing our family Entertainment Center, featuring laser tag Boeing Mini golf virtual reality pinball and over 200 games and attractions of the property, which will extend dwells dwell time.

At Springfield Town Center, we're underway with Lego Discovery Center expected to open next year. The first of its new prototype in the United States. Another step in transforming this property into a vibrant multi use hub, creating the preeminent family entertainment destination and.

The D C market.

Moorestown Mall is another Great example of reshaping our traditional mall assets, creating value for stakeholders. In addition to a dining and entertainment lineup and fitness offerings, we've transformed macy's into our value retail hub, including home sense, Sierra five below and Michael.

Now Cooper University Health care is under construction with its outpatient facility, which is expected to open its initial phase in the second half of 2023.

We're also pleased to have closed on the sale of land for 375 multifamily units.

We have led the way in diversifying our tenant base, resulting in broadening the customer appeal of our properties in the past decade, we've increased the space dedicated to off price and fast fashion by 250%, providing more cost efficient options for our <unk>.

Customers during periods of rising costs, we believe this work positions the portfolio well to navigate evolving economic conditions.

As we look ahead, we're turning our attention to options to refinance our credit facility at the end of 2023 toward that end, we continue to raise capital through asset sales, which is a top priority since our last call. We executed on the sale of our interest in Gloucester premium outlets multifamily.

Land at Moorestown, and several out parcels, we've applied asset sale proceeds and excess cash from operations to pay down debt by $82 million, our liquidity position as of the end of the quarter at $128 million is stronger than it has been since the onset of the pandemic.

Our immediate priority is achieving our credit facility extension as of June 32022 were in compliance with the liquidity and corporate debt youll requirements underlying the extension are in process of conducting the required appraisals.

We have an additional $200 million of asset sales and progress and remain intensely focused on bringing these to closure, we expect to execute on the sale of multifamily and hotel in at Springfield Town Center this year.

As we move to securing entitlements and closing on our first phase of multifamily land sales, we are bringing phase two to market and expect to be able to execute on this more expeditiously, considering our hard foot entitlements and tenant approvals. This should generate an additional $100 million in process.

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On a year to date basis same store NOI and <unk> are showing growth traffic is strong heading into the back to school season up nearly 3% over last year renewal spreads are positive and we have approximately $6 million in revenue yet the convert commence.

With occupancy stabilizing and strong sales. We believe we can further drive rents enhancing portfolio of value now I'll turn it over to Mario to review our financial results.

Thanks, Joe we continued to see strong fundamentals in the second quarter, while at the same time monitoring the evolving landscape liquidity is tracking ahead of our original business plan at $128 million up from $110 $5 million at the end of the first quarter.

This morning, we reported second quarter 2020 to NAREIT <unk> of $9 3 million or $1 $1 72 per share and <unk> as adjusted of $9 2 million or $1 71 per share.

For the six month period, NAREIT, <unk> was $8 $1 million or $1 51, a share and <unk> as adjusted was $4 4 million or <unk> 83 per share.

On a quarterly basis, the primary drivers of the variance to 2021 actuals were.

The gain of $8 $8 million from the sale of our Moorestown multifamily land parcel.

And a decrease in G&A expense of $3 $8 million.

On a year to date basis same store NOI, excluding lease termination revenues was three 6% higher than in the comparable six months ended in 2021.

This was driven by increases in revenue as a function of our strong leasing collections and tenant sales performance.

For the second quarter same store NOI was 96, 6% of 2019 levels. The primary driver of the decrease relative to 2021 is the recognition of COVID-19 related adjustments that positively impacted the second quarter of 2021.

As Joe mentioned core mall sales increased to $605 per square foot.

At the end of the second quarter.

This compares to $539 per square foot at the end of 2019. This is an increase of over 12% that was driven by outperformance from a broad base of retailers within our portfolio.

Leasing momentum continues to be strong during the quarter, we signed 350000 square feet of new and renewal leases.

Some other noteworthy achievements.

Core mall total occupancy was 93, 8% as compared to 89% at the end of the second quarter of 2021.

This is an improvement of 480 basis points.

Core mall in line occupancy.

We ended the quarter at 95% versus 86% at the end of the second quarter of 2021.

This is an increase of 450 basis points.

Total leased occupancy, which captures the volume of our leasing activity is at 95% an improvement of 240 basis points over the second quarter of 2021.

And renewal spreads they were positive at two 3% on a year to date basis.

During June we sold three assets generating total proceeds of $49 $6 million.

And gains on these transactions of $19 $6 million were recorded during the second quarter.

With the proceeds from these sales combined with excess property cash flow, we paid down the revolver by approximately $37 7 million.

And the first lien term loan by $18 1 million.

Subsequent to the close of the quarter, we used over $3 million from the sale of additional out parcels to make further paydowns.

Looking ahead, we are focused on translating all of this activity into organic revenue growth and continuing to sell assets opportunistically.

The goal of reducing debt and interest expense and driving earnings growth.

To reiterate what we've said previously we fully expect to achieve the credit facility extension later this year.

With that we will begin our Q&A session Heather.

I will now read the questions we received over the portal.

The first question is is the company on track to meet debt obligations and interest payments with lease revenue and cash from asset sales to maintain positive cash flow and solvency.

Yes, as we noted in our prepared remarks, we expect to be able to execute our credit facility extension and we are in the process of reviewing our options to refinance the facility weaker.

We currently have $128 million in liquidity and over $200 million of asset sales in the pipeline to facilitate our debt reduction plan. The company does remain cash flow positive from operations.

Our next question is what is the current leasing environment like are you seeing continued strong interest in <unk> properties.

How about interest from experiential offerings, such as camp, our indoor miniature golf and entertainment venues.

Yes, we continue to see strong leasing demand on a leased basis. Our total occupancy is an impressive 95%.

And we continue to attract a wide array of tenants and experience experiential offerings remains a top priority for US along these lines. We've tilted 10 opening at Willow Grove later this year.

Legal in Discovery Center at Springfield Town Center next year. In addition to several new retailers and expanding in our portfolio. We're also pursuing several indoor golf and active entertainment opportunities.

Thanks, Joe third question.

If necessary to successfully renegotiate the term loan when it comes down to a level a court supervised restructuring would you consider selling your interest in one or more of the next few centers do you own half of or even selling one of your mouth to pay down more debt.

We do have over $200 million of asset sales pending our top priority is maximizing value for all of our stakeholders and we will consider all options to achieve this.

Noteworthy that we recently sold our 25% interest in Gloucester premium outlets from our perspective, all options are on the table.

Okay.

Great.

Fourth question as what plans are in the works to ensure that their recent reverse split was beneficial to the company as well as shareholders.

We are executing on our strategic plan to improve the share price by focusing on operational performance asset sales mortgage refinancing exercising our credit facility extension and addressing the upcoming fashion district re margin payment.

Okay. Next question what is next for the company.

As part of our effort to transform our assets into a vibrant multi use destinations we shop dine play live and work options were at work creating value throughout the portfolio through the addition of a variety of uses including apartments Entertainment fitness health care, where.

Next bases and new retail at the same time, we're on track to execute our credit facility extension and looking at options to refinance in 2023 toward this end we are renewing reviewing all strategic options available to the company.

Okay.

Is the company, considering raising equity by issuing additional common or preferred shares.

At this time the company does not plan to issue equity, but we are pursuing all other options to raise capital, including land and out parcel sales JV interests and whole property sales.

How do you expect inflation to impact your properties consumers seem to be reducing their discretionary spending in order to buy fuel and power utility.

Well, we operate in strong markets and are continuing to see strong traffic and consumer spending traffic is up 3% over last year and sales were up over 12% compared to pre pandemic sales that said, we believe we positioned our properties well to withstand very.

Economic conditions, including offering an array of retail spanning traditional full price the value retail and satisfaction. It's noteworthy we've increased the presence of value and fast fashion retailers by 250% in 10 years, our one stop shop.

<unk> allows consumers to get everything they need in one trip.

Thanks, Joe.

Question is how can investors be assure their investments are safe with your company.

We have a lot to be optimistic about here at <unk> with a portfolio concentrated in two top 10 markets in the country, that's well positioned to accommodate alternative uses including healthcare self storage fitness facilities in apartments, we have taken the important steps to grow asset.

Values, replacing anchors driving new tenants and customers to our properties, adding hotels and apartments are properties are designed to withstand fluctuations in retail and consumer behavior. So we're full speed ahead, and improving our balance sheet, having paid down over 880 million.

And that with a pipeline of asset sales exceeding 200 million to unlock value for all of our stakeholders.

Okay. Thank you that concludes today's Q&A session.

Well. Thank you all for participating on the call today.

We're at work, creating value for our stakeholders.

Okay.

And with that ladies and gentlemen that does conclude today's conference call. Thank you all for joining you may now disconnect.

Okay.

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