UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
☒Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
|
|
For the quarterly period ended September 30, 20202021
or
☐Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
|
|
For the transition period from to to
Commission File Number: 001-6300
PENNSYLVANIA REAL ESTATE INVESTMENT TRUST
(Exact name of Registrant as specified in its charter)
Pennsylvania |
| 23-6216339 |
(State or other jurisdiction of incorporation or organization) |
| (I.R.S. Employer Identification No.) |
|
|
|
One Commerce Square 2005 Market Street, Suite 1000 Philadelphia, PA |
| 19103 |
(Address of principal executive offices) |
| (Zip Code) |
Registrant’s telephone number, including area code (215) (215) 875-0700
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of Exchange on which registered |
Shares of Beneficial Interest, par value $1.00 per share | PEI | New York Stock Exchange |
Series B Preferred Shares, par value $0.01 per share | PEIPrB | New York Stock Exchange |
Series C Preferred Shares, par value $0.01 per share | PEIPrC | New York Stock Exchange |
Series D Preferred Shares, par value $0.01 per share | PEIPrD | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ |
| Accelerated filer | ☒ |
Non-accelerated filer | ☐ |
| Smaller reporting company |
|
|
|
| Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13, or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ☒ No ☐
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. On November 6, 2020, 79,537,1673, 2021, 80,200,236 shares of beneficial interest, par value $1.00 per share, of the Registrant were outstanding.
PENNSYLVANIA REAL ESTATE INVESTMENT TRUST
CONTENTS
Page | |||
PART I—FINANCIAL INFORMATION | |||
Item 1. |
| ||
Consolidated Balance Sheets—September 30, |
| ||
| |||
| |||
Consolidated Statements of Equity—Three and Nine Months Ended September 30, |
| ||
Consolidated Statements of Cash Flows—Nine Months Ended September 30, |
| ||
| |||
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
| |
Item 3. |
| ||
Item 4. |
| ||
PART II—OTHER INFORMATION | |||
Item 1. |
| ||
Item 1A. |
| ||
Item 2. |
| ||
Item 3. |
| ||
Item 4. | Not Applicable | ||
Item 5. | Not Applicable | ||
Item 6. |
| ||
|
Except as the context otherwise requires, references in this Quarterly Report on Form 10-Q to “we,” “our,” “us,” the “Company” and “PREIT” refer to Pennsylvania Real Estate Investment Trust and its subsidiaries, including our operating partnership, PREIT Associates, L.P. References in this Quarterly Report on Form 10-Q to “PREIT Associates” or the “Operating Partnership” refer to PREIT Associates, L.P. Where the context so requires, references in this Quarterly Report on Form 10-Q to “we”, “our,” “us,” the “Company” and “PREIT”
refer to the reorganized Company following emergence from the Chapter 11 Cases described herein.
Item 1. FINANCIAL STATEMENTS
PENNSYLVANIA REAL ESTATE INVESTMENT TRUST
CONSOLIDATED BALANCE SHEETS
(Unaudited)
|
| September 30, 2020 |
|
| December 31, 2019 |
|
| September 30, 2021 |
|
| December 31, 2020 |
| ||||
(in thousands, except per share amounts) |
| (Unaudited) |
|
|
|
|
|
|
|
|
|
|
| |||
ASSETS: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
INVESTMENTS IN REAL ESTATE, at cost: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Operating properties |
| $ | 3,163,656 |
|
| $ | 3,099,034 |
|
| $ | 3,175,442 |
| $ | 3,168,536 |
| |
Construction in progress |
|
| 46,872 |
|
|
| 106,011 |
|
| 44,671 |
| 46,285 |
| |||
Land held for development |
|
| 5,881 |
|
|
| 5,881 |
|
|
| 4,339 |
|
|
| 5,516 |
|
Total investments in real estate |
|
| 3,216,409 |
|
|
| 3,210,926 |
|
| 3,224,452 |
| 3,220,337 |
| |||
Accumulated depreciation |
|
| (1,280,117 | ) |
|
| (1,202,722 | ) |
|
| (1,388,330 | ) |
|
| (1,308,427 | ) |
Net investments in real estate |
|
| 1,936,292 |
|
|
| 2,008,204 |
|
| 1,836,122 |
| 1,911,910 |
| |||
INVESTMENTS IN PARTNERSHIPS, at equity: |
|
| 176,070 |
|
|
| 159,993 |
|
| 19,947 |
| 27,066 |
| |||
OTHER ASSETS: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Cash and cash equivalents |
|
| 36,373 |
|
|
| 12,211 |
|
| 28,975 |
| 43,309 |
| |||
Tenant and other receivables |
|
| 64,367 |
|
|
| 41,261 |
|
| 36,102 |
| 54,532 |
| |||
Intangible assets (net of accumulated amortization of $19,896 and $18,248 at September 30, 2020 and December 31, 2019, respectively) |
|
| 11,756 |
|
|
| 13,404 |
| ||||||||
Intangible assets (net of accumulated amortization of $20,220 and $19,187 at September 30, 2021 and December 31, 2020, respectively) |
| 10,359 |
| 11,392 |
| |||||||||||
Deferred costs and other assets, net |
|
| 138,821 |
|
|
| 103,688 |
|
| 134,967 |
| 127,593 |
| |||
Assets held for sale |
|
| 1,384 |
|
|
| 12,506 |
|
|
| 3,626 |
|
|
| 1,384 |
|
Total assets |
| $ | 2,365,063 |
|
| $ | 2,351,267 |
|
| $ | 2,070,098 |
|
| $ | 2,177,186 |
|
LIABILITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Mortgage loans payable, net |
| $ | 890,848 |
|
| $ | 899,753 |
|
| $ | 856,986 |
| $ | 884,503 |
| |
Term Loans, net |
|
| 559,040 |
|
|
| 548,025 |
|
| 945,456 |
| 908,473 |
| |||
Revolving Facilities |
|
| 375,000 |
|
|
| 255,000 |
|
| 54,830 |
| 54,830 |
| |||
Tenants’ deposits and deferred rent |
|
| 10,601 |
|
|
| 13,006 |
|
| 9,075 |
| 8,899 |
| |||
Distributions in excess of partnership investments |
|
| 77,848 |
|
|
| 87,916 |
|
| 69,627 |
| 76,586 |
| |||
Fair value of derivative liabilities |
|
| 27,694 |
|
|
| 13,126 |
| ||||||||
Fair value of derivative instruments |
| 13,060 |
| 23,292 |
| |||||||||||
Accrued expenses and other liabilities |
|
| 105,637 |
|
|
| 107,016 |
|
|
| 91,062 |
|
|
| 93,663 |
|
Total liabilities |
|
| 2,046,668 |
|
|
| 1,923,842 |
|
|
| 2,040,096 |
|
|
| 2,050,246 |
|
COMMITMENTS AND CONTINGENCIES: |
|
|
|
|
|
|
|
| ||||||||
COMMITMENTS AND CONTINGENCIES (Note 8) |
|
|
|
|
|
| ||||||||||
EQUITY: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Series B Preferred Shares, $.01 par value per share; 25,000 shares authorized; 3,450 shares issued and outstanding; liquidation preference of $87,840 and $86,250 at September 30, 2020 and December 31, 2019, respectively |
|
| 35 |
|
|
| 35 |
| ||||||||
Series C Preferred Shares, $.01 par value per share; 25,000 shares authorized; 6,900 shares issued and outstanding; liquidation preference of $175,605 and $172,500 at September 30, 2020 and December 31, 2019, respectively |
|
| 69 |
|
|
| 69 |
| ||||||||
Series D Preferred Shares, $.01 par value per share; 25,000 shares authorized; 5,000 shares issued and outstanding; liquidation preference of $127,149 and $125,000 at September 30, 2020 and December 31, 2019, respectively |
|
| 50 |
|
|
| 50 |
| ||||||||
Shares of beneficial interest, $1.00 par value per share; 200,000 shares authorized; 79,490 and 77,550 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively |
|
| 79,490 |
|
|
| 77,550 |
| ||||||||
Series B Preferred Shares, $.01 par value per share; 25,000 shares authorized; 3,450 shares issued and outstanding; liquidation preference of $94,201 and $89,430 at September 30, 2021 and December 31, 2020, respectively |
| 35 |
| 35 |
| |||||||||||
Series C Preferred Shares, $.01 par value per share; 25,000 shares authorized; 6,900 shares issued and outstanding; liquidation preference of $188,025 and $178,710 at September 30, 2021 and December 31, 2020, respectively |
| 69 |
| 69 |
| |||||||||||
Series D Preferred Shares, $.01 par value per share; 25,000 shares authorized; 5,000 shares issued and outstanding; liquidation preference of $135,743 and $129,297 at September 30, 2021 and December 31, 2020, respectively |
| 50 |
| 50 |
| |||||||||||
Shares of beneficial interest, $1.00 par value per share; 200,000 shares authorized; 80,200 and 79,537 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively |
| 80,200 |
| 79,537 |
| |||||||||||
Capital contributed in excess of par |
|
| 1,770,070 |
|
|
| 1,766,883 |
|
| 1,775,959 |
| 1,771,777 |
| |||
Accumulated other comprehensive loss |
|
| (27,828 | ) |
|
| (12,556 | ) |
| (12,876 | ) |
| (20,620 | ) | ||
Distributions in excess of net income |
|
| (1,504,371 | ) |
|
| (1,408,352 | ) |
|
| (1,804,710 | ) |
|
| (1,699,638 | ) |
Total equity—Pennsylvania Real Estate Investment Trust |
|
| 317,515 |
|
|
| 423,679 |
| ||||||||
Total equity – Pennsylvania Real Estate Investment Trust |
| 38,727 |
| 131,210 |
| |||||||||||
Noncontrolling interest |
|
| 880 |
|
|
| 3,746 |
|
|
| (8,725 | ) |
|
| (4,270 | ) |
Total equity |
|
| 318,395 |
|
|
| 427,425 |
|
|
| 30,002 |
|
|
| 126,940 |
|
Total liabilities and equity |
| $ | 2,365,063 |
|
| $ | 2,351,267 |
|
| $ | 2,070,098 |
|
| $ | 2,177,186 |
|
See accompanying notes to the unaudited consolidated financial statements.
14
PENNSYLVANIA REAL ESTATE INVESTMENT TRUST
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||||||||||||
(in thousands of dollars) |
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||||||
REVENUE: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Real estate revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Lease revenue |
| $ | 58,473 |
|
| $ | 73,310 |
|
| $ | 178,313 |
|
| $ | 223,668 |
|
| $ | 65,543 |
|
| $ | 58,473 |
| $ | 193,563 |
| $ | 178,313 |
| ||
Expense reimbursements |
|
| 4,040 |
|
|
| 5,364 |
|
|
| 11,321 |
|
|
| 15,342 |
|
| 4,650 |
|
|
| 4,040 |
| 12,436 |
| 11,321 |
| |||||
Other real estate revenue |
|
| 1,336 |
|
|
| 2,202 |
|
|
| 4,803 |
|
|
| 7,619 |
|
|
| 1,400 |
|
|
| 1,336 |
|
|
| 4,828 |
|
|
| 4,803 |
|
Total real estate revenue |
|
| 63,849 |
|
|
| 80,876 |
|
|
| 194,437 |
|
|
| 246,629 |
|
| 71,593 |
|
|
| 63,849 |
| 210,827 |
| 194,437 |
| |||||
Other income |
|
| 340 |
|
|
| 498 |
|
|
| 764 |
|
|
| 1,440 |
|
|
| 143 |
|
|
| 340 |
|
|
| 430 |
|
|
| 764 |
|
Total revenue |
|
| 64,189 |
|
|
| 81,374 |
|
|
| 195,201 |
|
|
| 248,069 |
|
| 71,736 |
|
|
| 64,189 |
| 211,257 |
| 195,201 |
| |||||
EXPENSES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Property operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
CAM and real estate taxes |
|
| (27,688 | ) |
|
| (28,320 | ) |
|
| (80,418 | ) |
|
| (85,891 | ) |
| (26,408 | ) |
|
| (27,688 | ) |
| (79,899 | ) |
| (80,418 | ) | |||
Utilities |
|
| (3,530 | ) |
|
| (4,009 | ) |
|
| (8,971 | ) |
|
| (11,350 | ) |
| (3,749 | ) |
|
| (3,530 | ) |
| (9,573 | ) |
| (8,971 | ) | |||
Other property operating expenses |
|
| (1,827 | ) |
|
| (1,836 | ) |
|
| (5,699 | ) |
|
| (5,815 | ) |
|
| (1,972 | ) |
|
| (1,827 | ) |
|
| (6,580 | ) |
|
| (5,699 | ) |
Total property operating expenses |
|
| (33,045 | ) |
|
| (34,165 | ) |
|
| (95,088 | ) |
|
| (103,056 | ) |
| (32,129 | ) |
|
| (33,045 | ) |
| (96,052 | ) |
| (95,088 | ) | |||
Depreciation and amortization |
|
| (34,420 | ) |
|
| (31,236 | ) |
|
| (95,597 | ) |
|
| (98,085 | ) |
| (29,142 | ) |
|
| (34,420 | ) |
| (88,667 | ) |
| (95,597 | ) | |||
General and administrative expenses |
|
| (9,526 | ) |
|
| (10,605 | ) |
|
| (30,790 | ) |
|
| (33,419 | ) |
| (14,453 | ) |
|
| (9,526 | ) |
| (39,819 | ) |
| (30,790 | ) | |||
Provision for employee separation expenses |
|
| (60 | ) |
|
| (218 | ) |
|
| (1,173 | ) |
|
| (1,078 | ) |
| (39 | ) |
|
| (60 | ) |
| (279 | ) |
| (1,173 | ) | |||
Insurance recoveries, net |
|
| 0 |
|
|
| 2,878 |
|
|
| 586 |
|
|
| 4,494 |
|
| 0 |
|
|
| 0 |
| 670 |
| 586 |
| |||||
Project costs and other expenses |
|
| (124 | ) |
|
| (80 | ) |
|
| (287 | ) |
|
| (267 | ) |
|
| (27 | ) |
|
| (124 | ) |
|
| (206 | ) |
|
| (287 | ) |
Total operating expenses |
|
| (77,175 | ) |
|
| (73,426 | ) |
|
| (222,349 | ) |
|
| (231,411 | ) |
| (75,790 | ) |
|
| (77,175 | ) |
| (224,353 | ) |
| (222,349 | ) | |||
Interest expense, net |
|
| (20,260 | ) |
|
| (15,534 | ) |
|
| (54,300 | ) |
|
| (46,986 | ) |
| (32,426 | ) |
|
| (20,260 | ) |
| (95,135 | ) |
| (54,300 | ) | |||
Gain on debt extinguishment, net |
|
| 0 |
|
|
| 29,600 |
|
|
| 0 |
|
|
| 24,832 |
|
| 0 |
|
|
| 0 |
| 4,587 |
| 0 |
| |||||
Gain on derecognition of property |
|
| 7,006 |
|
|
| 0 |
|
|
| 7,006 |
|
|
| 0 |
|
| 0 |
|
|
| 7,006 |
| 0 |
| 7,006 |
| |||||
Impairment of development land parcel |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| (1,464 | ) | ||||||||||||||||
Impairment of assets |
| (262 | ) |
|
| 0 |
| (1,564 | ) |
| 0 |
| ||||||||||||||||||||
Reorganization expenses |
|
| 0 |
|
|
| 0 |
|
|
| (267 | ) |
|
| 0 |
| ||||||||||||||||
Total expenses |
|
| (90,429 | ) |
|
| (59,360 | ) |
|
| (269,643 | ) |
|
| (255,029 | ) |
|
| (108,478 | ) |
|
| (90,429 | ) |
|
| (316,732 | ) |
|
| (269,643 | ) |
(Loss) income before equity in (loss) income of partnerships, gain on sales of real estate by equity method investee, (loss) gain on sales of real estate, net, and gain (loss) on sales of interests in non operating real estate |
|
| (26,240 | ) |
|
| 22,014 |
|
|
| (74,442 | ) |
|
| (6,960 | ) | ||||||||||||||||
Equity in (loss) income of partnerships |
|
| (3,259 | ) |
|
| 1,531 |
|
|
| (2,798 | ) |
|
| 6,136 |
| ||||||||||||||||
Gain on sales of real estate by equity method investee |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 553 |
| ||||||||||||||||
Loss before equity in loss of partnerships, (loss) gain on sales of real estate by equity method investee, (loss) gain on sales of real estate, net, and gain (loss) on sales of interests in non operating real estate |
| (36,742 | ) |
|
| (26,240 | ) |
| (105,475 | ) |
| (74,442 | ) | |||||||||||||||||||
Equity in loss of partnerships |
| (1,429 | ) |
|
| (3,259 | ) |
| (2,429 | ) |
| (2,798 | ) | |||||||||||||||||||
(Loss) gain on sales of real estate by equity method investee |
| (10 | ) |
|
| 0 |
| 1,337 |
| 0 |
| |||||||||||||||||||||
(Loss) gain on sales of real estate, net |
|
| (94 | ) |
|
| 1,171 |
|
|
| 11,169 |
|
|
| 2,684 |
|
| (217 | ) |
|
| (94 | ) |
| (1,191 | ) |
| 11,169 |
| |||
Gain (loss) on sales of interests in non operating real estate |
|
| 16 |
|
|
| 0 |
|
|
| (174 | ) |
|
| 0 |
|
|
| 0 |
|
|
| 16 |
|
|
| 0 |
|
|
| (174 | ) |
Net (loss) income |
|
| (29,577 | ) |
|
| 24,716 |
|
|
| (66,245 | ) |
|
| 2,413 |
| ||||||||||||||||
Less: net loss (income) attributable to noncontrolling interest |
|
| 734 |
|
|
| (454 | ) |
|
| 1,996 |
|
|
| 1,563 |
| ||||||||||||||||
Net (loss) income attributable to PREIT |
|
| (28,843 | ) |
|
| 24,262 |
|
|
| (64,249 | ) |
|
| 3,976 |
| ||||||||||||||||
Less: preferred share dividends |
|
| (6,843 | ) |
|
| (6,843 | ) |
|
| (20,531 | ) |
|
| (20,531 | ) | ||||||||||||||||
Net (loss) income attributable to PREIT common shareholders |
| $ | (35,686 | ) |
| $ | 17,419 |
|
| $ | (84,780 | ) |
| $ | (16,555 | ) | ||||||||||||||||
Net loss |
| (38,398 | ) |
|
| (29,577 | ) |
| (107,758 | ) |
| (66,245 | ) | |||||||||||||||||||
Less: net loss attributable to noncontrolling interest |
|
| 669 |
|
|
| 734 |
|
|
| 2,686 |
|
|
| 1,996 |
| ||||||||||||||||
Net loss attributable to PREIT |
| (37,729 | ) |
|
| (28,843 | ) |
| (105,072 | ) |
| (64,249 | ) | |||||||||||||||||||
Less: cumulative preferred share dividends |
|
| (6,843 | ) |
|
| (6,843 | ) |
|
| (20,531 | ) |
|
| (20,531 | ) | ||||||||||||||||
Net loss attributable to PREIT common shareholders |
| $ | (44,572 | ) |
| $ | (35,686 | ) |
| $ | (125,603 | ) |
| $ | (84,780 | ) |
See accompanying notes to the unaudited consolidated financial statements.
25
PENNSYLVANIA REAL ESTATE INVESTMENT TRUST
CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
(Unaudited)
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||||||||||||
(in thousands, except per share amounts) |
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||||||
Net (loss) income |
| $ | (29,577 | ) |
| $ | 24,716 |
|
| $ | (66,245 | ) |
| $ | 2,413 |
| ||||||||||||||||
Net loss |
| $ | (38,398 | ) |
| $ | (29,577 | ) |
| $ | (107,758 | ) |
| $ | (66,245 | ) | ||||||||||||||||
Noncontrolling interest |
|
| 734 |
|
|
| (454 | ) |
|
| 1,996 |
|
|
| 1,563 |
|
| 669 |
| 734 |
| 2,686 |
| 1,996 |
| |||||||
Cumulative preferred share dividends |
|
| (6,843 | ) |
|
| (6,843 | ) |
|
| (20,531 | ) |
|
| (20,531 | ) |
| (6,843 | ) |
| (6,843 | ) |
| (20,531 | ) |
| (20,531 | ) | ||||
Dividends on unvested restricted shares |
|
| 0 |
|
|
| (222 | ) |
|
| (363 | ) |
|
| (663 | ) |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| (363 | ) |
Net (loss) income used to calculate (loss) income per share—basic and diluted |
| $ | (35,686 | ) |
| $ | 17,197 |
|
| $ | (85,143 | ) |
| $ | (17,218 | ) | ||||||||||||||||
Basic and diluted (loss) income per share: |
| $ | (0.46 | ) |
| $ | 0.22 |
|
| $ | (1.10 | ) |
| $ | (0.23 | ) | ||||||||||||||||
Net loss used to calculate loss per share—basic and diluted |
| $ | (44,572 | ) |
| $ | (35,686 | ) |
| $ | (125,603 | ) |
| $ | (85,143 | ) | ||||||||||||||||
Basic and diluted loss per share: |
| $ | (0.56 | ) |
| $ | (0.46 | ) |
| $ | (1.60 | ) |
| $ | (1.10 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
(in thousands of shares) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Weighted average shares outstanding—basic |
|
| 77,401 |
|
|
| 76,492 |
|
|
| 77,149 |
|
|
| 74,771 |
|
| 79,184 |
| 77,401 |
| 78,330 |
| 77,149 |
| |||||||
Effect of common share equivalents(1) |
|
| 0 |
|
|
| 332 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
Weighted average shares outstanding—diluted |
|
| 77,401 |
|
|
| 76,824 |
|
|
| 77,149 |
|
|
| 74,771 |
|
|
| 79,184 |
|
|
| 77,401 |
|
|
| 78,330 |
|
|
| 77,149 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
(1) The Company had net losses used to calculate earnings per share for the three months ended September 30, 2020 and the nine months ended September 30, 2020 and 2019. Therefore, the effects of common share equivalents of 357 for the three months ended September 30, 2020 and, 411 and 375 for the nine months ended September 30, 2020 and 2019, respectively, are excluded from the calculation of diluted loss per share for these periods because they would be antidilutive. |
|
(1) The Company had net losses used to calculate earnings per share for the three and nine months ended September 30, 2021 and 2020. Therefore, the effects of common share equivalents are excluded from the calculation of diluted loss per share for these periods because they would be antidilutive.
See accompanying notes to the unaudited consolidated financial statements.
36
PENNSYLVANIA REAL ESTATE INVESTMENT TRUST
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)LOSS
(Unaudited)
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||
(in thousands of dollars) |
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||
Comprehensive (loss) income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
| $ | (29,577 | ) |
| $ | 24,716 |
|
| $ | (66,245 | ) |
| $ | 2,413 |
|
Unrealized gain (loss) on derivatives |
|
| 4,053 |
|
|
| (3,607 | ) |
|
| (15,750 | ) |
|
| (21,838 | ) |
Amortization of settled swaps |
|
| 3 |
|
|
| 3 |
|
|
| 73 |
|
|
| 82 |
|
Total comprehensive (loss) income |
|
| (25,521 | ) |
|
| 21,112 |
|
|
| (81,922 | ) |
|
| (19,343 | ) |
Less: comprehensive loss (income) attributable to noncontrolling interest |
|
| 138 |
|
|
| (363 | ) |
|
| 2,401 |
|
|
| 2,524 |
|
Comprehensive (loss) income attributable to PREIT |
| $ | (25,383 | ) |
| $ | 20,749 |
|
| $ | (79,521 | ) |
| $ | (16,819 | ) |
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
(in thousands of dollars) |
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
Comprehensive loss: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net loss |
| $ | (38,398 | ) |
| $ | (29,577 | ) |
| $ | (107,758 | ) |
| $ | (66,245 | ) |
Unrealized gain (loss) on derivatives |
|
| 2,634 |
|
|
| 4,053 |
|
|
| 7,903 |
|
|
| (15,750 | ) |
Amortization of settled swaps |
|
| 4 |
|
|
| 3 |
|
|
| 9 |
|
|
| 73 |
|
Total comprehensive loss |
|
| (35,760 | ) |
|
| (25,521 | ) |
|
| (99,846 | ) |
|
| (81,922 | ) |
Less: comprehensive loss attributable to noncontrolling interest |
|
| 630 |
|
|
| 138 |
|
|
| 2,518 |
|
|
| 2,401 |
|
Comprehensive loss attributable to PREIT |
| $ | (35,130 | ) |
| $ | (25,383 | ) |
| $ | (97,328 | ) |
| $ | (79,521 | ) |
See accompanying notes to the unaudited consolidated financial statements.
47
PENNSYLVANIA REAL ESTATE INVESTMENT TRUST
CONSOLIDATED STATEMENTS OF EQUITY
Three and Nine Months Ended
September 30, 20202021 and 20192020
(Unaudited)
|
|
|
|
|
| PREIT Shareholders |
|
|
|
|
| |||||||||||||||||||||||||
|
|
|
|
|
| Preferred Shares $.01 par |
|
| Shares of Beneficial |
|
| Capital Contributed |
|
| Accumulated Other |
|
| Distributions |
|
| Non- |
| ||||||||||||||
(in thousands of dollars, except per share amounts) |
| Total Equity |
|
| Series B |
|
| Series C |
|
| Series D |
|
| Interest, $1.00 Par |
|
| in Excess of Par |
|
| Comprehensive (Loss) Income |
|
| in Excess of Net Income |
|
| controlling interest |
| |||||||||
Balance January 1, 2020 |
| $ | 427,425 |
|
| $ | 35 |
|
| $ | 69 |
|
| $ | 50 |
|
| $ | 77,550 |
|
| $ | 1,766,883 |
|
| $ | (12,556 | ) |
| $ | (1,408,352 | ) |
| $ | 3,746 |
|
Net loss |
|
| (13,549 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (13,033 | ) |
|
| (516 | ) |
Other comprehensive loss |
|
| (19,746 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (19,240 | ) |
|
| — |
|
|
| (506 | ) |
Shares issued under employee compensation plans, net of shares retired |
|
| (42 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,290 |
|
|
| (1,332 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
Amortization of deferred compensation |
|
| 1,624 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,624 |
|
|
| — |
|
|
| — |
|
|
| — |
|
Dividends paid to common shareholders ($0.21 per share) |
|
| (16,492 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (16,492 | ) |
|
| — |
|
Dividends paid to Series B preferred shareholders ($0.4609 per share) |
|
| (1,591 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,591 | ) |
|
| — |
|
Dividends paid to Series C preferred shareholders ($0.45 per share) |
|
| (3,105 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (3,105 | ) |
|
| — |
|
Dividends paid to Series D preferred shareholders ($0.4297 per share) |
|
| (2,148 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (2,148 | ) |
|
| — |
|
Noncontrolling interests: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions paid to Operating Partnership unit holders ($0.21 per unit) |
|
| (411 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (411 | ) |
Balance March 31, 2020 |
| $ | 371,965 |
|
| $ | 35 |
|
| $ | 69 |
|
| $ | 50 |
|
| $ | 78,840 |
|
| $ | 1,767,175 |
|
| $ | (31,796 | ) |
| $ | (1,444,721 | ) |
| $ | 2,313 |
|
Net loss |
|
| (23,119 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (22,374 | ) |
|
| (745 | ) |
Other comprehensive income (loss) |
|
| 12 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 508 |
|
|
| — |
|
|
| (496 | ) |
Shares issued under employee compensation plans, net of shares retired |
|
| 114 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 620 |
|
|
| (506 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
Amortization of deferred compensation |
|
| 1,670 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,670 |
|
|
| — |
|
|
| — |
|
|
| — |
|
Dividends paid to common shareholders ($0.02 per share) |
|
| (1,589 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,589 | ) |
|
| — |
|
Dividends paid to Series B preferred shareholders ($0.4609 per share) |
|
| (1,591 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,591 | ) |
|
| — |
|
Dividends paid to Series C preferred shareholders ($0.45 per share) |
|
| (3,105 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (3,105 | ) |
|
| — |
|
Dividends paid to Series D preferred shareholders ($0.4297 per share) |
|
| (2,148 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (2,148 | ) |
|
| — |
|
Noncontrolling interests: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions paid to Operating Partnership unit holders ($0.02 per unit) |
|
| (40 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (40 | ) |
Balance June 30, 2020 |
| $ | 342,169 |
|
| $ | 35 |
|
| $ | 69 |
|
| $ | 50 |
|
| $ | 79,460 |
|
| $ | 1,768,339 |
|
| $ | (31,288 | ) |
| $ | (1,475,528 | ) |
| $ | 1,032 |
|
Net loss |
|
| (29,577 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (28,843 | ) |
|
| (734 | ) |
Other comprehensive income |
|
| 4,056 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3,460 |
|
|
| — |
|
|
| 596 |
|
Shares issued under employee compensation plans, net of shares retired |
|
| 34 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 30 |
|
|
| 4 |
|
|
| — |
|
|
| — |
|
|
| — |
|
Amortization of deferred compensation |
|
| 1,727 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,727 |
|
|
| — |
|
|
| — |
|
|
| — |
|
Distributions paid to Operating Partnership unit holders ($0.02 per unit) |
|
| (14 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (14 | ) |
Balance September 30, 2020 |
| $ | 318,395 |
|
| $ | 35 |
|
| $ | 69 |
|
| $ | 50 |
|
| $ | 79,490 |
|
| $ | 1,770,070 |
|
| $ | (27,828 | ) |
| $ | (1,504,371 | ) |
| $ | 880 |
|
|
|
|
|
| PREIT Shareholders |
|
|
|
| |||||||||||||||||||||||||||
|
|
|
|
| Preferred Shares $.01 par |
|
| Shares of |
|
| Capital |
|
| Accumulated |
|
| Distributions |
|
| Non- |
| |||||||||||||||
(in thousands of dollars, except per share amounts) |
| Total |
|
| Series |
|
| Series |
|
| Series |
|
| Interest, |
|
| in Excess of |
|
| Comprehensive |
|
| in Excess of |
|
| controlling |
| |||||||||
Balance January 1, 2021 |
| $ | 126,940 |
|
| $ | 35 |
|
| $ | 69 |
|
| $ | 50 |
|
| $ | 79,537 |
|
| $ | 1,771,777 |
|
| $ | (20,620 | ) |
| $ | (1,699,638 | ) |
| $ | (4,270 | ) |
Net loss |
|
| (43,980 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (42,746 | ) |
|
| (1,234 | ) |
Other comprehensive income |
|
| 2,604 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,540 |
|
|
| — |
|
|
| 64 |
|
Shares issued under employee compensation plan, net of shares retired |
|
| (647 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (277 | ) |
|
| (370 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
Amortization of deferred compensation |
|
| 1,321 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,321 |
|
|
| — |
|
|
| — |
|
|
| — |
|
Balance March 31, 2021 |
| $ | 86,238 |
|
| $ | 35 |
|
| $ | 69 |
|
| $ | 50 |
|
| $ | 79,260 |
|
| $ | 1,772,728 |
|
| $ | (18,080 | ) |
| $ | (1,742,384 | ) |
| $ | (5,440 | ) |
Net loss |
|
| (25,380 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (24,597 | ) |
|
| (783 | ) |
Other comprehensive income |
|
| 2,670 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,605 |
|
|
| — |
|
|
| 65 |
|
Amortization of deferred compensation |
|
| 1,149 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
|
|
|
| 1,149 |
|
|
| — |
|
|
| — |
|
|
| — |
| |
Other changes in noncontrolling interest, net |
|
| 38 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 38 |
|
Balance June 30, 2021 |
| $ | 64,715 |
|
| $ | 35 |
|
| $ | 69 |
|
| $ | 50 |
|
| $ | 79,260 |
|
| $ | 1,773,877 |
|
| $ | (15,475 | ) |
| $ | (1,766,981 | ) |
| $ | (6,120 | ) |
Net loss |
|
| (38,398 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (37,729 | ) |
|
| (669 | ) |
Other comprehensive income |
|
| 2,638 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,599 |
|
|
| — |
|
|
| 39 |
|
Shares issued under Operating Partnership units |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 940 |
|
|
| 1,035 |
|
|
| — |
|
|
| — |
|
|
| (1,975 | ) |
Amortization of deferred compensation |
|
| 1,047 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,047 |
|
|
| — |
|
|
| — |
|
|
| — |
|
Balance September 30, 2021 |
| $ | 30,002 |
|
| $ | 35 |
|
| $ | 69 |
|
| $ | 50 |
|
| $ | 80,200 |
|
| $ | 1,775,959 |
|
| $ | (12,876 | ) |
| $ | (1,804,710 | ) |
| $ | (8,725 | ) |
|
|
|
|
| PREIT Shareholders |
|
|
|
| |||||||||||||||||||||||||||
|
|
|
|
| Preferred Shares $.01 par |
|
| Shares of |
|
| Capital |
|
| Accumulated |
|
| Distributions |
|
| Non- |
| |||||||||||||||
(in thousands of dollars, except per share amounts) |
| Total |
|
| Series |
|
| Series |
|
| Series |
|
| Interest, |
|
| in Excess of |
|
| Comprehensive |
|
| in Excess of |
|
| controlling |
| |||||||||
Balance January 1, 2020 |
| $ | 427,425 |
|
| $ | 35 |
|
| $ | 69 |
|
| $ | 50 |
|
| $ | 77,550 |
|
| $ | 1,766,883 |
|
| $ | (12,556 | ) |
| $ | (1,408,352 | ) |
| $ | 3,746 |
|
Net loss |
|
| (13,549 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (13,033 | ) |
|
| (516 | ) |
Other comprehensive loss |
|
| (19,746 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (19,240 | ) |
|
| — |
|
|
| (506 | ) |
Shares issued under employee compensation |
|
| (42 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,290 |
|
|
| (1,332 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
Amortization of deferred compensation |
|
| 1,624 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,624 |
|
|
| — |
|
|
| — |
|
|
| — |
|
Dividends paid to common shareholders |
|
| (16,492 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (16,492 | ) |
|
| — |
|
Dividends paid to Series B preferred |
|
| (1,591 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,591 | ) |
|
| — |
|
Dividends paid to Series C preferred |
|
| (3,105 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (3,105 | ) |
|
| — |
|
Dividends paid to Series D preferred |
|
| (2,148 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (2,148 | ) |
|
| — |
|
Noncontrolling interests: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Distributions paid to Operating Partnership |
|
| (411 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (411 | ) |
Balance March 31, 2020 |
| $ | 371,965 |
|
| $ | 35 |
|
| $ | 69 |
|
| $ | 50 |
|
| $ | 78,840 |
|
| $ | 1,767,175 |
|
| $ | (31,796 | ) |
| $ | (1,444,721 | ) |
| $ | 2,313 |
|
Net loss |
|
| (23,119 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (22,374 | ) |
|
| (745 | ) |
Other comprehensive income (loss) |
|
| 12 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 508 |
|
|
| — |
|
|
| (496 | ) |
Shares issued under employee compensation |
|
| 114 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 620 |
|
|
| (506 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
Amortization of deferred compensation |
|
| 1,670 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,670 |
|
|
| — |
|
|
| — |
|
|
| — |
|
Dividends paid to common shareholders |
|
| (1,589 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,589 | ) |
|
| — |
|
Dividends paid to Series B preferred |
|
| (1,591 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,591 | ) |
|
| — |
|
Dividends paid to Series C preferred |
|
| (3,105 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (3,105 | ) |
|
| — |
|
Dividends paid to Series D preferred |
|
| (2,148 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (2,148 | ) |
|
| — |
|
Noncontrolling interests: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Distributions paid to Operating Partnership |
|
| (40 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (40 | ) |
Balance June 30, 2020 |
| $ | 342,169 |
|
| $ | 35 |
|
| $ | 69 |
|
| $ | 50 |
|
| $ | 79,460 |
|
| $ | 1,768,339 |
|
| $ | (31,288 | ) |
| $ | (1,475,528 | ) |
| $ | 1,032 |
|
Net loss |
|
| (29,577 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (28,843 | ) |
|
| (734 | ) |
Other comprehensive income |
|
| 4,056 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3,460 |
|
|
| — |
|
|
| 596 |
|
Shares issued under employee compensation |
|
| 34 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 30 |
|
|
| 4 |
|
|
| — |
|
|
| — |
|
|
| — |
|
Amortization of deferred compensation |
|
| 1,727 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,727 |
|
|
| — |
|
|
| — |
|
|
| — |
|
Noncontrolling interests: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Distributions paid to Operating Partnership |
|
| (14 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (14 | ) |
Balance September 30, 2020 |
| $ | 318,395 |
|
| $ | 35 |
|
| $ | 69 |
|
| $ | 50 |
|
| $ | 79,490 |
|
| $ | 1,770,070 |
|
| $ | (27,828 | ) |
| $ | (1,504,371 | ) |
| $ | 880 |
|
58
|
|
|
|
|
| PREIT Shareholders |
|
|
|
|
| |||||||||||||||||||||||||
|
|
|
|
|
| Preferred Shares $.01 par |
|
| Shares of Beneficial |
|
| Capital Contributed |
|
| Accumulated Other |
|
| Distributions |
|
| Non- |
| ||||||||||||||
(in thousands of dollars, except per share amounts) |
| Total Equity |
|
| Series B |
|
| Series C |
|
| Series D |
|
| Interest, $1.00 Par |
|
| in Excess of Par |
|
| Comprehensive (Loss) Income |
|
| in Excess of Net Income |
|
| controlling interest |
| |||||||||
Balance January 1, 2019 |
| $ | 546,551 |
|
| $ | 35 |
|
| $ | 69 |
|
| $ | 50 |
|
| $ | 70,495 |
|
| $ | 1,671,042 |
|
| $ | 5,408 |
|
| $ | (1,306,318 | ) |
| $ | 105,770 |
|
Net loss |
|
| (16,223 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (14,535 | ) |
|
| (1,688 | ) |
Other comprehensive loss |
|
| (6,506 | ) |
|
| — |
|
|
| — |
|
|
|
|
|
|
| — |
|
|
| — |
|
|
| (5,941 | ) |
|
| — |
|
|
| (565 | ) |
Shares issued upon redemption of Operating Partnership units |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 6,250 |
|
|
| 89,736 |
|
|
| — |
|
|
| — |
|
|
| (95,986 | ) |
Shares issued under employee compensation plans, net of shares retired |
|
| (326 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 638 |
|
|
| (964 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
Amortization of deferred compensation |
|
| 1,922 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,922 |
|
|
| — |
|
|
| — |
|
|
| — |
|
Dividends paid to common shareholders ($0.21 per share) |
|
| (14,930 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (14,930 | ) |
|
| — |
|
Dividends paid to Series B preferred shareholders ($0.4609 per share) |
|
| (1,590 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,590 | ) |
|
| — |
|
Dividends paid to Series C preferred shareholders ($0.4500 per share) |
|
| (3,105 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (3,105 | ) |
|
| — |
|
Dividends paid to Series D preferred shareholders ($0.4297 per share) |
|
| (2,148 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (2,148 | ) |
|
| — |
|
Noncontrolling interests: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions paid to Operating Partnership unit holders ($0.21 per unit) |
|
| (1,698 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,698 | ) |
Balance March 31, 2019 |
| $ | 501,947 |
|
| $ | 35 |
|
| $ | 69 |
|
| $ | 50 |
|
| $ | 77,383 |
|
| $ | 1,761,736 |
|
| $ | (533 | ) |
| $ | (1,342,626 | ) |
| $ | 5,833 |
|
Net loss |
|
| (6,080 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (5,751 | ) |
|
| (329 | ) |
Other comprehensive income |
|
| (11,647 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (11,342 | ) |
|
| — |
|
|
| (305 | ) |
Shares issued under employee compensation plans, net of shares retired |
|
| 337 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 164 |
|
|
| 173 |
|
|
| — |
|
|
| — |
|
|
| — |
|
Amortization of deferred compensation |
|
| 1,889 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,889 |
|
|
| — |
|
|
| — |
|
|
| — |
|
Dividends paid to common shareholders ($0.21 per share) |
|
| (16,278 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (16,278 | ) |
|
| — |
|
Dividends paid to Series B preferred shareholders ($0.4609 per share) |
|
| (1,591 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,591 | ) |
|
| — |
|
Dividends paid to Series C preferred shareholders ($0.4500 per share) |
|
| (3,105 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (3,105 | ) |
|
| — |
|
Dividends paid to Series D preferred shareholders ($0.4297 per share) |
|
| (2,148 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (2,148 | ) |
|
| — |
|
Noncontrolling interests: |
|
| — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions paid to Operating Partnership unit holders ($0.21 per unit) |
|
| (464 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (464 | ) |
Other changes in noncontrolling interest, net |
|
| (10 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (10 | ) |
Balance June 30, 2019 |
| $ | 462,850 |
|
| $ | 35 |
|
| $ | 69 |
|
| $ | 50 |
|
| $ | 77,547 |
|
| $ | 1,763,798 |
|
| $ | (11,875 | ) |
| $ | (1,371,499 | ) |
| $ | 4,725 |
|
Net income |
|
| 24,716 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 24,262 |
|
|
| 454 |
|
Other comprehensive income |
|
| (3,604 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (3,513 | ) |
|
| — |
|
|
| (91 | ) |
Shares issued under employee compensation plans, net of shares retired |
|
| 335 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 55 |
|
|
| 280 |
|
|
| — |
|
|
| — |
|
|
| — |
|
Amortization of deferred compensation |
|
| 1,822 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,822 |
|
|
| — |
|
|
| — |
|
|
| — |
|
Dividends paid to common shareholders ($0.21 per share) |
|
| (16,284 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (16,284 | ) |
|
| — |
|
Dividends paid to Series B preferred shareholders ($0.4609 per share) |
|
| (1,591 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,591 | ) |
|
| — |
|
Dividends paid to Series C preferred shareholders ($0.4500 per share) |
|
| (3,105 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (3,105 | ) |
|
| — |
|
Dividends paid to Series D preferred shareholders ($0.4297 per share) |
|
| (2,148 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (2,148 | ) |
|
| — |
|
Noncontrolling interests: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions paid to Operating Partnership unit holders ($0.21 per unit) |
|
| (425 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (425 | ) |
Other changes in noncontrolling interest, net |
|
| (76 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (76 | ) |
Balance September 30, 2019 |
| $ | 462,490 |
|
| $ | 35 |
|
| $ | 69 |
|
| $ | 50 |
|
| $ | 77,602 |
|
| $ | 1,765,900 |
|
| $ | (15,388 | ) |
| $ | (1,370,365 | ) |
| $ | 4,587 |
|
See accompanying notes to the unaudited consolidated financial statements.
69
PENNSYLVANIA REAL ESTATE INVESTMENT TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
| Nine Months Ended September 30, |
| |||||
(in thousands of dollars) |
| 2021 |
|
| 2020 |
| ||
Cash flows from operating activities: |
|
|
|
|
|
| ||
Net loss |
| $ | (107,758 | ) |
| $ | (66,245 | ) |
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: |
|
|
|
|
|
| ||
Depreciation |
|
| 83,571 |
|
|
| 89,115 |
|
Amortization |
|
| 6,581 |
|
|
| 10,154 |
|
Straight-line rent adjustments |
|
| 72 |
|
|
| (1,779 | ) |
Amortization of deferred compensation |
|
| 3,516 |
|
|
| 5,021 |
|
Gain on debt extinguishment, net |
|
| (4,587 | ) |
|
| 0 |
|
Paid-in-kind interest |
|
| 35,690 |
|
|
| 0 |
|
Gain on derecognition of property |
|
| 0 |
|
|
| (7,006 | ) |
Gain on hedge ineffectiveness |
|
| (2,329 | ) |
|
| 0 |
|
Loss (gain) on sales of interests in real estate and non-operating real estate, net |
|
| 1,191 |
|
|
| (10,995 | ) |
Equity in loss of partnerships |
|
| 2,429 |
|
|
| 2,798 |
|
Gain on sales of real estate by equity method investee |
|
| (1,337 | ) |
|
| 0 |
|
Cash distributions from partnerships |
|
| 198 |
|
|
| 1,285 |
|
Impairment of real estate assets |
|
| 1,564 |
|
|
| 0 |
|
Change in assets and liabilities: |
|
|
|
|
|
| ||
Net change in other assets |
|
| 15,618 |
|
|
| (30,657 | ) |
Net change in other liabilities |
|
| 3,780 |
|
|
| (514 | ) |
Net cash provided by (used in) operating activities |
|
| 38,199 |
|
|
| (8,823 | ) |
Cash flows from investing activities: |
|
|
|
|
|
| ||
Cash proceeds from sales of real estate |
|
| 4,076 |
|
|
| 21,951 |
|
Investments in real estate improvements |
|
| (12,563 | ) |
|
| (16,429 | ) |
Additions to construction in progress |
|
| (5,451 | ) |
|
| (31,478 | ) |
Investments in partnerships |
|
| (1,131 | ) |
|
| (30,228 | ) |
Capitalized leasing costs |
|
| (61 | ) |
|
| (150 | ) |
Additions to leasehold improvements and corporate fixed assets |
|
| (70 | ) |
|
| (4,863 | ) |
Net cash used in investing activities |
|
| (15,200 | ) |
|
| (61,197 | ) |
Cash flows from financing activities: |
|
|
|
|
|
| ||
Net borrowings under the Restructured Revolver |
|
| 0 |
|
|
| 120,000 |
|
Net repayments to term loans |
|
| (4,027 | ) |
|
| (12,000 | ) |
Repayments of finance lease liabilities |
|
| (514 | ) |
|
| (487 | ) |
Proceeds from notes payable |
|
| 0 |
|
|
| 4,536 |
|
Repayments of mortgage loans |
|
| (135,155 | ) |
|
| 0 |
|
Proceeds from mortgage loans |
|
| 127,685 |
|
|
| — |
|
Principal installments on mortgage loans |
|
| (19,679 | ) |
|
| (9,535 | ) |
Net borrowings under bridge facility |
|
| 0 |
|
|
| 22,500 |
|
Payment of deferred financing costs |
|
| (1,030 | ) |
|
| (35 | ) |
Value of shares of beneficial interest issued |
|
| 0 |
|
|
| 572 |
|
Dividends paid to common shareholders |
|
| 0 |
|
|
| (18,081 | ) |
Dividends paid to preferred shareholders |
|
| 0 |
|
|
| (13,688 | ) |
Distributions paid to Operating Partnership unit holders and noncontrolling interest |
|
| 0 |
|
|
| (465 | ) |
Value of shares retired under equity incentive plans, net of shares issued |
|
| (648 | ) |
|
| (466 | ) |
Net cash (used in) provided by financing activities |
|
| (33,368 | ) |
|
| 92,851 |
|
Net change in cash, cash equivalents, and restricted cash |
|
| (10,369 | ) |
|
| 22,831 |
|
Cash, cash equivalents, and restricted cash, beginning of period |
|
| 51,231 |
|
|
| 19,629 |
|
Cash, cash equivalents, and restricted cash, end of period |
| $ | 40,862 |
|
| $ | 42,460 |
|
|
| Nine Months Ended September 30, |
| |||||
(in thousands of dollars) |
| 2020 |
|
| 2019 |
| ||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
Net (loss) income |
| $ | (66,245 | ) |
| $ | 2,413 |
|
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities: |
|
|
|
|
|
|
|
|
Depreciation |
|
| 89,115 |
|
|
| 89,736 |
|
Amortization |
|
| 10,154 |
|
|
| 12,152 |
|
Straight-line rent adjustments |
|
| (1,779 | ) |
|
| (2,084 | ) |
Amortization of deferred compensation |
|
| 5,021 |
|
|
| 5,633 |
|
Gain on debt extinguishment, net |
|
| 0 |
|
|
| (24,832 | ) |
Gain on derecognition of property |
|
| (7,006 | ) |
|
| 0 |
|
Insurance recoveries in excess of property loss |
|
| 0 |
|
|
| (3,994 | ) |
Gain on sales of interests in real estate and non-operating real estate, net |
|
| (10,995 | ) |
|
| (2,684 | ) |
Equity in loss (income) of partnerships |
|
| 2,798 |
|
|
| (6,136 | ) |
Gain on sales of real estate by equity method investee |
|
| 0 |
|
|
| (553 | ) |
Cash distributions from partnerships |
|
| 1,285 |
|
|
| 19,223 |
|
Impairment of development land parcel |
|
| 0 |
|
|
| 1,464 |
|
Change in assets and liabilities: |
|
|
|
|
|
|
|
|
Net change in other assets |
|
| (30,657 | ) |
|
| (5,248 | ) |
Net change in other liabilities |
|
| (514 | ) |
|
| (5,417 | ) |
Net cash (used in) provided by operating activities |
|
| (8,823 | ) |
|
| 79,673 |
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Distribution of refinancing proceeds from equity method investee |
|
| 0 |
|
|
| 25,000 |
|
Cash proceeds from sales of real estate |
|
| 21,951 |
|
|
| 35,351 |
|
Cash proceeds from sale of mortgage |
|
| 0 |
|
|
| 8,000 |
|
Proceeds from insurance claims related to damage to real estate assets |
|
| 0 |
|
|
| 6,977 |
|
Cash distributions from partnerships of proceeds from real estate sold |
|
| 0 |
|
|
| 879 |
|
Additions to construction in progress |
|
| (31,478 | ) |
|
| (86,118 | ) |
Investments in real estate improvements |
|
| (16,429 | ) |
|
| (21,487 | ) |
Additions to leasehold improvements and corporate fixed assets |
|
| (4,863 | ) |
|
| (819 | ) |
Investments in equity method investees |
|
| (30,228 | ) |
|
| (55,221 | ) |
Capitalized leasing costs |
|
| (150 | ) |
|
| (413 | ) |
Net cash used in investing activities |
|
| (61,197 | ) |
|
| (87,851 | ) |
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Net borrowings under revolving facilities |
|
| 120,000 |
|
|
| 148,000 |
|
Net repayments to term loans |
|
| (12,000 | ) |
|
| 0 |
|
Repayments of mortgage loans and finance lease liabilities |
|
| (487 | ) |
|
| (71,210 | ) |
Proceeds from notes payable |
|
| 4,536 |
|
|
| 0 |
|
Principal installments on mortgage loans |
|
| (9,535 | ) |
|
| (12,806 | ) |
Net borrowings under bridge facility |
|
| 22,500 |
|
|
| 0 |
|
Payment of deferred financing costs |
|
| (35 | ) |
|
| (95 | ) |
Value of shares of beneficial interest issued |
|
| 572 |
|
|
| 978 |
|
Dividends paid to common shareholders |
|
| (18,081 | ) |
|
| (47,492 | ) |
Dividends paid to preferred shareholders |
|
| (13,688 | ) |
|
| (20,531 | ) |
Distributions paid to Operating Partnership unit holders and noncontrolling interest |
|
| (465 | ) |
|
| (2,587 | ) |
Value of shares retired under equity incentive plans, net of shares issued |
|
| (466 | ) |
|
| (632 | ) |
Net cash provided by (used in) financing activities |
|
| 92,851 |
|
|
| (6,375 | ) |
Net change in cash, cash equivalents, and restricted cash |
|
| 22,831 |
|
|
| (14,553 | ) |
Cash, cash equivalents, and restricted cash, beginning of period |
|
| 19,629 |
|
|
| 32,445 |
|
Cash, cash equivalents, and restricted cash, end of period |
| $ | 42,460 |
|
| $ | 17,892 |
|
See accompanying notes to the unaudited consolidated financial statements.
710
PENNSYLVANIA REAL ESTATE INVESTMENT TRUST
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 20202021
1. BASIS OF PRESENTATION
Nature of Operations
Pennsylvania Real Estate Investment Trust (“PREIT” or the “Company”) prepared the accompanying unaudited consolidated financial statements pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted pursuant to such rules and regulations, although we believe that the included disclosures are adequate to make the information presented not misleading. Our unaudited consolidated financial statements should be read in conjunction with the audited financial statements and the notes thereto included in PREIT’s Annual Report on Form 10-K for the year ended December 31, 2019.2020. In our opinion, all adjustments, consisting only of normal recurring adjustments, necessary to present fairly our consolidated financial position, the consolidated results of our operations, consolidated statements of comprehensive income (loss),loss, consolidated statements of equity and our consolidated statements of cash flows are included. The results of operations for the interim periods presented are not necessarily indicative of the results for the full year.
PREIT, a Pennsylvania business trust founded in 1960 and one of the first equity real estate investment trusts (“REITs”) in the United States, has a primary investment focus on retail shopping malls located in the eastern half of the United States, primarily in the Mid-Atlantic region. As of September 30, 2020,2021, our portfolio consists of a total of 2625 properties operating in 98 states, including 20 shopping malls, 54 other retail properties and 1 development property. The property in our portfolio that is classified as under development does not currently have any activity occurring.
We hold our interest in our portfolio of properties through our operating partnership, PREIT Associates, L.P. (“PREIT Associates” or the “Operating Partnership”). We are the sole general partner of the Operating Partnership and, as of September 30, 2020,2021, we held a 97.5%98.7% controlling interest in the Operating Partnership (after the redemption of 6,250,000 OP Units (as defined below) during the first quarter of 2019, which is discussed in more detail in Note 5), and consolidated it for reporting purposes. The presentation of consolidated financial statements does not itself imply that the assets of any consolidated entity (including any special-purpose entity formed for a particular project) are available to pay the liabilities of any other consolidated entity, or that the liabilities of any consolidated entity (including any special-purpose entity formed for a particular project) are obligations of any other consolidated entity.
Pursuant to the terms of the partnership agreement of the Operating Partnership, each of the limited partners has the right to redeem such partner’s units of limited partnership interest in the Operating Partnership (“OP Units”) for cash or, at our election, we may acquire such OP Units in exchange for our common shares on a 1-for-one1-for-one basis, in some cases beginning one year following the respective issue datesdate of the OP Units and in other cases immediately. If all of the outstanding OP Units held by limited partners had been redeemed for cash as of September 30, 2020,2021, the total amount that would have been distributed would have been $1.1$2.0 million, which is calculated using our September 30, 20202021 closing share price on the New York Stock Exchange (the “NYSE”) of $0.55 per share$1.94 multiplied by the number of outstandingOP Units held by limited partners, which was 2,022,6351,030,510 as of September 30, 2020.2021 after the issuance of 945,417 common shares in exchange for a like number of OP Units on July 20, 2021. The current terms of our credit agreements prohibit the Company from acquiring whole share OP Units for cash and, as such, any whole share OP Units presented for redemption will be redeemed for shares. Partial share OP Unit redemptions will be redeemed for cash.
We provide management, leasing and real estate development services through 2 of our subsidiaries: PREIT Services, LLC (“PREIT Services”), which generally develops and manages properties that we consolidate for financial reporting purposes, and PREIT-RUBIN, Inc. (“PRI”), which generally develops and manages properties that we do not consolidate for financial reporting purposes, including properties owned by partnerships in which we own an interest, and properties that are owned by third parties in which we do not have an interest. PREIT Services and PRI are consolidated. PRI is a taxable REIT subsidiary, as defined by federal tax laws, which means that it is able to offer an expanded menu of services to tenants without jeopardizing our continuing qualification as a REIT under federal tax law.
We evaluate operating results and allocate resources on a property-by-property basis, and do not distinguish or evaluate our consolidated operations on a geographic basis. Due to the nature of our operating properties, which involve retail shopping, dining, entertainment and certain non-traditional tenant operations, we have concluded that our individual properties have similar economic characteristics and meet all other aggregation criteria. Accordingly, we have aggregated our individual properties into 1 reportable segment. In addition, no single tenant accounts for 10% or more of consolidated revenue, and none of our properties are located outside the United States.
11
Financial Restructuring
On October 7, 2020, the Company and certain of the Company’s wholly owned direct and indirect subsidiaries (collectively, the “Company Parties”) entered into a Restructuring Support Agreement (the “RSA”), which contemplated agreed-upon terms for a financial restructuring of the then-existing debt and certain other obligations of the Company Parties (collectively with the following events, the “Financial Restructuring”). The RSA was amended on October 16, 2020, and again on October 23, 2020, to, among other things, extend the date by which the Company Parties were required to commence the solicitation of votes on their joint prepackaged chapter 11 plan of reorganization (the “Plan”) and, thereafter, the voluntary chapter 11 cases. On November 1, 2020, the Company and the other Company Parties under the RSA (the “Debtors”) filed their respective voluntary petitions under chapter 11 of title 11 of the United States Code, 11 U.S.C. §§ 101-1532 (the “Bankruptcy Code”) in the United States Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”), commencing the chapter 11 cases to confirm and consummate the Plan in order to effectuate the Debtors’ financial restructuring. The Debtors’ chapter 11 cases were jointly administered for procedural convenience under the caption In re Pennsylvania Real Estate Investment Trust, et al., Case No. 20-12737 (KBO). Under the Plan, the Debtors would be recapitalized and their debt maturities extended. The Debtors continued to operate their businesses as debtors in possession under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court. On November 30, 2020, the Bankruptcy Court entered an order (the “Confirmation Order”), confirming the Joint Prepackaged Chapter 11 Plan of Reorganization of Pennsylvania Real Estate Investment Trust and Certain of Its Direct and Indirect Subsidiaries (with Additional Technical Modifications As of November 20, 2020) (the “Confirmed Plan”). On December 10, 2020 (the “Effective Date”), each condition precedent to consummation of the Confirmed Plan, enumerated in Section 8.2 thereof, was satisfied or waived in accordance with the Confirmed Plan and the Confirmation Order, and therefore the Effective Date occurred and the Debtors emerged from bankruptcy. On the Effective Date, the Company entered into the credit agreements, which are described in Note 4. The final decree closing the bankruptcy case was entered by the Bankruptcy Court on March 11, 2021.
COVID-19 Related Risks and Uncertainties
The 2020COVID-19 global outbreak of a novel coronavirus (“COVID-19”)pandemic that began in early 2020 has adversely impacted and continues to impact our business, financial condition, liquidity and operating results, as well as our tenants’ businesses. The prolonged and increased spread of COVID-19 has also led to unprecedented global economic disruption and volatility in financial markets. Some of our tenants’ financial health and business viability have been adversely impacted and their creditworthiness has deteriorated. We anticipate that our future business, financial condition, liquidity and results of operations, including our results for 2020throughout the remainder of 2021 and potentially in future periods, will continue to be materially impacted by the COVID-19 pandemic. ItSignificant uncertainty remains highly uncertain how longwith regard to the globalduration and impact of the COVID-19 pandemic economic challenges and restrictionsits resulting impact on the economy and day-to-day life and business operationsoperations. In particular, the duration and impact of COVID-19 will last baseddepend on a variety of factors as conditions continue to fluctuate around the current virus spread ratecountry, with vaccination rates, spikes in the United States, which has resulted in a number of jurisdictions that previously
8
relaxedinfections and restrictions implementing new or renewed restrictions.on activities and recommended protocols continuing to vary and evolve. Given these factors, so long as the lingering effects of COVID-19 remain, the virus may continue to impact us or our tenants, or our ability or the ability of our tenants to resume more normal operations.
12
COVID-19 closures of our properties began on March 12, 2020 and continued through the reopening of our last property on July 3, 2020. These closures impacted most of our properties for the full second quarter of 2020 with traffic and tenant reopenings increasing through the third quarterand fourth quarters of 2020. CertainNew or renewed restrictions in the jurisdictions where our properties are located thatmay be implemented in response to evolving conditions and overall uncertainty about the timing and widespread availability, acceptance, and efficacy of vaccines and booster requirements, including in response to new, and potentially more aggressive, strains or variants. In some instances, certain markets have relaxedindependently implemented new restrictions or have experienced limited public adherence with suggested safety measures have been contemplating or implementingas a result of break-through cases and the increased spread of such new or renewed restrictions.strains and variants, including the Delta variant. As such, as the pandemic continues and potentially intensifies or experienceswe experience resurgences, it is possible that additional closures will occur.occur, or that limitations on operations will be imposed. During the mall closure period in the second quarter of 2020, the Company furloughed a significant portion of its property and corporate employee base and later made permanent headcount reductions, which contributed to decreased personnel related general and administrative expenses in the third quarterand fourth quarters of 2020.
All of our properties have remained open during the third quarter ofsince July 3, 2020 and are employing safety and sanitation measures designed to address the risks posed by COVID-19, withCOVID-19. Despite the increased vaccination rates in the country, some of our tenants are still operating at reduced capacity. The significance of COVID-19 on our business, however, will continue to depend on, among other things, the extent and duration of the pandemic, the severity of the disease and the number of people infected with the virus, the and certain variants thereof, vaccination rates in regions in which our properties are located, further effects on the economy of the pandemic and of the measures taken by governmental authorities and other third parties restricting daily activities and the length of time that such measures remain in place or are renewed, and implementation of governmental programs to assist businesses and consumers impacted by the COVID-19 pandemic.
Going Concern Considerations
Underpandemic, and the accounting guidance relatedeffect of any changes to current restrictions or recommended protocols, all of which could vary by geographic region in which our properties are located. We continue to experience uncertainty as to whether government authorities will maintain the presentationrelaxation of financial statements, when preparing financial statements for each annual and interim reporting period, management has the responsibility to evaluate whether there are conditions or events, consideredcurrent restrictions on businesses in the aggregate, that raise substantial doubt about the Company’s abilityregions in which our properties are located, and whether government authorities will issue recommendations or impose requirements on landlords like us to continue as a going concern within one year after the date that the financial statements are issued. The accompanying consolidated financial statements have been preparedfurther enhance health and safety protocols, or whether we will voluntarily adopt any of these requirements ourselves, which could result in increased operating costs and demands on a going concern basis, which contemplates the realizationour property management teams to ensure compliance with any of assets and the satisfaction of liabilities in the normal course of business. The financial statements do not include any adjustments that might be necessary should the Company be unable to continue as a going concern. As a result of the considerations articulated below, we believe there is substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the financial statements are issued.these requirements.
In applying the accounting guidance, management considered our current financial condition and liquidity sources, including current funds available, forecasted future cash flows and our conditional and unconditional obligations due over the next twelve months. Management specifically considered the following: (i) our senior unsecured facility, which includes a revolving facility maturing in 2022 with a balance of $375.0 million as of September 30, 2020, term loans maturing in 2021 and 2023 with balances of $244.5 million and $293.5 million, respectively, as of September 30, 2020 and the Bridge Facility (as defined below) with a balance of $22.5 million as of September 30, 2020 maturing on October 31, 2020; (ii) our mortgage loans with varying maturities through 2025 with a principal balance of $890.8 million as of September 30, 2020; (iii) the financial covenant compliance requirements of our credit agreements; and (iv) recurring costs of operating our business.
On March 30, 2020, the Company amended its 7-Year term loan agreement, dated as of January 8, 2014 (as amended through the date hereof, the “7-Year Term Loan Agreement”) and its credit agreement, dated as of May 24, 2018, by and among the Company, each of the financial institutions from time to time party thereto, and Wells Fargo Bank, National Association, as administrative agent, (as amended through the date hereof, the “2018 Credit Agreement” (each a “Credit Agreement” and together with the 2014 7-Year Term Loan Agreement, the “Credit Agreements”) to provide certain debt covenant relief through September 30, 2020. The Company’s Credit Agreements were also amended on May 1, 2020 to extend the required delivery date of compliance certificates covering the fiscal quarter ended March 31, 2020 by six days. Further deterioration in our financial results due to COVID-19 has affected our covenant compliance prior to September 30, 2020. In anticipation of the Company not meeting certain financial covenants applicable under the Credit Agreements for the quarter ended June 30, 2020, on July 27, 2020, the Company further amended the Credit Agreements primarily to suspend certain debt covenants from and including June 30, 2020 until but excluding August 31, 2020, to reduce its minimum liquidity requirement during the Suspension Period (defined below) and to permit limited additional debt. On August 30, 2020, the Company agreed to a non-binding term sheet with Wells Fargo Bank, National Association and other financial institutions (the “Lenders”) for further amendments to the Credit Agreements. The Company’s agreement to this term sheet, along with entering into an agreement (the “Bridge Credit Agreement”) for an additional secured term loan facility permitting borrowings of up to $30.0 million on August 11, 2020 (the “Bridge Facility”) extended the Company’s suspension of certain debt covenants through September 30, 2020 (the “Suspension Period”). Subsequent to August 11, 2020, references to the Credit Agreements and Term Loans include the Bridge Facility. On September 30, 2020, the Company further amended the Credit Agreements and secured a one-month extension of the Suspension Period to October 31, 2020, an extension of the Bridge Facility maturity date to October 31, 2020, and certain other covenant amendments, including permission to incur an additional $25.0 million under the Bridge Facility. The Company further amended the Bridge Credit Agreement on October 16, 2020 to increase the aggregate amount of commitments thereunder by $25.0 million.
On October 7, 2020, the Company and certain of the Company’s wholly owned direct and indirect subsidiaries (collectively, the “Company Parties”) entered into a Restructuring Support Agreement (the “RSA”) with certain of the lenders party to its Credit Agreements.
913
The RSA contemplates agreed-upon terms for a financial restructuring of the existing debt and certain other obligations of the Company Parties through either (i) an out-of-court restructuring on the terms set forth in the out-of-court restructuring term sheet attached to the RSA or, if the Company is unable to obtain the consent of 100% of the lenders under the Credit Agreements, (ii) a prepackaged plan of reorganization on the terms set forth in the plan term sheet attached to the RSA, a solicitation of votes therefor, and the commencement by the Company of voluntary cases under chapter 11 of title 11 of the United States Code, 11 U.S.C. §§ 101-1532, in the United States Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”). The RSA was amended on October 16, 2020 and again on October 23, 2020, to, among other things, extend the date by which the Company Parties were required to commence the solicitation and the Chapter 11 Cases and provide for a limited tolling of the Company Parties’ alleged breach of the RSA (described further below).
On October 19, 2020, the Company and certain of its subsidiaries party to its Credit Agreements received letters from the administrative agent alleging events of default with respect to each of the Credit Agreements, in addition to a letter from certain lenders under the RSA regarding an alleged breach of the RSA (collectively, the “Reservation Letters”). The Reservation Letter in respect of the RSA asserts that the Company Parties’ failure to commence the Chapter 11 Cases on or before October 18, 2020 constituted a breach of their obligations under the RSA. The Reservation Letter in respect of the Bridge Credit Agreement asserted that an event of default has occurred thereunder as a result of the alleged breach of the Company Parties’ obligations under the RSA. The remaining Reservation Letters alleged that an event of default occurred under the Bridge Credit Agreement, in turn triggering alleged cross-defaults under each of the 7-Year Term Loan Agreement and the 2018 Credit Agreement. The Reservation Letter in respect of each Credit Agreement stated that interest will accrue on the outstanding principal balance of the loans under such Credit Agreement at the increased Post-Default Rate (as defined in such Credit Agreement) beginning on October 19, 2020. The Reservation Letters specified that the lenders have not waived their rights and remedies under the Credit Agreements or the RSA (as applicable), and that they expressly reserved all available rights and remedies thereunder and under applicable law. The Company responded to the administrative agent that it disputed the lenders’ characterization of the situation described in the Reservation Letters and that these events did not constitute a breach of the RSA or event of default under any of the Credit Agreements. On October 19, 2020, the borrower under the FDP Term Loan also received a letter from the administrative agent under the FDP Term Loan alleging an event of default under the FDP Term Loan as a result of the alleged breach of the 2018 Credit Agreement and outlining the 45-day cure period that will expire on December 3, 2020.
On November 1, 2020, the Company and the other Company Parties under the RSA (the “Debtors”) filed a voluntary Chapter 11 Cases petition (the “Chapter 11 Cases”) in the Bankruptcy Court to implement a prepackaged financial restructuring plan (the "Prepackaged Plan"). The Chapter 11 Cases are being jointly administered under the caption In re Pennsylvania Real Estate Investment Trust, et al. (Case No. 20-12737). Under the Prepackaged Plan, the Company would be recapitalized and its debt maturities extended. The Debtors will continue to operate their businesses as “debtors-in-possession” under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court. The Prepackaged Plan and requested first-day relief, which was subsequently granted, anticipate the continued payment of employee wages and benefits without interruption and that trade claimants and other unsecured creditors that continue to work with the Debtors on existing terms will be paid in full and in the ordinary course of business. The Prepackaged Plan is subject to approval by the United States Bankruptcy Court for the District of Delaware. See Note 4 to our unaudited consolidated financial statements for further detail.
On November 2, 2020, the borrower under the FDP Term Loan received a subsequent letter from the administrative agent asserting an event of default as a result of the filing of the Chapter 11 Cases and the automatic acceleration of the FDP Term Loan. The administrative agent under the FDP Term Loan is a party to the RSA, and PREIT has responded to the administrative agent with a letter expressly reserving its rights in connection with the FDP Term Loan and, in the event the Prepackaged Plan is not confirmed or the RSA is otherwise terminated, expressly reserving its rights under the RSA and the Prepackaged Plan.
Despite weaker market conditions resulting from COVID-19, the Company plans to sell certain real estate assets and continue to control certain operational costs in the ordinary course of business. Due to the inherent risks, unknown results and inherent uncertainties associated with the bankruptcy process and the direct correlation between these matters and our ability to satisfy our financial obligations that may arise over the applicable twelve-month period, absent approval of the Prepackaged Plan, we are unable to conclude that it is probable that we will be able to meet our obligations arising within twelve months of the date of issuance of these financial statements under the parameters set forth in this accounting guidance.
As a result, management evaluated whether this was mitigated by our approved plans and expectations for the applicable period under the second step of this accounting standard.
Our liquidity, including our ability to meet our ongoing operational obligations, fund recurring costs of operations, particularly in light of the costs associated with our bankruptcy proceedings and the current COVID-19 pandemic and resulting adverse impacts on our business is dependent upon, among other things: (i) our ability to comply with the terms and conditions of any cash collateral order that may be entered by the Bankruptcy Court in connection with the Chapter 11 Cases, (ii) our ability to maintain adequate cash on hand, (iii) our ability to generate cash flow from operations, (iv) our ability to develop, confirm and consummate the Prepackaged Plan or an alternative restructuring transaction, (v) the cost, duration and outcome of the Chapter 11 Cases; (vi) our execution of the sale of certain real estate assets in the ordinary course of business, which sales would provide cash, and (vii) controlling costs. While certain of these factors are within management’s control to some extent, all of them involve performance by third parties and therefore cannot be considered probable of occurring.Fair Value
10
Fair Value
Fair value accounting applies to reported balances that are required or permitted to be measured at fair value under existing accounting pronouncements. Fair value measurements are determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, these accounting requirements establish a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy).
Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that we have the ability to access.
Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs might include quoted prices for similar assets and liabilities in active markets, as well as inputs that are observable for the asset or liability (other than quoted prices), such as interest rates, foreign exchange rates, and yield curves that are observable at commonly quoted intervals.
Level 3 inputs are unobservable inputs for the asset or liability, and are typically based on an entity’s own assumptions, as there is little, if any, related market activity.
In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability. We utilize the fair value hierarchy in our accounting for derivatives (Level 2) and financial instruments (Level 2) and in our reviews for impairment of real estate assets (Level 3) and goodwill (Level 3).
Impairment of Assets
Real estate investments and related intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the property might not be recoverable, which is referred to as a “triggering event.” The continuedongoing impact of COVID-19 on the economy and market conditions, together with the resulting closures of our properties and the delayed and/or limited reopening of some tenants at our properties in the third quarter of 2020, was deemed to be a triggering event during the third quarteras of June 30, 2020, September 30, 2020, and December 31, 2020, which led to impairment reviews and assessment of the undiscounted future cash flows for each of the respective quarters of 2020. During the nine months ended September 30, 2021, certain of our properties had triggering events due to various indicators of impairment, but passed our undiscounted future cash flow assessment except for Valley View Center and Monroe Marketplace. Valley View Center was a retail property we owned and is located adjacent to Valley View Mall. As a result of a reduced holding period assumption, we recorded an impairment review.on Valley View Center, which was classified as held for sale as of June 30, 2021 and sold in August 2021. A parcel of land located adjacent to Monroe Marketplace, a retail property that we used to own, is classified as held for sale as of September 30, 2021. As a result of a reduced holding period assumption, we recorded an impairment on the land parcel. In connection with our review of our long-lived assets for impairment, we utilize qualitative and quantitative factors in order to estimate fair value. The significant qualitative factors that we use include age and condition of the property, market conditions in the property’s trade area, competition with other shopping centers within the property’s trade area and the creditworthiness and performance of the property’s tenants. The significant quantitative factors that we use include historical and forecasted financial and operating information relating to the property, such as net operating income, estimated holding periods, occupancy statistics, vacancy projections and tenants’ sales levels.
If there is a triggering event in relation to a property to be held and used, we will estimate the aggregate future cash flows, net of estimated capital expenditures, to be generated by the property, undiscounted and without interest charges. In addition, this estimate may consider a probability weighted cash flow estimation approach when alternative courses of action to recover the carrying amount of a long-lived asset are under consideration or when a range of possible values is estimated.
The determination of undiscounted cash flows requires significant estimates by our management, including the expected course of action at the balance sheet date that would lead to such cash flows. Subsequent changes in estimated undiscounted cash flows arising from changes in the anticipated action to be taken with respect to the property could affect the determination of whether an impairment exists, and the effects of such changes could materially affect our net income. If the estimated undiscounted cash flows are less than the carrying value of the property, the carrying value is written down to its fair value. We intend to hold and operate our properties long-term, which reduces the likelihood that our carrying value is not recoverable. A shortened holding period would increase the likelihood that the carrying value is not recoverable.
Assessment of our ability to recover certain lease-related costs must be made when we have a reason to believe that a tenant might not be able to perform under the terms of the lease as originally expected. This requires us to make estimates as to the recoverability of such costs.
An other-than-temporary impairment of an investment in an unconsolidated joint venture is recognized when the carrying value of the investment is not considered recoverable based on evaluation of the severity and duration of the decline in value. To the extent impairment has occurred, the excess carrying value of the asset over its estimated fair value is recorded as a reduction to income. We concluded that there was no impairment as of September 30, 2020. The Company continues to monitor potential triggering events throughout the year for impairment indicators.
New Accounting Developments
Effective January 1, 2020, we adopted Accounting Standards Update (“ASU”) ASU 2016-13, Financial Instruments - Credit Losses14 (“ASC 326”), and subsequently issued amendments to the initial and transitional guidance within ASU 2018-19, ASU 2019-04 and ASU 2019-05. ASU 2016-13 introduced new guidance for an approach based on expected losses to estimate credit losses on certain types of financial instruments, and
11
will affect our
New Accounting Developments
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional guidance for a limited period of time to ease the potential burden in accounting for trade receivables(or recognizing the effects of) reference rate reform on financial reporting for contracts, hedging relationships, and notes receivable.other transactions that reference the London Interbank Offered Rate (“LIBOR”). Companies may generally elect to apply the guidance for periods that include March 12, 2020 through December 31, 2022. In January 2021, the FASB issued ASU 2021-01 to provide additional guidance around Topic 848 primarily as it relates to the ASU’s effect on derivative contracts. The adoptionCompany is evaluating the anticipated impact of this guidance did not have a material impactstandard on ourits condensed consolidated financial statements.statements as well as timing of adoption.
In April 2020, the Financial Accounting Standards Board (“FASB”) issued a Staff Question-and-Answer (“Q&A”) to clarify whether lease concessions related to the effects of COVID-19 require the application of the lease modification guidance under ASU 2016-02, Leases (Topic 842) (“ASC 842”). Under ASC 842, we would have to determine, on a lease-by-lease basis, if a lease concession was the result of a new arrangement reached with the tenant or an enforceable right and obligation within the existing lease. The Q&A allows for the bypass of a lease-by-lease analysis and for us to elect to either apply the lease modification accounting framework or not, to all of the lease concessions we make with similar characteristics and circumstances. The FASB staff suggested that, in the context of the COVID-19 crisis, under ASC 842, leases where the total lease cash flows will remain substantially the same or less than those under the original lease contract after the COVID-19 related effects, a company may choose to forgo the evaluation of the enforceable rights and obligations of the original lease contract. Instead, the company would account for rent concessions, either:
1. As if they are part of the enforceable rights and obligations under the existing lease contract. Under this approach, the rent concession would be treated as a variable lease payment (negative), resulting in negative variable rent in the affected period(s); or
2. As a lease modification. Under this approach, the resulting change in lease income will be recognized over the remainder of the post-modification lease term.
We have determined that we will apply the practical expedient and record negative variable rent, when applicable. This will be the case if the total amended lease payments are substantially the same as they would have been under the original lease terms. In addition, all abatements granted and recorded using this method must be related to the impact of COVID-19. Abatements that do not meet the above COVID-19 criteria will be treated as lease modifications under ASC 842 with the abatement being amortized as a reduction to rental income over the post-modification lease term.
Dividends Declared
On August 12, 2020, in connection with the Company’s negotiation of amendments to its Credit Agreements, the Company announced that all dividends on common and Preferred Shares will be suspended for the Suspension Period. Further, the Credit Agreements restrict dividends during an event of default, including the filing of the Chapter 11 Cases described above.In addition to complying with applicable contractual limitations, the declaration and payment of future quarterly dividends remains subject to the board of trustees’ determination.
2. REAL ESTATE ACTIVITIES
Investments in real estate as of September 30, 20202021 and December 31, 20192020 were comprised of the following:
(in thousands of dollars) |
| September 30, 2020 |
|
| December 31, 2019 |
|
| September 30, 2021 |
|
| December 31, 2020 |
| ||||
Buildings, improvements and construction in progress |
| $ | 2,753,965 |
|
| $ | 2,753,039 |
|
| $ | 2,766,974 |
| $ | 2,757,234 |
| |
Land, including land held for development |
|
| 462,444 |
|
|
| 457,887 |
|
|
| 457,478 |
|
|
| 463,103 |
|
Total investments in real estate |
|
| 3,216,409 |
|
|
| 3,210,926 |
|
| 3,224,452 |
| 3,220,337 |
| |||
Accumulated depreciation |
|
| (1,280,117 | ) |
|
| (1,202,722 | ) |
|
| (1,388,330 | ) |
|
| (1,308,427 | ) |
Net investments in real estate |
| $ | 1,936,292 |
|
| $ | 2,008,204 |
|
| $ | 1,836,122 |
|
| $ | 1,911,910 |
|
Capitalization of Costs
The following table summarizes our capitalized interest, compensation, including commissions, and real estate taxes for the three and nine months ended September 30, 20202021 and 2019:2020:
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| |||||||||||||||||||||
(in thousands of dollars) |
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||||||
Development/Redevelopment Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Interest (1) |
| $ | 489 |
|
| $ | 2,683 |
|
| $ | 1,844 |
|
| $ | 7,012 |
|
| $ | 21 |
| $ | 489 |
| $ | 168 |
| $ | 1,844 |
| |||
Compensation |
|
| 25 |
|
|
| 281 |
|
|
| 416 |
|
|
| 969 |
|
| 21 |
| 25 |
| 83 |
| 416 |
| |||||||
Real estate taxes |
|
| 29 |
|
|
| 524 |
|
|
| 255 |
|
|
| 945 |
|
| (58 | ) |
| 29 |
| — |
| 255 |
| ||||||
Leasing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Compensation, including commissions (2) |
|
| - |
|
|
| 108 |
|
|
| 164 |
|
|
| 413 |
|
| 34 |
| — |
| 61 |
| 164 |
|
(1) Includes interest capitalized on investments in partnerships under development.
(2) The definition of initial direct costs under ASC 842 includes only those incremental costs of a lease that would not have been incurred if the lease had not been obtained. Commissions paid for successful leasing transactions continue to be capitalized.
Impairment of Assets
In October 2021, we entered into a purchase and sale agreement to sell a parcel of land at Monroe Marketplace. In connection with this transaction, we recorded an impairment loss of $0.3 million due to excess carrying value over the sale price. The asset was classified as held for sale as of September 30, 2021 as we concluded that we will likely complete the sale transaction within one year. These assets are included in assets held for sale in the consolidated balance sheet and the impairment loss is included in impairment of assets in the consolidated statement of operations for the three and nine months ended September 30, 2021. Dispositions Valley View Center In August 2021, the Company closed on the sale of Valley View Center for $3.5 million, which we had classified as held for sale as of June 30, 2021. In connection with the classification as held for sale, we recorded an impairment loss of $1.3 million due to excess carrying value over the sale price as of June 30, 2021. Moorestown Mall Parcel Sale In May 2021, the Company closed on the sale of a parcel of property at Moorestown Mall for $10.1 million. In connection with the sale, the Company paid a $9.0 million lease termination fee for a portion of the property that was under a lease agreement. The Company recorded a loss 15 |
|
|
|
12
Dispositionson sale of real estate of $1.0 million in connection with the sale. The Company used the net proceeds of $0.8 million from the sale to pay down its First Lien Term Loan, which is described in more detail in Note 4.
Valley View Mall Derecognition
In August 2020, a court order assigned a receiver to operate Valley View Mall in La Crosse, Wisconsin on behalf of the lender of the mortgage loan secured by the property. Although we have not yet conveyed the property because foreclosure proceedings are ongoing, we no longer control or operate the property as a result of a court order assigning the receiver. In September 2020, a court order was issued to conduct a foreclosure sale of the property and as a result we have no further operating liabilities from the property. The mortgage principal balance was $27.2 million at September 30, 2020, which we will continue to recognize untilAs a result of our loss of control of the foreclosure process is completed. As of August 17, 2020,property, we derecognized the property and recorded an offsetting contract asset and recognized a gain from the extinguishmenton derecognition of debtproperty of $7.0$8.1 million in the consolidated statement of operations.operations for the year ended December 31, 2020. The contract asset is included in deferred costs and other assets, net in the consolidated balance sheetsheets as of September 30, 2021 and December 31, 2020. The mortgage principal balance was $27.2 million at September 30, 2021 and December 31, 2020, which we will continue to recognize until the foreclosure process is completed. The derecognition of Valley View Mall and its related assets werewas a non-cash conversion of assets, which had no impact on the Company’s cash flows.
In November 2019, we entered into an agreement to sell 14 tenant occupied parcels across five properties — Magnolia Mall, Capital City Mall, Woodland Mall, Jacksonville Mall and Valley Mall — for total consideration of $29.9 million. As of December 31, 2019, we completed the dispositions on three outparcels at Capital City Mall and Magnolia Mall for total consideration of $5.2 million. In connection with these sales, we recorded a gain of $2.7 million. In January 2020, the sale of the outparcel at Woodland Mall for total consideration of $5.1 million was completed and in March 2020, the sale of two outparcels at Magnolia Mall for total consideration of $2.9 million was completed with a resulting gain on sale of $1.9 million which was recorded in March 2020. In June 2020, we completed the sale of six outparcels at Magnolia Mall, Valley Mall and Jacksonville Mall for total consideration of $14.4 million. In connection with these sales, we recorded a gain of $9.3 million. During June 2020, the tenant of the remaining two outparcels subject to this agreement filed for bankruptcy. As a result, the agreement was amended to terminate the sale of the final two outparcels.
In March 2019, we entered into an agreement of sale with a buyer to sell an undeveloped land parcel located in Gainesville, Florida for total consideration of $15.0 million and the sale transaction was split into four parcels. The first parcel was sold in March 2019 for $5.0 million. As a result of executing the agreement of sale, we recorded losses on impairment of assets of $1.5 million in the first quarter of 2019. Subsequently, we closed on the sale of two parcels in November 2019 and the sale of the final parcel closed in December 2019 for aggregate consideration of $10.0 million.
13
3. INVESTMENTS IN PARTNERSHIPS
The following table presents summarized financial information of the equity investments in our unconsolidated partnerships as of September 30, 20202021 and December 31, 2019:2020:
(in thousands of dollars) |
| September 30, 2020 |
|
| December 31, 2019 |
|
| September 30, 2021 |
|
| December 31, 2020 |
| ||||
ASSETS: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Investments in real estate, at cost: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Operating properties |
| $ | 1,147,457 |
|
| $ | 883,530 |
|
| $ | 844,214 |
| $ | 824,328 |
| |
Construction in progress |
|
| 35,940 |
|
|
| 251,029 |
|
|
| 7,786 |
|
|
| 20,632 |
|
Total investments in real estate |
|
| 1,183,397 |
|
|
| 1,134,559 |
|
| 852,000 |
| 844,960 |
| |||
Accumulated depreciation |
|
| (256,471 | ) |
|
| (229,877 | ) |
|
| (240,713 | ) |
|
| (224,641 | ) |
Net investments in real estate |
|
| 926,926 |
|
|
| 904,682 |
|
| 611,287 |
| 620,319 |
| |||
Cash and cash equivalents |
|
| 29,058 |
|
|
| 34,766 |
|
| 51,433 |
| 28,060 |
| |||
Deferred costs and other assets, net |
|
| 117,609 |
|
|
| 43,476 |
|
|
| 163,575 |
|
|
| 161,465 |
|
Total assets |
|
| 1,073,593 |
|
|
| 982,924 |
|
|
| 826,295 |
|
|
| 809,844 |
|
LIABILITIES AND PARTNERS’ INVESTMENT: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Mortgage loans payable, net |
|
| 493,634 |
|
|
| 499,057 |
|
| 496,257 |
| 491,119 |
| |||
FDP Term Loan, net |
|
| 299,575 |
|
|
| 299,091 |
|
| 194,603 |
| 201,000 |
| |||
Partnership Loan |
| 109,897 |
| 100,000 |
| |||||||||||
Other liabilities |
|
| 124,703 |
|
|
| 79,166 |
|
|
| 139,904 |
|
|
| 132,715 |
|
Total liabilities |
|
| 917,912 |
|
|
| 877,314 |
|
|
| 940,661 |
|
|
| 924,834 |
|
Net investment |
| $ | 155,681 |
|
| $ | 105,610 |
|
| (114,366 | ) |
| (114,990 | ) | ||
Partners’ share |
|
| 76,128 |
|
|
| 50,997 |
|
|
| (57,984 | ) |
|
| (59,080 | ) |
PREIT’s share |
|
| 79,553 |
|
|
| 54,613 |
|
| (56,382 | ) |
| (55,910 | ) | ||
Excess investment(1) |
|
| 18,669 |
|
|
| 17,464 |
|
|
| 6,702 |
|
|
| 6,390 |
|
Net investments and advances |
| $ | 98,222 |
|
| $ | 72,077 |
|
| $ | (49,680 | ) |
| $ | (49,520 | ) |
Reconciliation to comparable GAAP balance sheet item: |
|
|
|
|
|
|
|
| ||||||||
Investment in partnerships, at equity |
| $ | 176,070 |
|
| $ | 159,993 |
|
| $ | 19,947 |
| $ | 27,066 |
| |
Distributions in excess of partnership investments |
|
| (77,848 | ) |
|
| (87,916 | ) |
|
| (69,627 | ) |
|
| (76,586 | ) |
Net investment |
| $ | 98,222 |
|
| $ | 72,077 |
| ||||||||
Net investments and advances |
| $ | (49,680 | ) |
| $ | (49,520 | ) |
_____________________
(1) Excess investment represents the unamortized difference between our investment and our share of the equity in the underlying net investment in the unconsolidated partnerships. The excess investment is amortized over the life of the properties, and the amortization is included in “Equity in income (loss) of partnerships.”
|
|
We record distributions from our equity investments using the nature of the distribution approach.
16
The following table summarizes our share of equity in (loss) incomeloss of partnerships for the three and nine months ended September 30, 20202021 and 2019:2020:
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||||||||||||
(in thousands of dollars) |
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||||||
Real estate revenue |
| $ | 24,198 |
|
| $ | 23,742 |
|
| $ | 75,484 |
|
| $ | 70,636 |
|
| $ | 27,790 |
| $ | 24,198 |
| $ | 85,827 |
| $ | 75,484 |
| |||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Property operating and other expenses |
|
| (13,924 | ) |
|
| (8,805 | ) |
|
| (35,884 | ) |
|
| (24,331 | ) |
| (11,878 | ) |
| (13,924 | ) |
| (35,759 | ) |
| (35,884 | ) | ||||
Interest expense(1) |
|
| (6,038 | ) |
|
| (5,771 | ) |
|
| (18,008 | ) |
|
| (17,428 | ) |
| (11,309 | ) |
| (6,038 | ) |
| (33,104 | ) |
| (18,008 | ) | ||||
Depreciation and amortization |
|
| (10,570 | ) |
|
| (5,317 | ) |
|
| (25,965 | ) |
|
| (14,675 | ) |
|
| (6,715 | ) |
|
| (10,570 | ) |
|
| (20,051 | ) |
|
| (25,965 | ) |
Total expenses |
|
| (30,532 | ) |
|
| (19,893 | ) |
|
| (79,857 | ) |
|
| (56,434 | ) |
|
| (29,902 | ) |
|
| (30,532 | ) |
|
| (88,914 | ) |
|
| (79,857 | ) |
Net (loss) income |
|
| (6,334 | ) |
|
| 3,849 |
|
|
| (4,373 | ) |
|
| 14,202 |
| ||||||||||||||||
Partners’ share |
|
| 3,183 |
|
|
| (2,191 | ) |
|
| 1,884 |
|
|
| (7,777 | ) | ||||||||||||||||
Net loss |
| (2,112 | ) |
| (6,334 | ) |
| (3,087 | ) |
| (4,373 | ) | ||||||||||||||||||||
Less: Partners’ share |
|
| 719 |
|
|
| 3,183 |
|
|
| 810 |
|
|
| 1,884 |
| ||||||||||||||||
PREIT’s share |
|
| (3,151 | ) |
|
| 1,658 |
|
|
| (2,489 | ) |
|
| 6,425 |
|
| (1,393 | ) |
| (3,151 | ) |
| (2,277 | ) |
| (2,489 | ) | ||||
Amortization of and adjustments to excess investment, net |
|
| (108 | ) |
|
| (127 | ) |
|
| (309 | ) |
|
| (289 | ) | ||||||||||||||||
Equity in (loss) income of partnerships |
| $ | (3,259 | ) |
| $ | 1,531 |
|
| $ | (2,798 | ) |
| $ | 6,136 |
| ||||||||||||||||
Amortization of excess investment |
|
| (36 | ) |
|
| (108 | ) |
|
| (152 | ) |
|
| (309 | ) | ||||||||||||||||
Equity in loss of partnerships |
| $ | (1,429 | ) |
| $ | (3,259 | ) |
| $ | (2,429 | ) |
| $ | (2,798 | ) |
(1) Net of capitalized interest expense of $467$92 and $1,602$467 for the three months ended September 30, 20202021 and 2019,2020, respectively, and $2,394$338 and $4,554$2,394 for the nine months ended September 30, 2021 and 2020, and 2019, respectively.
14
Table of ContentsFashion District Philadelphia
Sale of 801 Market Street, Unit 202
Dispositions
In March 2019,May 2021, PM Gallery LP, a Delaware limited partnership in which we holdand joint venture entity owned indirectly by us and The Macerich Company (“Macerich”), sold, through a 25% interest soldsubsidiary, a portion of an undeveloped land parcel adjacent to Gloucester Premium Outletsasset at Fashion District Philadelphia (“FDP”) for $3.8$5.3 million. The partnership recordedsale resulted in a gain on sale of $2.3$2.6 million for the joint venture, our share of which our share was $0.6is $1.3 million whichat a 50% share. The gain is recorded in gain on sales of real estate by equity method investee in our consolidated statements of operations for the accompanying consolidated statement of operations.nine months ended September 30, 2021.
FDP Loan Agreement
Term Loan
In January 2018, our Fashion District Philadelphia redevelopment project joint venture entityPM Gallery LP previously entered into a $250.0$250.0 million term loan (the “FDP Term Loan”). We and our partner in the project, The Macerich Company (“Macerich”), each own a 50% partnership interest in Fashion District Philadelphia. The FDP Term Loan matures in January 2023, and bears interest at a variable rate of LIBOR plus 2.00%. PREIT and Macerich secured the FDP Term Loan by pledging their respective equity interests2018 (as amended in the entities that own Fashion District Philadelphia. The entire $250.0 million available under the FDP Term Loan was drawn during the first quarter of 2018, and we received an aggregate $123.0 million as a distribution of our share of the draws in 2018. In July 2019 the FDP Term Loan was modified to increase the total maximum potential borrowings from $250.0 million to $350.0 million.$350.0 million) to fund the ongoing redevelopment of Fashion District Philadelphia and to repay capital contributions to the venture previously made by the partners. A total of $51.0$51.0 million was drawn during the third quarter of 2019 and we received aggregate distributions of $25.0$25.0 million as our share of the draws. As discussed in Note 4, on October 19,On December 10, 2020, PM Gallery LP, together with certain other subsidiaries owned indirectly by us and Macerich (including the borrowerfee and leasehold owners of the properties that are part of the Fashion District Philadelphia project), entered into an Amended and Restated Term Loan Agreement (the “FDP Loan Agreement”). In connection with the execution of the FDP Loan Agreement, a $100.0 million principal payment was made (and funded indirectly by Macerich, the “Partnership Loan”) to pay down the existing loan, reducing the outstanding principal under the FDP Term Loan receivedAgreement from $301.0 million to $201.0 million. The joint venture must repay the Partnership Loan plus 15% accrued interest to Macerich, in its capacity as the lender, prior to the resumption of 50/50 cash distributions to the Company and its joint venture partner.
The FDP Loan Agreement provides for (i) a letter frommaturity date of January 22, 2023, with the administrative agent underpotential for a one-year extension upon the FDP Term Loan allegingborrowers’ satisfaction of certain conditions, (ii) an eventinterest rate at the borrowers’ option with respect to each advance of default undereither (A) the FDP Term LoanBase Rate (defined as the highest of (a) the Prime Rate, (b) the Federal Funds Rate plus 0.50%, and (c) the LIBOR Market Index Rate plus 1.00%) plus 2.50% or (B) LIBOR for the applicable period plus 3.50%, (iii) a resultfull recourse guarantee of 50% of the alleged breachborrowers’ obligations by PREIT Associates, L.P., on a several basis, (iv) a full recourse guarantee of certain of the 2018 Credit Agreement and outlining the 45-day cure period that will expireborrowers’ obligations by The Macerich Partnership, L.P., up to a maximum of $50.0 million, on December 3, 2020. On November 2, 2020, the borrower under the FDP Term Loan received a subsequent letter from the administrative agent asserting an event of default asseveral basis, (v) a resultpledge of the filingequity interests of certain indirect subsidiaries of PREIT and Macerich, as well as of PREIT-RUBIN, Inc. and one of its subsidiaries, that have a direct or indirect ownership interest in the borrowers, (vi) a non-recourse carve-out guaranty and a hazardous materials indemnity by each of PREIT Associates, L.P. and The Macerich Partnership, L.P., and (vii) mortgages of the Chapter 11 Casesborrowers’ fee and leasehold interests in the automatic accelerationproperties that are part of the Fashion District Philadelphia project and certain other properties. The FDP Loan Agreement contains certain covenants typical for loans of its type.
Joint Venture
In connection with the execution of the FDP Term Loan.Loan Agreement, the governing structure of PM Gallery LP was modified such that, effective as of January 1, 2021, Macerich is responsible for the entity’s operations and, subject to limited exceptions, controls major decisions. The administrative agent underCompany considered the FDP Term Loan is a partychanges to the RSA,governing structure of PM Gallery LP and PREIT has respondeddetermined the investment qualifies as a variable interest entity and will continue to the administrative agent with a letter expressly reserving its rights in connection with the FDP Term Loan and, in the event the Prepackaged Plan is not confirmed or the RSA is otherwise terminated, expressly reserving its rights under the RSA and the Prepackaged Plan.
Mortgage Loan activity
During the nine months ended September 30, 2020, we executed forbearance and loan modification agreements for Metroplex and Springfield Mall. These arrangements allowed us to defer principal payments, and in some cases interest as well, between May and August 2020 depending on the terms of each agreement. At the end of the deferral period, repayment of deferred amounts spans from four to six months. The repayment periods range from August 2020 through February 2021 depending on the terms of the specific agreements.
Significant Unconsolidated Subsidiary
We have a 50% ownership interest in Lehigh Valley Associates L.P. (“LVA”) and Fashion District Philadelphia (“FDP”). The financial information of LVA and FDP are included in the amounts above. Summarized balance sheet information as of September 30, 2020 and December 31, 2019, and summarized statement of operations information for the three and nine months ended September 30, 2020 and 2019 for these entities, which arebe accounted for usingunder the equity method are as follows:
of accounting. Our maximum exposure to losses is limited to the extent of our investment, which is a 50% ownership.
LVA
(in thousands of dollars) |
| September 30, 2020 |
|
| December 31, 2019 |
| ||
Summarized balance sheet information |
|
|
|
|
|
|
|
|
Total assets |
| $ | 64,971 |
|
| $ | 62,504 |
|
Mortgage loan payable, net |
|
| 189,360 |
|
|
| 191,998 |
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| |||||||||||
(in thousands of dollars) |
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||
Summarized statement of operations information |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
| $ | 6,596 |
|
| $ | 8,006 |
|
| $ | 21,243 |
|
| $ | 24,589 |
|
Property operating expenses |
|
| (1,984 | ) |
|
| (2,138 | ) |
|
| (6,568 | ) |
|
| (6,351 | ) |
Interest expense |
|
| (1,944 | ) |
|
| (2,027 | ) |
|
| (5,803 | ) |
|
| (6,055 | ) |
Net income |
|
| 1,864 |
|
|
| 3,059 |
|
|
| 6,402 |
|
|
| 9,768 |
|
PREIT’s share of equity in income of partnership |
|
| 932 |
|
|
| 1,529 |
|
|
| 3,201 |
|
|
| 4,884 |
|
1517
FDPMortgage Loan Activity
(in thousands of dollars) |
| September 30, 2020 |
|
| December 31, 2019 |
| ||
Summarized balance sheet information |
|
|
|
|
|
|
|
|
Total assets |
| $ | 725,087 |
|
| $ | 641,377 |
|
FDP Term Loan, net |
|
| 299,575 |
|
|
| 299,091 |
|
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||
(in thousands of dollars) |
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||
Summarized statement of operations information |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
| $ | 4,763 |
|
| $ | 1,271 |
|
| $ | 15,276 |
|
| $ | 2,667 |
|
Property operating expenses |
|
| (6,228 | ) |
|
| (1,901 | ) |
|
| (14,305 | ) |
|
| (3,100 | ) |
Interest expense |
|
| (933 | ) |
|
| (2 | ) |
|
| (2,137 | ) |
|
| (2 | ) |
Net loss |
|
| (9,365 | ) |
|
| (2,553 | ) |
|
| (16,304 | ) |
|
| (4,879 | ) |
PREIT’s share of equity in loss of partnership |
|
| (4,690 | ) |
|
| (1,262 | ) |
|
| (8,164 | ) |
|
| (2,299 | ) |
Pavilion at Market East
On May 25, 2021, the Company’s unconsolidated subsidiary completed a refinance of its mortgage loan securing its property at Pavilion at Market East. The $7.6 million mortgage has a 2-year term, maturing in May 2023. The loan has interest only payments until May 2022 at a variable rate of the greater of (a) one month LIBOR plus 3.5% or (b) 4.0%.
The Court at Oxford Valley
On June 25, 2021, the Company’s unconsolidated subsidiary completed a refinance of its mortgage loan securing its property at the Court at Oxford Valley. The $55.0 million mortgage has a 10-year term, maturing on July 1, 2031. The loan has interest only payments until August 2024 at a fixed interest rate of 3.2%.
Red Rose Commons
On June 30, 2021, the Company’s unconsolidated subsidiary completed a refinance of its mortgage loan securing its property at Red Rose Commons. The $34.0 million mortgage has a 10-year term, maturing on July 6, 2031 at a fixed interest rate of 3.3%.
4. FINANCING ACTIVITY
Credit Agreements
As of September 30,On December 10, 2020 we have entered into 32 secured credit agreements: (1)agreements (collectively, as amended, the 2018“Credit Agreements”): (a) an Amended and Restated First Lien Credit Agreement which, as described(the “First Lien Credit Agreement”) with Wells Fargo Bank, National Association (“Wells Fargo Bank”) and the other financial institutions signatory thereto and their assignees, for secured loan facilities consisting of: (i) a secured first lien revolving credit facility allowing for borrowings up to $130.0 million, including a sub-facility for letters of credit to be issued thereunder in more detail below, includes (a)an aggregate stated amount of up to $10.0 million (collectively, the $375.0“First Lien Revolving Facility”), and (ii) a $384.5 million 2018 Revolving Facility,secured first lien term loan facility (the “First Lien Term Loan Facility”), and (b) a Second Lien Credit Agreement (the “Second Lien Credit Agreement”), as amended February 8, 2021 with Wells Fargo Bank and the $300.0other financial institutions signatory thereto and their assignees for a $535.2 million 2018secured second lien term loan facility (the “Second Lien Term Loan Facility”). The Credit Agreements mature in December 2022. The First Lien Term Loan Facility (2) the $250.0 million 2014 7-Year Term Loan, and (3) the Bridge Facility. The 2018 Term Loan Facility, the 2014 7-Year Term Loan and the BridgeSecond Lien Term Loan Facility are collectively referred to as the “Term Loans.” As discussed further below and in Note 1 toThe Credit Agreements refinanced our unaudited consolidated financial statements, on March 30,previously existing secured term loan under the Credit Agreement dated as of August 11, 2020 and again on July 27, 2020, we (as amended, the “Bridge Credit Agreement”), our Seven-Year Term Loan Agreement entered into amendments ofon January 8, 2014 (as amended, the “7-Year Term Loan”), and our 2018 Amended and Restated Credit Agreements. OurAgreement entered into on May 24, 2018 (as amended, the “2018 Credit Agreement” and collectively with the Bridge Credit Agreement and the 7-Year Term Loan, the “Restructured Credit Agreements”). Upon our entry into the Credit Agreements, were also amended on May 1, 2020 to extend the required delivery date of compliance certificates coveringBridge Credit Agreement, the fiscal quarter ended March 31, 2020 by six days. Among other things, the March 2020 amendments reduced the aggregate Revolving Commitments under the 2018 Revolving Facility by $25.0 million to $375.0 million. The $375.0 million aggregate Revolving Commitments under7-Year Term Loan and the 2018 Credit Agreement were permanently terminated pursuant to the July 2020 amendment to the 2018 Credit Agreement. On August 11, 2020, we entered into the Bridge Facility which provided for up to $30.0 million of additional borrowings and an original maturity date of September 30, 2020. On September 30, 2020, we amended our Credit Agreements to, among other things, extend the Suspension Period and the maturity date of the Bridge Facility until October 31, 2020 and to provide for the ability to request additional commitments of up to $25.0 million under our Bridge Facility. The September 2020 amendments also eliminated the minimum liquidity requirement under each of the Credit Agreements. We subsequently amended the Bridge Credit Agreement on October 16, 2020 to, among other things, increase the aggregate amount of commitments under the Bridge Facility by $25.0 million.cancelled.
As of September 30, 2020,2021, we had borrowed $560.5$953.8 million available under the Term Loans including $22.5 million under our Bridge Facility and the full $375.0$54.8 million under the 2018First Lien Revolving Facility. The carrying value of the Term Loans on our consolidated balance sheet as of September 30, 20202021 is net of $1.5$8.3 million of unamortized debt issuance costs.
Amounts borrowedThe maximum amount that was available to us under the 2018 Credit Agreement or the 7-Year Term Loan Agreements, which may be either LIBOR Loans or Base Rate Loans, bear interest at the rate specified below per annum, depending on our leverage, unless and until we receive an investment grade credit rating and provide notice to the administrative agent (the “Rating Date”), after which alternative rates would apply, as described in the applicable Credit Agreements. The applicable interest rates for amounts borrowed under our Bridge Facility are described further below.
During the Suspension Period, the Applicable Margin will be determined based on the Level 5 Ratio of Total Liabilities to Gross Asset Value (listed below). In determining our leverage (the ratio of Total Liabilities to Gross Asset Value), the capitalization rate used to calculate Gross Asset Value is (a) 6.50% for each property having an average sales per square foot of more than $500 for the most recent period of 12 consecutive months, and (b) 7.50% for any other property. Prior to July 27, 2020 amendment, the 2018First Lien Revolving Facility was subject to a facility fee, which varied based on leverage and was 0.35% as of July 27, 2020 and is recorded in interest expense in the consolidated statements of operations. Subsequent to July 27, 2020 and as of September 30, 2020,2021 was $75.2 million.
On April 13, 2021, we entered into Agency Resignation, Appointment, Acceptance and Waiver Agreements pursuant to which Wells Fargo Bank resigned as Administrative Agent and Wilmington Savings Fund Society, FSB was appointed successor Administrative Agent under the 2018First Lien Credit Agreement, the Second Lien Credit Agreement and, in each case, the related loan documents. There is currently no successor letter of credit issuer under the First Lien Revolving Facility, is no longer subjectaccordingly, the Company cannot currently access the letters of credit sub-facility.
Interest expense and deferred financing fee amortization related to a facility fee.the Credit Agreements and the Restructured Credit Agreements for the three and nine months ended September 30, 2021 and 2020 were as follows:
16
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||
(in thousands of dollars) |
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
Revolving Facilities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Interest expense |
| $ | 560 |
|
| $ | 3,505 |
|
| $ | 1,663 |
|
| $ | 8,363 |
|
Deferred financing amortization |
|
| 299 |
|
|
| 278 |
|
|
| 896 |
|
|
| 830 |
|
Term Loans: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Interest expense (1) |
|
| 21,726 |
|
|
| 6,931 |
|
|
| 62,891 |
|
|
| 18,230 |
|
Deferred financing amortization |
|
| 1,784 |
|
|
| 910 |
|
|
| 5,346 |
|
|
| 1,297 |
|
18
|
|
| Applicable Margin |
| |||||||||||||
Level | Ratio of Total Liabilities to Gross Asset Value |
| Revolving Loans that are LIBOR Loans |
|
| Revolving Loans that are Base Rate Loans |
|
| Term Loans that are LIBOR Loans |
|
| Term Loans that are Base Rate Loans |
| ||||
1 | Less than 0.450 to 1.00 |
|
| 1.20 | % |
|
| 0.20 | % |
|
| 1.35 | % |
|
| 0.35 | % |
2 | Equal to or greater than 0.450 to 1.00 but less than 0.500 to 1.00 |
|
| 1.25 | % |
|
| 0.25 | % |
|
| 1.45 | % |
|
| 0.45 | % |
3 | Equal to or greater than 0.500 to 1.00 but less than 0.550 to 1.00 |
|
| 1.30 | % |
|
| 0.30 | % |
|
| 1.60 | % |
|
| 0.60 | % |
4 | Equal to or greater than 0.550 to but less than 0.600 to 1.000 |
|
| 1.55 | % |
|
| 0.55 | % |
|
| 1.90 | % |
|
| 0.90 | % |
5 | Equal to or greater than 0.600 to 1.000 (1) |
|
| 1.90 | % | (2) |
| 0.90 | % |
|
| 2.25 | % | (2) |
| 1.25 | % |
|
|
|
|
The Credit Agreements contain certain affirmative and negative covenants, several of which were amended on March 30, 2020. Pursuant to the July 2020 amendments, some of those covenants have been suspended for the duration of the Suspension Period, as extended by the September 30, 2020 amendments. The affirmative and negative covenants, as amended by the March 2020 amendments, include, without limitation, requirements that PREIT maintain, on a consolidated basis: (1) Minimum Tangible Net Worth of $1,463.2 million, plus 75% of the Net Proceeds of all Equity Issuances effected at any time after March 31, 2018; (2) maximum ratio of Total Liabilities to Gross Asset Value of 0.65:1 at any time prior to and including September 30, 2020, or 0.60:1 at any time thereafter, provided that it will not be a Default if after September 30, 2020, the ratio exceeds 0.60:1 but does not exceed 0.625:1 for more than 2 consecutive quarters on more than 2 occasions during the remainder of the term (which covenant has been suspended for the duration of the Suspension Period); (3) minimum ratio of Adjusted EBITDA to Fixed Charges of 1.40 to 1.00 for any period ending on or before September 30, 2020, or 1.50:1 for any period ending thereafter (which covenant has been suspended for the duration of the Suspension Period); (4) minimum Unencumbered Debt Yield of (a) 10.0% at any time prior to and including September 30, 2020, (b) 11.25% any time after September 30, 2020 through and including June 30, 2021, and (c) 11.50% any time thereafter (which covenant has been suspended for the duration of the Suspension Period); (5) minimum Unencumbered Net Operating Income to Unsecured Interest Expense of 1.75:1; (6) maximum ratio of Secured Indebtedness to Gross Asset Value of 0.60:1; and (7) Distributions may not exceed (a) with respect to our preferred shares, the amounts required by the terms of the preferred shares, and (b) with respect to our common shares, the greater of (i) 95.0% of Funds From Operations (FFO), and (ii) 110% of REIT taxable income for a fiscal year. Our Credit Agreements previously required us to maintain unrestricted cash liquidity of $8.5 million at all times during the Suspension Period and $25.0 million prior to the Suspension Period and following September 30, 2020 (the end of the initially extended Suspension Period), such liquidity to be comprised of unrestricted cash and cash equivalents, undrawn availability under the 2018 Revolving Facility and undrawn availability under the Bridge Facility. The minimum liquidity requirements under each of our Credit Agreements were eliminated by the September 30, 2020 amendments. The covenants and restrictions in the Credit Agreements limit our ability to incur additional indebtedness, grant liens on assets and enter into negative pledge agreements, merge, consolidate or sell all or substantially all of its assets, and enter into transactions with affiliates and the March 2020 amendments limit our ability to enter into sale-leaseback transactions with respect to Unencumbered Properties. The Credit Agreements are subject to customary events of default and are cross-defaulted with one another. The July 2020 amendments prohibit us from taking any action (or omitting from taking any action) during the Suspension Period (as extended by the September 2020 amendments) where such action would be otherwise prohibited to be taken or omitted during the existence of a default or event of default, including but not limited to making certain Restricted Payments (as defined in the Credit Agreements), creating, assuming or incurring liens on our assets, income or profits, and engaging in certain transactions regarding mergers, acquisitions and sales of assets, in each case unless permitted by the Credit Agreements. Restricted Payments (as defined in the Credit Agreements) include cash dividends with respect to our shares. As such, the Credit Agreements, as amended, restrict our ability to declare and pay dividends on our common shares and preferred shares for the duration of the Suspension Period. The filing of the Chapter 11 Cases constitutes an event of default under the Credit Agreements.
We may prepay the amounts dueOur obligations under the Credit Agreements at any time without premium or penalty, subject to reimbursementare guaranteed by certain of our subsidiaries. Our obligations for the lenders’ breakage costs for LIBOR borrowings. We must make prepayments under the 2018 Term Loan Facility in an amount equal to 54.55% of any Net Cash Proceeds received from certain Capital Events (provided that any Net Cash Proceeds from Capital Events in excess of $150 million must be applied 50% toward repayment of outstanding amounts under the 2018 Revolving Facility with 54.55% of the remaining 50% applied to prepay amounts under the 2018 Term Loan Facility), subject to certain exceptions. If we had more than $50.0 million of unrestricted cash on our balance sheet for five consecutive days any time prior to September 30, 2020, we were required to prepay the 2018 Revolving Facility with our excess cash above $50.0 million. We must also make prepayments under the 7-Year Term Loan in an amount equal to 45.45% of any Net Cash Proceeds received from certain Capital Events (provided that any Net Cash Proceeds from Capital Events in excess of $150 million must be applied 50% toward repayment of outstanding amounts under the 2018 Revolving Facility with 45.45% of the remaining 50% applied to prepay the amounts outstanding under the 7-Year Term Loan), subject to certain exceptions. We also made monthly principal amortization payments of
17
$1.09 million of the term loan under the 2018 Credit Agreement and of $909 thousand of the term loan under the 7-Year Term Loan, in each case for the months of April, May, June, July, August and September of 2020.
Upon the expiration of any applicable cure period for an event of default (except with respect to bankruptcy as described in the next sentence), the lenders may declare all of the obligations in connection with the Credit Agreements immediately due and payable.
Upon the occurrence of a voluntary or involuntary bankruptcy proceeding of PREIT, PALP, PRI, any material subsidiary, any subsidiary that owns or leases an Unencumbered Property or certain other subsidiaries, all outstanding amounts automatically become immediately due and payable. The filing of the Chapter 11 Cases constitutes such a proceeding under the Credit Agreements and Bridge Facility, however, any efforts to enforce the payment obligations thereunder are automatically stayed as a result of the Chapter 11 Cases and the lenders’ rights of enforcement are subject to the Bankruptcy Code. In the event of an involuntary bankruptcy proceeding, we have a limited time period to obtain a dismissal of the involuntary bankruptcy prior to the occurrence of an event of default.
Bridge Facility
The Company’s obligations under the Bridge Facility and related guarantyguaranties are secured by mortgages and deeds of trust on a portfolio of 12 of our subsidiaries’ properties, including 9 malls and 3 additional parcels. The obligations are further secured by a pledge of substantiallylien on substantially all of theour personal property of the Company and the guarantors pursuant to a collateral agreementagreements and a pledge of substantially all of the equity interests ofheld by us and the guarantors, (subjectpursuant to pledge agreements, in each case subject to limited exceptions) pursuantexceptions.
The Credit Agreements each provide for a two-year maturity of December 2022 (the “Maturity Date”), subject to a pledge agreement.one-year extension to December 2023 at the borrowers’ option, subject to (i) minimum liquidity of $35.0 million, (ii) a minimum corporate debt yield of 8.0%, (iii) a maximum loan-to-value ratio of 105% for the total first lien and second lien loans and letters of credit and the Borrowing Base Properties as determined by an appraisal and (iv) no default or event of default existing and our representations and warranties being true in all material respects. The initial maturity date of the Bridge Facility was the earlier of (a) September 30, 2020, or (b) the date the obligationsloans under the Bridge Facility have been accelerated. On September 30, 2020,Credit Agreements are repayable in full on the maturity date was extendedMaturity Date, subject to October 31, 2020.mandatory prepayment provisions in the event of certain events including asset sales, incurrence of indebtedness, issuances of equity and receipt of casualty insurance proceeds. The terms of our Credit Agreements place restrictions on, among other things, and subject to certain exceptions, our ability to make certain restricted payments (including payments of dividends), make certain types of investments and acquisitions, issue redeemable securities, incur additional indebtedness, incur liens on our assets, enter into agreements with a negative pledge, make certain intercompany transfers, merge, consolidate, or sell our assets or the equity interests in our subsidiaries, amend our organizational documents or material contracts, enter into certain transactions with affiliates, or enter into derivatives contracts. Additionally, if we receive net cash proceeds from certain capital events (including equity issuances), we are required to prepay loans under our Credit Agreements. In addition, the Credit Agreements contain cross-default provisions that trigger an event of default if we fail to make certain payments or otherwise fail to comply with our obligations with respect to certain of our other indebtedness.
First Lien Credit Agreement
Amounts borrowed under the Bridge FacilityFirst Lien Credit Agreement may be either Base Rate Loans or LIBOR Loans. Base Rate Loans bear interest at the highest of (a) the Prime Rate, (b) the Federal Funds Rate plus 0.50%0.50% and (c) the LIBOR Market Index Rate plus 1.0%1.0%, provided that the Base Rate will not be less than 2.00%1.50% per annum, in each case plus 7.00%(w) for revolving loans, 2.50% per annum, and (x) for term loans, 4.74% per annum. LIBOR Loans bear interest at LIBOR plus 8.00%(y) for revolving loans, 3.50% per annum, and (z) for term loans, 5.74% per annum, in each case, provided that LIBOR will not be less than 0.50% per annum. AfterInterest is due to be paid in cash on the initial borrowinglast day of each applicable interest period (with rolling 30-day interest periods) and prioron the Maturity Date. We are required to the October 2020 amendment, the Company was only permitted to draw when its unrestricted cash and cash equivalents were equal to or less than $12.5 million, and subsequent borrowings were determined according to a multiple of amounts set forth in the loan budget. Pursuant to the October 2020 amendment to the Bridge Credit Agreement, the commitments under the Bridge Facility were increased by $25.0 million and the entire $25.0 million was drawn and deposited into a cash collateral account. We may only draw amounts from the cash collateral account holding the unfunded amount of commitments if our unrestricted cash and cash equivalents (not including the cash in such account) is equal to or less than $12.5 million. The Company must also pay certain fees to the administrative agent for the account of the lenders in connection with the Bridge Facility,First Lien Credit Agreement, including a tickingan unused fee for the account of the revolving lenders, which will accrue 0.50%(i) 0.35% per annum on the daily amount of the unused revolving commitments when that amount is greater than or equal to 50% of the aggregate amount of revolving commitments, and (ii) 0.25% when that amount is less than 50% of the aggregate amount of revolving commitments. Accrued and unpaid tickingunused fees will be payable quarterly in arrears during the term of the First Lien Credit Agreement and on the maturity date.Revolving Termination Date (or any earlier date of termination of the revolving commitments or reduction of the revolving commitments to zero).
Letters of credit and the proceeds of revolving loans may be used (i) to refinance indebtedness under the Bridge Credit Agreement (which agreement was cancelled and refinanced upon our entry into the Credit Agreements), (ii) for working capital and general corporate purposes (subject to certain exceptions set forth in the First Lien Credit Agreement, including limitations on investments in non-Borrowing Base Properties), and (iii) to fund professional fee payments and other fees and expenses subject to the provisions of the Plan and related confirmation order and for other uses permitted by the provisions of the First Lien Credit Agreement, Plan and confirmation order, in each case consistent with an approved annual business plan. We may terminate or reduce the amount of the revolving commitments at any time and from time to time without penalty or premium, subject to the terms of the First Lien Credit Agreement.
The BridgeFirst Lien Credit Agreement contains, among other restrictions, certain additional affirmative and negative covenants and other terms, many of which substantially align with those in the Second Lien Credit Agreement and are summarized below under “Similar Terms of the Credit Agreements.”
Second Lien Credit Agreement
Amounts borrowed under the Second Lien Credit Agreement may be either Base Rate Loans or LIBOR Loans. Base Rate Loans bear interest at the highest of (a) the Prime Rate, (b) the Federal Funds Rate plus 0.50% and (c) the LIBOR Market Index Rate plus 1.0%, provided that the Base Rate will not be less than 1.50% per annum, in each case plus 7.00% per annum. LIBOR Loans bear interest at LIBOR plus 8.00% per annum, provided that LIBOR will not be less than 0.50% per annum. Interest is due to be paid in kind on the last day of each applicable interest period (with rolling 30-day interest periods) by adding the accrued and unpaid amount thereof to the principal balance of the loans under the Second Lien Credit Agreement and then accruing interest on the increased principal amount (provided that after the discharge of our Senior Debt Obligations, interest will be paid in cash). We are required to pay certain fees to the administrative agent for the account of the lenders in connection with the Second Lien Credit Agreement.
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The proceeds of loans under the Second Lien Credit Agreement may only be used to refinance existing indebtedness under the 2018 Credit Agreement and the 7-Year Term Loan.
The Second Lien Credit Agreement contains, among other restrictions, certain additional affirmative and negative covenants and other terms, many of which substantially align with those in the First Lien Credit Agreement and are summarized below under “Similar Terms of the Credit Agreements.”
On February 8, 2021, the Company entered into the first amendment to the Second Lien Credit Agreement (“First Amendment”). The First Amendment provided for elimination of approximately $5.3 million of the disputed default interest that was capitalized into the principal balance of the Second Lien Term Loan Facility on the effective date thereof, reducing the outstanding principal amount of loans outstanding under the Second Lien Credit Agreement, retroactively, as of December 10, 2020, to $535.2 million. The First Amendment also eliminated the disputed PIK interest that was capitalized through the date of the amendment.
Similar Terms of the Credit Agreements
Each of the Credit Agreements contains certain affirmative and negative covenants and other provisions, as described in detail below, which substantially align with those contained in the other Credit Agreements.
Covenants
Each of the Credit Agreements contains, among other restrictions, certain affirmative and negative covenants, including, without limitation, requirements that we:
Each of the minimum liquidity requirement under the Bridge Facility was eliminated by the September 2020 amendment. The Bridge FacilityCredit Agreements also prevents the Company and its subsidiaries,limits our ability, subject to certain exceptions, from incurring additionalto make certain restricted payments (including payments of dividends and voluntary prepayments of certain indebtedness incurring liens on their property, making investments, and amending their organizational documents.
The Bridge Facility permits prepayment at any time without premium or penalty. At any time that the Borrower or any Guarantor or subsidiary or unconsolidated joint venture thereof (to the extent that such entity has the ability to require a distribution from such joint venture of its portion of Net Cash Proceeds) receives Net Cash Proceeds from any Capital Event, the Borrower must prepay the Bridge Facility in an amount equal to 100% of such Net Cash Proceeds (orwhich includes, with respect to any joint venture, the portionFirst Lien Credit Agreement, voluntary prepayments under the Second Lien Credit Agreement), make certain types of such Net Cash Proceeds distributedinvestments and acquisitions, issue redeemable securities, incur additional indebtedness, incur liens on our assets, enter into agreements with a negative pledge, make certain intercompany transfers, merge, consolidate or sell all or substantially all of our assets or the equity interests in our subsidiaries, amend our organizational documents or material contracts, enter into transactions with affiliates, or enter into derivatives contracts. We are also prohibited from selling certain properties unless certain conditions are satisfied with respect to the Borrowerterms of the sale agreement for such property or, in the case of Borrowing Base Properties, payment of certain release prices.
The First Lien Credit Agreement and, after our Senior Debt Obligations are discharged, the Second Lien Credit Agreement, each prohibit us from (i) entering into Major Leases, (ii) assigning leases, (iii) discounting any Guarantor).rent under leases where the leased premises is at least 7,500 square feet at a Borrowing Base Property and the discounted amount is more than $750,000 and more than 25% of the aggregate contractual base rent payable over the initial term (not including any extension options), (iv) collecting rent in advance, (v) terminating or modifying the terms of any Major Lease or releasing or discharging tenants from any obligations thereunder, (vi) consenting to a tenant’s assignment or subletting of a Major Lease, or (vii) subordinating any lease to any other deed of trust, mortgage, deed to secure debt or encumbrance, other than the mortgages already encumbering the applicable Borrowing Base Property and the mortgages entered into in connection with the other Credit Agreement. Under the First Lien Credit Agreement, and under the Second Lien Credit Agreement after the First Lien Termination Date, any amounts equal to or greater than $2.5 million but less than $3.5 million received by or on behalf of a guarantor in consideration of any
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Interest expensetermination or modification of a lease (or the release or discharge of a tenant) are subject to restrictions on use, and deferred financing fee amortization relatedsuch amounts that are equal to or greater than $3.5 million must be applied to reduce our outstanding obligations under the applicable Credit Agreement.
As of September 30, 2021, we were in compliance with all financial covenants under the Credit Agreements.
Restructured Credit Agreements
Prior to completion of the Financial Restructuring, we had entered into 3 credit agreements: (1) the 2018 Credit Agreement, which included (a) the $375.0 million 2018 Revolving Facility (“Restructured Revolver”), and (b) the $300.0 million 2018 Term Loan Facility, (2) the $250.0 million 2014 7-Year Term Loan, and (3) the Bridge Credit Agreement. Throughout 2020, we entered into various amendments to the Restructured Credit Agreements. On August 11, 2020, we entered into the Bridge Credit Agreement which provided for up to $30.0 million of additional borrowings and an original maturity date of September 30, 2020. On September 30, 2020, we amended our Restructured Credit Agreements to, among other things, extend the maturity date of the Bridge Credit Agreement until October 31, 2020 and to provide for the ability to request additional commitments of up to $25.0 million under our Bridge Credit Agreement. The September 2020 amendments also eliminated the minimum liquidity requirement under each of the Restructured Credit Agreements. We also amended the Bridge Credit Agreement on October 16, 2020 to, among other things, increase the aggregate amount of commitments under the Bridge Credit Agreement by $25.0 million. As of November 1, 2020, we had borrowed $590.0 million available under the Restructured Credit Agreements, including $55.0 million under our Bridge Credit Agreement and the full $375.0 million under the 2018 Revolving Facility. The Restructured Credit Agreements contained certain affirmative and negative covenants, several of which were amended on March 30, 2020. Pursuant to amendments dated July 27, 2020, some of those covenants were suspended for the duration of the suspension period, as extended by the September 30, 2020 amendments. As such, the Restructured Credit Agreements, as amended, restricted our ability to declare and pay dividends on our common shares and preferred shares for the duration of the Suspension Period. The filing of the chapter 11 cases constituted an event of default under the Restructured Credit Agreements. Upon our entry into the Credit Agreements, the Bridge Credit Agreement, the 7-Year Term Loan and Bridge Facility for the three and nine months ended September 30, 2020 and 20192018 Credit Agreement were as follows:cancelled.
Consolidated Mortgage Loans
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| |||||||||||
(in thousands of dollars) |
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||
Revolving Facility: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
| $ | 3,505 |
|
| $ | 2,082 |
|
| $ | 8,363 |
|
| $ | 5,143 |
|
Deferred financing amortization |
|
| 278 |
|
|
| 274 |
|
|
| 830 |
|
|
| 822 |
|
Term Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
| 6,931 |
|
|
| 5,212 |
|
|
| 18,230 |
|
|
| 15,477 |
|
Deferred financing amortization |
|
| 910 |
|
|
| 191 |
|
|
| 1,297 |
|
|
| 570 |
|
The aggregate carrying values and estimated fair values of our consolidated mortgage loans based on year-end interest rates and market conditions at September 30, 20202021 and December 31, 20192020 were as follows:
|
| September 30, 2020 |
|
| December 31, 2019 |
| ||||||||||
(in millions of dollars) |
| Carrying Value |
|
| Fair Value |
|
| Carrying Value |
|
| Fair Value |
| ||||
Mortgage loans(1) |
| $ | 890.8 |
|
| $ | 894.6 |
|
| $ | 899.8 |
|
| $ | 873.9 |
|
|
|
September 30, 2021 December 31, 2020 (in millions of dollars) Carrying Value Fair Value Carrying Value Fair Value Mortgage loans(1) $ 857.0 $ 838.1 $ 884.5 $ 873.2 (1) The carrying value of mortgage loans is net of unamortized debt issuance costs of $1.4 million and $1.0 million as of September 30, 2021 and December 31, 2020, respectively. |
|
The consolidated mortgage loans contain various customary default provisions. As of September 30, 2021, we were not in default on any of the consolidated mortgage loans, except for our mortgage secured by Valley View Mall.
Mortgage Loan Activity
Francis Scott Key Mall
DuringOn June 25, 2021, certain of our consolidated subsidiaries entered into an amendment to our mortgage loan secured by our property at Francis Scott Key Mall, in Frederick, Maryland, which provided for a reduction in principal balance from property cash on hand to $60.5 million, an extension of the nine months ended September 30,maturity date until June 25, 2024, with an option to extend an additional year if certain criteria are met. Among other things, the amendment also provides for a variable interest rate of one month LIBOR plus 3.6% with interest only payments. Also, the amendment provides for excess cash flow from the property to be deposited into a cash collateral account which will be used at the administrative agent’s discretion to pay down the mortgage loan balance until certain requirements are met. The Company capitalized $0.3 million of lender fees as additional debt issuance costs in connection with the amendment.
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Viewmont Mall
On June 25, 2021, certain of our consolidated subsidiaries entered into an amendment to our $67.2 million mortgage loan secured by our property at Viewmont Mall in Scranton, Pennsylvania, which provides for an extension of the maturity date until June 25, 2024, with an option to extend an additional year if certain criteria are met. Among other things, the amendment also provides for a variable interest rate of one month LIBOR plus 3.6% with interest only payments. Also, the amendment provides for excess cash flow from the property to be deposited into a cash collateral account which will be used at the administrative agent’s discretion to pay down the mortgage loan balance until certain requirements are met. The Company capitalized $0.5 million of lender fees as additional debt issuance costs in connection with the amendment.
Woodland Amendment
On February 8, 2021, certain of our consolidated subsidiaries entered into an amendment to our mortgage loan secured by the Woodland Mall in Grand Rapids, Michigan, which provides for an extension of the maturity date until December 10, 2021, with an option to extend an additional year if certain criteria are met. Among other things, the amendment also (i) reduces the cap on guarantor liability for PREIT Associates, L.P. to $10.0 million; (ii) restricts the lenders from exercising their rights and remedies under the guaranty until December 10, 2022, unless there is a bankruptcy filing with respect to the borrowers or guarantor; (iii) adjusts the interest rate; (iv) provides for the pledge of additional collateral as security for the borrowers’ obligations (including the anchor parcel at Woodland Mall which was released as collateral from our senior secured credit facilities); and (v) requires the borrowers to pay to the lenders a $5.0 million remargin payment. The Company capitalized $0.3 million of lender fees as additional debt issuance costs in connection with the amendment.
Forbearance Agreements
During 2020, we executed forbearance and loan modification agreements for Cherry Hill Mall, Cumberland Mall, Dartmouth Mall, Francis Scott Key Mall, Viewmont Mall, and Woodland Mall. These arrangements allowed us to defer principal payments, and in some cases interest as well, between May and August 2020 depending on the terms of each agreement. At the end of the deferral period, repayment of deferred amounts spansspanned from four to six months.months. The repayment periods rangeranged from August 2020 through February 2021 pursuant to the terms of the specific agreements. Certain of these forbearance and loan modification agreements also imposeimposed certain additional informational reporting requirements during the applicable modification periods. As of September 30, 2021, we had repaid all principal and interest deferrals.
Valley View Mall
In the second quarter of 2020, we received a notice of transfer of servicing for the mortgage loan secured by Valley View Mall, which had a $27.3$27.3 million balance as of June 30, 2020. Subsequently, we failed to make the June 2020 monthly payment and our subsidiary that is the borrower under the mortgage also received a notice of default on the mortgage from the lender. Additionally, we havedid not paidpay the balloon payment of $27.3$27.3 million due at maturity on July 1, 2020.2020. A foreclosure notice has beenwas filed and operations of the property has beenwere assigned to a receiver in August 2020. See Note 2 to our unaudited financial statements for further detail.
In September 2019, we conveyed Wyoming Valley Mall to the lender of the mortgage loan secured by the property. The loan had a balance of approximately $72.8 million as of the conveyance on September 26, 2019.In connection with the conveyance, $7.5 million of cash and escrow balances were transferred to the lender. As a result of the transfer, having previously recognized an asset impairment loss of approximately $32.2 million on the value of the property, we wrote off the remaining carrying value of the property of $43.2 million and recorded a net gain on extinguishment of debt of $29.6 million in the three months ended September 30, 2019.
In March 2019, we defeased a $58.5 million mortgage loan including accrued interest, secured by Capital City Mall in Camp Hill, Pennsylvania using funds from our 2018 Revolving Facility and the balance from available working capital. We recorded a loss on debt extinguishment of $4.8 million in March 2019 in connection with this defeasance.details.
Note Payable
In April 2020, in light of the impact of COVID-19 on our business and limited capital resources, we applied for and received proceeds from a potentially forgivable loan in the amount of $4.5$4.5 million under the Paycheck Protection Program (PPP)(“PPP”) of the Coronavirus Aid, Relief, and Economic Security (CARES)(“CARES”) Act. We entered into a note payable with our lender bank (“Note Payable”). The Note Payable will maturehad a maturity date on April 15, 2022.2022. Based on the CARES Act and the Note Payable, all payments of both principal and interest will bewere deferred until at least August 2021. The2021. Interest on the Note Payable accrues interestaccrued at a rate of 1.00%1.0% per annum, and the interest will continue to accrueaccrued throughout the period the Note Payable iswas outstanding, oruntil the forgiveness date. All or a portion of PPP loans are eligible for forgiveness pursuant to program guidelines to the extent the proceeds are used for qualifying purposes within a 24-week period following the loan funding. The proceeds are included in “Accrued expensesIn April 2021, we submitted our loan forgiveness application. On June 10, 2021, we were notified that the full principal balance and other liabilities” inaccrued interest under our consolidated balance sheet.PPP loan were forgiven. As a result, during the second quarter of 2021, we recorded a gain on debt extinguishment of $4.6 million.
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22
Interest Rate Risk
We follow established risk management policies designed to limit our interest rate risk on our interest bearing liabilities, as further discussed in Note 7 to our unaudited consolidated financial statements.
Subsequent Events
As discussed in Note 1, on October 7, 2020, the Company Parties entered into the RSA with certain of our lenders under our Credit Agreements. The RSA was amended on October 16, 2020 and again on October 23, 2020, to, among other things, extend the date by which the Company Parties were required to commence the solicitation and the Chapter 11 Cases and provide for a limited tolling of the Company Parties’ alleged breach of the RSA (described further below).
As discussed above, we amended our Bridge Credit Agreement on October 16, 2020 to, among other things, increase the aggregate amount of commitments under the Bridge Facility by $25.0 million.
Additionally, as discussed above, on October 19, 2020, we received Reservation Letters from the administrative agent alleging events of default with respect to each of the Credit Agreements, in addition to a letter from certain lenders under the RSA regarding an alleged breach of the RSA. The Reservation Letter in respect of each Credit Agreement states that interest will accrue on the outstanding principal balance of the loans under such Credit Agreement at the increased Post-Default Rate (as defined in such Credit Agreement) beginning on October 19, 2020. The Reservation Letters specify that the lenders have not waived their rights and remedies under the Credit Agreements or the RSA (as applicable), and that they expressly reserve all available rights and remedies thereunder and under applicable law. The Company has responded to the administrative agent that it disputes the lenders’ characterization of the situation described in the Reservation Letters and that no breach of the RSA or event of default under any of the Credit Agreements has occurred. On October 19, 2020, the borrower under the FDP Term Loan also received a letter from the administrative agent under the FDP Term Loan alleging an event of default under the FDP Term Loan as a result of the alleged breach of the 2018 Credit Agreement and outlining the 45-day cure period that will expire on December 3, 2020. On November 2, 2020, the borrower under the FDP Term Loan received a subsequent letter from the administrative agent asserting an event of default as a result of the filing of the Chapter 11 Cases and the automatic acceleration of the FDP Term Loan. The administrative agent under the FDP Term Loan is a party to the RSA, and PREIT has responded to the administrative agent with a letter expressly reserving its rights in connection with the FDP Term Loan and, in the event the Prepackaged Plan is not confirmed or the RSA is otherwise terminated, expressly reserving its rights under the RSA and the Prepackaged Plan. As discussed below, the Chapter 11 Cases constitute an event of default under our Credit Agreements and may also trigger cross-defaults under certain of our property-level debt facilities. We have received and expect to continue to receive notices from certain property-level lenders asserting those cross-defaults, including the agent for the credit facilities secured by Woodland Mall and Willow Grove Mall. We expect to engage in discussions with the applicable agents under those facilities regarding potential forbearance agreements.
On November 1, 2020, the Debtors filed the Chapter 11 Cases in the Bankruptcy Court to implement the Prepackaged Plan. Under the Prepackaged Plan, the Company would be recapitalized and its debt maturities extended. The Debtors will continue to operate their businesses as “debtors-in-possession” under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court. The Prepackaged Plan and requested first-day relief, which was subsequently granted, anticipate the continued payment of employee wages and benefits without interruption and that trade claimants and other unsecured creditors that continue to work with the Debtors on existing terms will be paid in full and in the ordinary course of business. The Prepackaged Plan is not expected to have any impact on our shareholders, and based on our discussions with the NYSE, our common and preferred shares are expected to continue to trade in the normal course, subject to regaining compliance with the NYSE trading price listing condition within the applicable grace period. The Prepackaged Plan is subject to approval by the Bankruptcy Court. Under the RSA, subject to certain terms and conditions, the consenting lenders have agreed, among other things, to (i) take all commercially reasonable actions necessary to facilitate the consummation of the Prepackaged Plan and refrain from taking any actions inconsistent therewith, and not fail or omit to take an action that is required by the RSA, applicable law, or the In-Court Definitive Documents (defined in the RSA); (ii) not object to, delay, impede, or take any other action that may reasonably be expected to interfere with the consummation of the Prepackaged Plan; (iii) negotiate in good faith the In-Court Definitive Documents and execute, deliver and perform thereunder to implement the Prepackaged Plan; (iv) timely vote and consent to accept the Prepackaged Plan; (v) support and take all reasonable actions necessary or appropriate to consummate the exit financing arrangements; (vi) timely vote against and not solicit any alternative restructuring; and (vii) except as permitted in the RSA, not transfer any ownership (including any beneficial ownership as defined in Rule 13d-3 under the Securities Exchange Act of 1934, as amended) held by such consenting lender.
At the hearing before the Bankruptcy Court held on November 3, 2020 on the Debtors’ motions for first-day relief, customary relief was granted, and the Bankruptcy Court scheduled a combined hearing on the adequacy of the Debtors’ Disclosure Statement and confirmation of the Prepackaged Plan for November 24, 2020.
The filing of the Chapter 11 Cases constitutes an event of default that accelerated our obligations under each of our Credit Agreements. The Credit Agreements provide that as a result of the filing of the Chapter 11 Cases, the principal and interest due thereunder shall be immediately due and payable. Any efforts to enforce such payment obligations under the Credit Agreements are automatically stayed as a result of the commencement of the Chapter 11 Cases, and the lenders’ rights of enforcement in respect of the Credit Agreements are subject to the applicable provisions of the Bankruptcy Code.
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The commencement of the Chapter 11 Cases and/or acceleration of the Credit Agreements may also constitute a cross-default under certain property-level debt facilities (in an aggregate outstanding principal amount of approximately $896.5 million), ground leases, operating leases and other contractual and non-contractual obligations of our affiliates. We have filed a motion for the entry of an order extending the automatic stay as a result of the commencement of the Chapter 11 Cases to such affiliates to safeguard our reorganization efforts in the event a counterparty to any of such obligations seeks to take adverse action.
5. CASH FLOW INFORMATION
Cash paid for interest was $46.6$53.1 million (net of capitalized interest of $1.8 million) and $41.9$46.6 million (net of capitalized interest of $7.0 million) for the nine months ended September 30, 2021 and 2020, respectively, net of amounts capitalized of $0.2 million and 2019,$1.8 million, respectively.
In our statement of cash flows, we showreport cash flows on our Revolving Facilitiesrevolving facilities on a net basis. Aggregate repayments on our First Lien Term Loan were $4.0 million for the nine months ended September 30, 2021. We had 0borrowings on our First Lien Revolving FacilitiesFacility for the nine months ended September 30, 2021. Aggregate borrowings on our Restructured Revolver were $120.0 million and $181.0$120.0 million for the nine months ended September 30, 2020 and 2019, respectively. Aggregate paydowns were $0.0with 0 paydowns.
Accrued construction costs decreased by $1.1 million and $33.0$6.3 million for the nine months ended September 30, 2021 and 2020, and 2019, respectively. Net and aggregate paydowns on our Term Loans were $12.0 million and $0.0 million for the nine months ended September 30, 2020 and 2019, respectively.
Accrued construction costs decreased by $6.3 million in the nine months ended September 30, 2020 and decreased by $15.7 million in the nine months ended September 30, 2019,respectively, representing non-cash changes in investment in real estate and construction in progress.
In the first quarter of 2019, we issued 6,250,000 common shares of beneficial interest in the Company in exchange for a like number of OP Units in our Operating Partnership. The shares were issued to Vornado Investments LLC, an affiliate of Franconia Two, L.P., the holder of the OP Units.
The following table provides a summary of cash, cash equivalents, and restricted cash reported within the statement of cash flows as of September 30, 20202021 and 2019.2020.
| September 30, |
|
| September 30, |
| |||||||||||
(in thousands of dollars) |
| 2020 |
|
| 2019 |
|
| 2021 |
|
| 2020 |
| ||||
Cash and cash equivalents |
| $ | 36,373 |
|
| $ | 11,709 |
|
| $ | 28,975 |
| $ | 36,373 |
| |
Restricted cash included in other assets |
|
| 6,087 |
|
|
| 6,183 |
|
|
| 11,887 |
|
|
| 6,087 |
|
Total cash, cash equivalents, and restricted cash shown in the statement of cash flows |
| $ | 42,460 |
|
| $ | 17,892 |
|
| $ | 40,862 |
|
| $ | 42,460 |
|
Our restricted cash consists of cash held in escrow by banks for real estate taxes and other purposes.
6. COMMITMENTS AND CONTINGENCIES
Contractual Obligations
As of September 30, 2020, we had unaccrued contractual and other commitments related to our capital improvement projects and development projects of $27.9 million, including $14.1 million of commitments related to the redevelopment of Fashion District Philadelphia, in the form of tenant allowances and contracts with general service providers and other professional service providers. For purposes of this disclosure, the contractual obligations and other commitments related to Fashion District Philadelphia are included at 100% of the obligation and not at our 50% ownership share. In addition, our operating partnership, PREIT Associates, has jointly and severally guaranteed the obligations of the joint venture we formed with Macerich to develop Fashion District Philadelphia to commence and complete a comprehensive redevelopment of that property costing not less than $300.0 million within 48 months after commencement of construction, which was March 14, 2016. We believe we have satisfied this obligation.
Provision for Employee Separation Expenses
During the nine months ended September 30, 2020 and 2019, we terminated the employment of certain employees and officers. In connection with the departure of those employees and officers, we recorded $0.1 million and $1.2 million, respectively of employee separation expenses in the three and nine months ended September 30, 2020, compared to $0.2 million and $1.1 million, respectively, for the three and nine months ended September 30, 2019. As of September 30, 2020, we had $0.6 million of severance accrued and unpaid related to the termination of employees.
|
On September 25, 2020, the Company received notice from the NYSE that the Company is no longer in compliance with the NYSE continued listing standard set forth in Section 802.01C of the NYSE’s Listed Company Manual, which requires listed companies to maintain an average closing price of at least $1.00 per share over a consecutive 30-day trading period.
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Table of ContentsDERIVATIVES
Under NYSE rules, the Company has ten business days following receipt of the notice to respond to the NYSE and indicate its intent to cure this deficiency or be subject to suspension and delisting. The Company notified the NYSE, within the required ten business day period, that it intends to cure the deficiency. Under NYSE rules, the Company has six months from the date of the notice to regain compliance with the minimum share price requirement.
The Company intends to consider all available options to cure the deficiency and regain compliance. The notice does not affect the Company’s ongoing business operations or its reporting requirements with the SEC.
Property Damage from Natural and Other Disasters
During September 2018, Jacksonville Mall in Jacksonville, North Carolina incurred property damage and an interruption of business operations as a result of Hurricane Florence. The property was closed for business during and immediately after the natural disaster, however, significant remediation efforts were quickly undertaken, and the mall was reopened shortly thereafter.
During the nine months ended September 30, 2019, we recorded net recoveries of approximately $0.2 million. These net recoveries primarily relate to remediation expenses and business interruption claims. $0.1 million of the recoveries received relate to business interruption.
During the nine months ended September 30, 2020, Cherry Hill Mall in Cherry Hill, New Jersey experienced a power outage due to the failure of an underground high voltage cable, which required the use of backup generator power. We recorded net costs of approximately $0.6 million during the nine months ended September 30, 2020 and received recoveries of $0.6 million in April 2020.
7. DERIVATIVES
In the normal course of business, we are exposed to financial market risks, including interest rate risk on our interest bearing liabilities. We attempt to limit these risks by following established risk management policies, procedures and strategies, including the use of financial instruments such as derivatives. We do not use financial instruments for trading or speculative purposes.
Cash Flow Hedges of Interest Rate Risk
For derivatives that have been designated and that qualify as cash flow hedges of interest rate risk, the gain or loss on the derivative is recorded in “Accumulated other comprehensive (loss) income” and subsequently reclassified into “Interest expense, net” in the same periods during which the hedged transaction affects earnings. Through December 10, 2020, all of our derivatives were designated and qualified as cash flow hedges of interest rate risk.
On December 10, 2020 as a result of the Financial Restructuring, we de-designated 7 of our interest rate swaps which were previously designated cash flow hedges against the 2018 Credit Facility and7-year Term Loan, as the occurrence of the hedged forecasted transactions was no longer probable during the hedged time period due to the Financial Restructuring as described in Note 1. As such, the Company accelerated the reclassification of a portion of the amounts in other comprehensive (loss) income to earnings which resulted in a loss of $2.8 million that was recorded within interest expense, net in the consolidated statement of operations. Additionally, on December 10, 2020, the Company voluntarily de-designated the remaining 13 interest swaps that were also previously designated as cash flow hedges against the 2018 Credit Facility and 7-year Term Loan. Upon de-designation, the accumulated other comprehensive (loss) income balance of each of these de-designated derivatives will be separately reclassified to earnings as the originally hedged forecasted transactions affect earnings. Through December 10, 2020, the changes in fair value of the derivatives were recorded to accumulated other comprehensive (loss) income in the consolidated balance sheets.
On December 22, 2020, we re-designated 9 interest rate swaps with a notional amount of $375.0 million as cash flow hedges of interest rate risk against the First Lien Term Loan Facility. These interest rate swaps qualified for hedge accounting treatment with changes in the fair value of the derivatives recorded through accumulated other comprehensive (loss) income.
During the nine months ended September 30, 2021, we had 3 designated swaps mature. As of September 30, 2020, all of our outstanding2021, we had 10 total derivatives arewhich were designated as cash flow hedges.
We recognize all derivatives at fair value as either assets or liabilities in the accompanying consolidated balance sheets. The Company expects to reassess the designationOur derivative assets are recorded in “Deferred costs and other assets” and our derivative liabilities are recorded in “Fair value of its derivatives and their effectiveness in the fourth quarter 2020 as a resultderivative instruments.”
23
Table of the Prepackaged Plan filing, as discussed in Note 4.Contents
DuringOver the next 12twelve months we estimate that $14.4$8.4 million will be reclassified as an increase to interest expense in connection with derivatives.expense. The recognition of these amounts however, could be accelerated in the event that we repay amounts outstanding on the debt instruments and do not replace them with new borrowings orborrowings.
Non-designated Hedges
Derivatives not designated as hedges are not speculative; they are also used to manage the Company’s exposure to interest rate movements and other identified risks but do not meet the strict hedge accounting requirements. For swaps that were not re-designated subsequent to December 10, 2020, changes in the debt becomes due underfair value of derivatives are recorded directly in earnings as interest expense in the termsconsolidated statement of operations. During the agreements.
Interest Rate Swaps
nine months ended September 30, 2021, we had 4 non-designated swaps mature. As of September 30, 2020,2021, we had 7 total derivatives which were not designated in hedging relationships.
Interest Rate Swaps
As of September 30, 2021, we had interest rate swap agreements designated in qualifying hedging relationships outstanding with a weighted average base interest rate of 2.13%2.57% on a notional amount of $794.4$439.8 million, maturing on various dates through May 2023. As of September 30, 2021, our non-designated swaps outstanding with a weighted average base interest rate of 1.85% on a notional amount of $175.0 million, maturing in December 2021. We originally entered into these interest rate swap agreements in order to hedge the interest payments associated with our issuances of variable interest rate long term debt. The interest rate swap agreements are net settled monthly.
During the second quarter of 2020, we modified the interest rate swap agreements related to Francis Scott Key Mall and Viewmont Mall to align with the mortgage deferral arrangements we executed with the respective mortgage lenders. We did not make any swap payments in May through August 2020 during which period the interest rates were 0 percent. Beginning in September 2020, the monthly payments resumed at set strike rates and incorporate the deferred amounts.
22
The following table summarizes the terms and estimated fair values of our interest rate swap derivative instruments designated as cash flow hedges of interest rate risk at September 30, 20202021 and December 31, 20192020 based on the year they mature. The notional values provide an indication of the extent of our involvement in these instruments, but do not represent exposure to credit, interest rate or market risks. In
Maturity Date |
| Aggregate Notional Value at |
|
| Aggregate Fair Value at |
|
| Aggregate Fair Value at |
|
| Weighted |
| ||||
Derivatives in Cash Flow Hedging Relationships |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Interest Rate Swaps |
|
|
|
|
|
|
|
|
|
|
|
| ||||
2021 |
| $ | 139.8 |
|
| $ | (0.6 | ) |
| $ | (3.0 | ) |
|
| 2.29 | % |
2023 |
|
| 300.0 |
|
|
| (11.7 | ) |
|
| (17.2 | ) |
|
| 2.70 | % |
Non-designated Hedges |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Interest Rate Swaps |
|
|
|
|
|
|
|
|
|
|
|
| ||||
2021 |
|
| 175.0 |
|
|
| (0.8 | ) |
|
| (3.1 | ) |
|
| 1.85 | % |
Total |
| $ | 614.8 |
|
| $ | (13.1 | ) |
| $ | (23.3 | ) |
|
| 2.36 | % |
Maturity Date |
| Aggregate Notional Value at September 30, 2020 (in millions of dollars) |
|
| Aggregate Fair Value at September 30, 2020 (1) (in millions of dollars) |
|
| Aggregate Fair Value at December 31, 2019 (1) (in millions of dollars) |
|
| Weighted Average Interest Rate |
| ||||
Interest Rate Swaps |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020 |
| $ | - |
|
| $ | - |
|
| $ | 0.2 |
|
| - |
| |
2021 |
|
| 494.4 |
|
|
| (8.1 | ) |
|
| (1.4 | ) |
|
| 1.79 | % |
2022 |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
2023 |
|
| 300.0 |
|
|
| (19.6 | ) |
|
| (7.3 | ) |
|
| 2.70 | % |
Total |
| $ | 794.4 |
|
| $ | (27.7 | ) |
| $ | (8.5 | ) |
|
| 2.13 | % |
|
|
The tables below present the effect of derivative financial instruments on accumulated other comprehensive (loss) income and on our consolidated statements of operations for the three and nine months ended September 30, 20202021 and 2019:2020:
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||||||||||||||||||||||||||||||||||||||||||||
|
| Amount of Gain or (Loss) Recognized in Other Comprehensive Income on Derivative Instruments |
|
| Amount of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into Interest Expense |
|
| Amount of Gain or (Loss) Recognized in Other Comprehensive Income on Derivative Instruments |
|
| Amount of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into Interest Expense |
|
| Amount of Gain or |
|
| Amount of Gain or |
|
| Amount of Gain or |
|
| Amount of Gain or |
| ||||||||||||||||||||||||||||||||||||||||
(in millions of dollars) |
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||||||||||||||
Derivatives in Cash Flow Hedging Relationships |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Interest rate products |
| $ | 0.3 |
|
| $ | (2.8 | ) |
| $ | 3.7 |
|
| $ | (0.8 | ) |
| $ | (22.1 | ) |
| $ | (18.6 | ) |
| $ | 6.4 |
|
| $ | (3.1 | ) |
| $ | (0.4 | ) |
| $ | 0.3 |
|
| $ | 3.0 |
|
| $ | 3.7 |
|
| $ | (0.4 | ) |
| $ | (22.1 | ) |
| $ | 8.6 |
|
| $ | 6.4 |
|
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||
(in millions of dollars) |
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
Total interest expense presented in the consolidated statements of operations in which the effects of cash flow hedges are recorded |
| $ | (32.4 | ) |
| $ | (20.3 | ) |
| $ | (95.1 | ) |
| $ | (54.3 | ) |
Amount of (loss) gain reclassified from accumulated other comprehensive income into interest expense |
| $ | 3.0 |
|
| $ | 3.7 |
|
| $ | 8.6 |
|
| $ | 6.4 |
|
24
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||
(in millions of dollars) |
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||
Total interest expense presented in the consolidated statements of operations in which the effects of cash flow hedges are recorded |
| $ | (20.3 | ) |
| $ | (15.5 | ) |
| $ | (54.3 | ) |
| $ | (47.0 | ) |
Amount of loss reclassified from accumulated other comprehensive income into interest expense |
| $ | 3.7 |
|
| $ | (0.8 | ) |
| $ | 6.4 |
|
| $ | (3.1 | ) |
The impact of our non-designated swaps resulted in a loss of approximately $35 thousand and $129 thousand for the three and nine months ended September 30, 2021, respectively, which is recognized in interest expense, net in the consolidated statement of operations.
Credit-Risk-Related Contingent Features
We have agreements with some of our derivative counterparties that contain a provision pursuant to which, if our entity that originated such derivative instruments defaults on any of its indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, then we could also be declared to be in default on our derivative obligations. As of September 30, 2020,2021, we were not in default on any of our derivative obligations.
We have an agreement with a derivative counterparty that incorporates the loan covenant provisions of our loan agreement with a lender affiliated with the derivative counterparty. Failure to comply with the loan covenant provisions would result in our being in default on any derivative instrument obligations covered by the agreement.
As of September 30, 2020,2021, the fair value of derivatives in a liability position, which excludes accrued interest but includes any adjustment for nonperformance risk related to these agreements, was $27.7$13.1 million. If we had breached any of the default provisions in these agreements as of September 30, 2020,2021, we might have been required to settle our obligations under the agreements at their termination value (including accrued interest) of $30.1$14.8 million. We had not breached any of these provisions as of September 30, 2020.2021.
2325
7. LEASES
8. LEASES
As Lessee
We have entered into ground leases for portions of the land at Springfield Town Center and Plymouth Meeting Mall. We have also entered into an office lease for our headquarters location, as well as vehicle, solar panel and equipment leases as a lessee. The initial terms of these agreements generally range from three to 40 years, with certain agreements containing extension options for up to an additional 60 years. As of September 30, 2020, we included only those renewal options we were reasonably certain of exercising.years. Upon lease execution, the Company measures a liability for the present value of future lease payments over the noncancelable period of the lease and any renewal option period we are reasonably certain of exercising. Certain agreements require that we pay a portion of reimbursable expenses such as CAM, utilities, insurance and real estate taxes. These payments are not included in the calculation of the lease liability and are presented as variable lease costs.
We applied judgments related to the determination of the discount rates used to calculate the lease liability upon adoption of ASC 842 at January 1, 2019. In order to calculateOur leases do not provide a readily determinable implicit interest rate; therefore, we estimate our incremental borrowing rate under ASC 842,to calculate the present value of remaining lease payments. In determining our incremental borrowing rate, we utilized judgmentsconsidered the lease term, market interest rates and estimates regarding our implied credit rating using market data and made otherwith adjustments to determine an appropriate incremental borrowing rate as of January 1, 2019.rate.
The following table presentstables present additional information pertaining to the Company’s leases:
|
| Three Months Ended September 30, |
| |||||||||||||||||||||||||||||
|
| 2021 |
|
| 2020 |
| ||||||||||||||||||||||||||
(in thousands of dollars) |
| Solar Panel |
|
| Ground Leases |
|
| Office, |
|
| Total |
|
| Solar Panel |
|
| Ground Leases |
|
| Office, |
|
| Total |
| ||||||||
Finance lease cost: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Amortization of right-of-use assets |
| $ | 202 |
|
| $ | — |
|
| $ | — |
|
| $ | 202 |
|
| $ | 209 |
|
| $ | — |
|
| $ | — |
|
| $ | 209 |
|
Interest on lease liabilities |
|
| 59 |
|
|
| — |
|
|
| — |
|
|
| 59 |
|
|
| 68 |
|
|
| — |
|
|
| — |
|
|
| 68 |
|
Operating lease costs |
|
| — |
|
|
| 436 |
|
|
| 306 |
|
|
| 742 |
|
|
| — |
|
|
| 436 |
|
|
| 333 |
|
|
| 769 |
|
Variable lease costs |
|
| — |
|
|
| 45 |
|
|
| 217 |
|
|
| 262 |
|
|
| — |
|
|
| 44 |
|
|
| 60 |
|
|
| 104 |
|
Total lease costs |
| $ | 261 |
|
| $ | 481 |
|
| $ | 523 |
|
| $ | 1,265 |
|
| $ | 277 |
|
| $ | 480 |
|
| $ | 393 |
|
| $ | 1,150 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
| Nine Months Ended September 30, |
| |||||||||||||||||||||||||||||
|
| 2021 |
|
| 2020 |
| ||||||||||||||||||||||||||
(in thousands of dollars) |
| Solar Panel |
|
| Ground Leases |
|
| Office, |
|
| Total |
|
| Solar Panel |
|
| Ground Leases |
|
| Office, |
|
| Total |
| ||||||||
Finance lease cost: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Amortization of right-of-use assets |
| $ | 607 |
|
| $ | — |
|
| $ | — |
|
| $ | 607 |
|
| $ | 621 |
|
| $ | — |
|
| $ | — |
|
| $ | 621 |
|
Interest on lease liabilities |
|
| 184 |
|
|
| — |
|
|
| — |
|
|
| 184 |
|
|
| 215 |
|
|
| — |
|
|
| — |
|
|
| 215 |
|
Operating lease costs |
|
| — |
|
|
| 1,309 |
|
|
| 944 |
|
|
| 2,253 |
|
|
| — |
|
|
| 1,309 |
|
|
| 1,008 |
|
|
| 2,317 |
|
Variable lease costs |
|
| — |
|
|
| 135 |
|
|
| 387 |
|
|
| 522 |
|
|
| — |
|
|
| 129 |
|
|
| 142 |
|
|
| 271 |
|
Total lease costs |
| $ | 791 |
|
| $ | 1,444 |
|
| $ | 1,331 |
|
| $ | 3,566 |
|
| $ | 836 |
|
| $ | 1,438 |
|
| $ | 1,150 |
|
| $ | 3,424 |
|
|
| Three Months Ended September 30, 2020 |
|
| Nine Months Ended September 30, 2020 |
| ||||||||||||||||||||||||||
(in thousands of dollars) |
| Solar Panel Leases |
|
| Ground Leases |
|
| Office, equipment, and vehicle leases |
|
| Total |
|
| Solar Panel Leases |
|
| Ground Leases |
|
| Office, equipment, and vehicle leases |
|
| Total |
| ||||||||
Finance lease cost: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of right-of-use assets |
| $ | 209 |
|
| $ | — |
|
| $ | — |
|
| $ | 209 |
|
| $ | 621 |
|
| $ | — |
|
| $ | — |
|
| $ | 621 |
|
Interest on lease liabilities |
|
| 68 |
|
|
| — |
|
|
| — |
|
|
| 68 |
|
|
| 215 |
|
|
| — |
|
|
| — |
|
|
| 215 |
|
Operating lease costs |
|
| — |
|
|
| 436 |
|
|
| 333 |
|
|
| 769 |
|
|
| — |
|
|
| 1,309 |
|
|
| 1,008 |
|
|
| 2,317 |
|
Variable lease costs |
|
| — |
|
|
| 44 |
|
|
| 60 |
|
|
| 104 |
|
|
| — |
|
|
| 129 |
|
|
| 142 |
|
|
| 271 |
|
Total lease costs |
| $ | 277 |
|
| $ | 480 |
|
| $ | 393 |
|
| $ | 1,150 |
|
| $ | 836 |
|
| $ | 1,438 |
|
| $ | 1,150 |
|
| $ | 3,424 |
|
Other information related to leases as of and for the nine months ended September 30, 2021 and 2020 isare as follows:
(in thousands of dollars) |
| 2021 |
|
| 2020 |
| ||
Cash paid for the amounts included in the measurement of lease liabilities |
|
|
|
|
|
| ||
Operating cash flows used for finance leases |
| $ | 184 |
|
| $ | 208 |
|
Operating cash flows used for operating leases |
| $ | 2,028 |
|
| $ | 1,552 |
|
Financing cash flows used for finance leases |
| $ | 560 |
|
| $ | 526 |
|
Weighted average remaining lease term-finance leases (months) |
|
| 77 |
|
|
| 89 |
|
Weighted average remaining lease term-operating leases (months) |
|
| 292 |
|
|
| 300 |
|
Weighted average discount rate-finance leases |
|
| 4.33 | % |
|
| 4.35 | % |
Weighted average discount rate-operating leases |
|
| 6.43 | % |
|
| 6.43 | % |
26
(in thousands of dollars) |
|
|
|
|
Cash paid for the amounts included in the measurement of lease liabilities |
|
|
|
|
Operating cash flows used for finance leases |
| $ | 208 |
|
Operating cash flows used for operating leases |
| $ | 1,552 |
|
Financing cash flows used for finance leases |
| $ | 526 |
|
Weighted average remaining lease term-finance leases (months) |
|
| 89 |
|
Weighted average remaining lease term-operating leases (months) |
|
| 300 |
|
Weighted average discount rate-finance leases |
|
| 4.35 | % |
Weighted average discount rate-operating leases |
|
| 6.43 | % |
Future payments against lease liabilities as of September 30, 20202021 are as follows:
(in thousands of dollars) |
| Finance leases |
|
| Operating leases |
|
| Total |
| |||
October 1 to December 31, 2020 |
| $ | 248 |
|
| $ | 563 |
|
| $ | 811 |
|
2021 |
|
| 990 |
|
|
| 2,573 |
|
|
| 3,563 |
|
2022 |
|
| 988 |
|
|
| 2,558 |
|
|
| 3,546 |
|
2023 |
|
| 983 |
|
|
| 2,514 |
|
|
| 3,497 |
|
2024 |
|
| 949 |
|
|
| 2,428 |
|
|
| 3,377 |
|
Thereafter |
|
| 3,000 |
|
|
| 53,545 |
|
|
| 56,545 |
|
Total undiscounted lease payments |
|
| 7,158 |
|
|
| 64,181 |
|
|
| 71,339 |
|
Less imputed interest |
|
| (1,048 | ) |
|
| (33,969 | ) |
|
| (35,017 | ) |
Total lease liabilities |
| $ | 6,110 |
|
| $ | 30,212 |
|
| $ | 36,322 |
|
24
(in thousands of dollars) |
| Finance leases |
|
| Operating leases |
|
| Total |
| |||
October 1 to December 31, 2021 |
| $ | 247 |
|
| $ | 708 |
|
| $ | 955 |
|
2022 |
|
| 988 |
|
|
| 2,605 |
|
|
| 3,593 |
|
2023 |
|
| 983 |
|
|
| 2,556 |
|
|
| 3,539 |
|
2024 |
|
| 949 |
|
|
| 2,471 |
|
|
| 3,420 |
|
2025 |
|
| 929 |
|
|
| 2,362 |
|
|
| 3,291 |
|
Thereafter |
|
| 2,072 |
|
|
| 51,152 |
|
|
| 53,224 |
|
Total undiscounted lease payments |
|
| 6,168 |
|
|
| 61,854 |
|
|
| 68,022 |
|
Less imputed interest |
|
| (799 | ) |
|
| (32,079 | ) |
|
| (32,878 | ) |
Total lease liabilities |
| $ | 5,369 |
|
| $ | 29,775 |
|
| $ | 35,144 |
|
Future payments against lease liabilities as of December 31, 2019 were as follows:
(in thousands of dollars) |
| Finance leases |
|
| Operating leases |
|
| Total |
| |||
Year ending December 31, |
|
|
|
|
|
|
|
|
|
|
|
|
2020 |
| $ | 925 |
|
| $ | 2,237 |
|
| $ | 3,162 |
|
2021 |
|
| 925 |
|
|
| 2,730 |
|
|
| 3,655 |
|
2022 |
|
| 925 |
|
|
| 2,538 |
|
|
| 3,463 |
|
2023 |
|
| 925 |
|
|
| 2,485 |
|
|
| 3,410 |
|
2024 |
|
| 925 |
|
|
| 2,373 |
|
|
| 3,298 |
|
Thereafter |
|
| 2,999 |
|
|
| 46,853 |
|
|
| 49,852 |
|
Total undiscounted lease payments |
|
| 7,624 |
|
|
| 59,216 |
|
|
| 66,840 |
|
Less imputed interest |
|
| (1,242 | ) |
|
| (28,965 | ) |
|
| (30,207 | ) |
Total lease liabilities |
| $ | 6,382 |
|
| $ | 30,251 |
|
| $ | 36,633 |
|
As Lessor
As of September 30, 2020,2021, the fixed contractual lease payments, including minimum rents and fixed CAM amounts, to be received over the next five years pursuant to the terms of noncancelable operating leases with initial terms greater than one year are included in the table below. The amounts presented assume that no leases are renewed and no renewal options are exercised, and do not include any rent deferral arrangements executed during the nine months ended September 30, 2020.exercised. Additionally, the table does not include variable lease payments that may be received under certain leases for percentage rents or the reimbursement of operating costs, such as common area expenses, utilities, insurance and real estate taxes. These variable lease payments are recognized in the period when the applicable expenditures are incurred or, in the case of percentage rents, when the sales data is made available.
(in thousands of dollars) |
|
|
| |
October 1 to December 31, 2021 |
| $ | 66,295 |
|
2022 |
|
| 246,661 |
|
2023 |
|
| 220,588 |
|
2024 |
|
| 191,663 |
|
2025 |
|
| 157,493 |
|
Thereafter |
|
| 474,733 |
|
|
| $ | 1,357,433 |
|
(in thousands of dollars) |
|
|
|
|
October 1 to December 31, 2020 |
| $ | 54,272 |
|
2021 |
|
| 202,070 |
|
2022 |
|
| 183,810 |
|
2023 |
|
| 165,410 |
|
2024 |
|
| 144,048 |
|
Thereafter |
|
| 485,258 |
|
|
| $ | 1,234,868 |
|
8. COMMITMENTS AND CONTINGENCIES
Contractual Obligations
As of September 30, 2021, we had unaccrued contractual and other commitments related to our capital improvement projects and development projects of $5.4 million, including $2.6 million of commitments related to the redevelopment of Fashion District Philadelphia, in the form of tenant allowances and contracts with general service providers and other professional service providers. For purposes of this disclosure, the contractual obligations and other commitments related to Fashion District Philadelphia are included at 100% of the obligation and not at our 50% ownership share.
Preferred Dividend Arrearages
Dividends on the Series B, Series C and Series D preferred shares are cumulative and therefore will continue to accrue at an annual rate of $1.8436 per share, $1.80 per share and $1.7188 per share, respectively. As of September 30, 2021, the cumulative amount of unpaid dividends on our issued and outstanding preferred shares totaled $34.2 million. This consisted of unpaid dividends per share on the Series B, Series C and Series D preferred shares of $2.30 per share, $2.25 per share and $2.15 per share, respectively.
Property Damage from Natural and Other Disasters
During the nine months ended September 30, 2021, we recorded net insurance recoveries of $0.7 million as a result of recoveries received to repair damages that occurred in 2020.
During the nine months ended September 30, 2020, Cherry Hill Mall in Cherry Hill, New Jersey experienced a power outage due to the failure of an underground high voltage cable, which required the use of backup generator power. We recorded net costs of approximately $0.6 million during the nine months ended September 30, 2020 as a result of the power outage, and received recoveries of $0.6 million in April 2020.
2527
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following analysis of our consolidated financial condition and results of operations should be read in conjunction with our unaudited consolidated financial statements and the notes thereto included elsewhere in this report. The disclosures in this report are complementary to those made in our Annual Report on Form 10-K for the year ended December 31, 2019.2020.
OVERVIEW
Pennsylvania Real Estate Investment Trust,PREIT, a Pennsylvania business trust founded in 1960 and one of the first equity real estate investment trusts (“REITs”) in the United States, has a primary investment focus on retail shopping malls located in the eastern half of the United States, primarily in the Mid-Atlantic region.
We currently own interests in 2625 retail properties, of which 2524 are operating properties and one is a development property. The 2524 operating properties include 20 shopping malls and fivefour other retail properties, have a total of 19.819.7 million square feet and are located in nineeight states. We and partnerships in which we hold an interest own 15.415.2 million square feet at these properties (excluding space owned by anchors or third parties).
There are 1817 operating retail properties in our portfolio that we consolidate for financial reporting purposes. These consolidated properties have a total of 14.914.8 million square feet, of which we own 11.811.6 million square feet. The seven operating retail properties that are owned by unconsolidated partnerships with third parties have a total of 4.9 million square feet of which 3.6 million square feet are owned by such partnerships. When we refer to “Same Store” properties, we are referring to properties that have been owned for the full periods presented and exclude properties acquired or disposed of, under redevelopment or designated as a non-core property during the periods presented. Core properties include all operating retail properties except for Exton Square Mall and Fashion District Philadelphia.Mall. Valley View Mall was previously designated as a non-core property. As discussed further in Notes 2 and 4 to our unaudited consolidated financial statements, a foreclosure sale judgment with respect to Valley View Mall was ordered by the court after the property operations were assumed by a receiver on behalf of the lender under the mortgage loan secured by Valley View Mall and we no longer operate the property. “Core Malls” also excludes these propertiesExton Square Mall and Valley View Mall as well as power centers and Gloucester Premium Outlets.
We have one property in our portfolio that is classified as under development; however, we do not currently have any activity occurring at this property.
Fashion District Philadelphia opened on September 19, 2019. Fashion District Philadelphia is an aggregation of properties spanning three blocks in downtown Philadelphia that were formerly known as Gallery I, Gallery II and 907 Market Street. Joining Century 21 and Burlington in 2019 were multiple dining and entertainment venues including Market Eats, a multi offering food court, City Winery, AMC Theatres, and Round 1 Bowling & Amusement. In addition, Nike Factory Store, Ulta, and H & M have opened Philadelphia flagship stores at the property since its opening in September 2019.
Our primary business is owning, operating and operating retailredeveloping shopping malls, which we do primarily through our operating partnership, PREIT Associates, L.P. (“PREIT Associates” or the “Operating Partnership”). We believe our distinctive real estate is at the forefront of enabling communities to flourish through the built environment by providing opportunities to create vibrant multi-use destinations. In general, our malls include carefully curated retail and lifestyle offerings, including national and regional department stores, large format retailers and other anchors, mixed with destination dining and entertainment experiences. In recent years, we have increased the portion of our mall properties that are leased to non-traditional mall tenants, including life sciences, healthcare, supermarkets, fulfillment centers and self-storage facilities.
We provide management, leasing and real estate development services through PREIT Services, LLC (“PREIT Services”), which generally develops and manages properties that we consolidate for financial reporting purposes, and PREIT-RUBIN, Inc. (“PRI”), which generally develops and manages properties that we do not consolidate for financial reporting purposes, including properties owned by partnerships in which we own an interest, and properties that are owned by third parties in which we do not have an interest. PRI is a taxable REIT subsidiary, as defined by federal tax laws, which means that it is able to offer additional services to tenants without jeopardizing our continuing qualification as a REIT under federal tax law.
Our revenue consists primarily of fixed rental income, additional rent in the form of fixed and variable expense reimbursements, and percentage rent (rent that is based on a percentage of our tenants’ sales or a percentage of sales in excess of thresholds that are specified in the leases) derived from our income producing properties. We also receive income from our real estate partnership investments and from the management and leasing services PRI provides.
The COVID-19 global pandemic that began in early 2020 has adversely impacted and continues to impact our business, financial condition, liquidity and operating results, as well as our tenants’ businesses. The prolonged spread of COVID-19 has also led to unprecedented global economic disruption and volatility in financial markets. Some of our tenants’ financial health and business viability have been adversely impacted and their creditworthiness has deteriorated. We anticipate that our future business, financial condition, liquidity and results of operations, including throughout the remainder of 2021 and potentially in future periods, will continue to be materially impacted by the COVID-19 pandemic. Significant uncertainty remains with regard to the duration and impact of the COVID-19 pandemic and its resulting impact on the economy and day-to-day life and business operations. In particular, the duration and impact of COVID-19 will depend on a variety of factors as conditions continue to fluctuate around the country, with vaccination rates, spikes in infections and restrictions on activities and recommended protocols continuing to vary and evolve. Given these factors, so long as the lingering effects of COVID-19 remain, the virus may continue to impact us or our tenants, or our ability or the ability of our tenants to resume more normal operations.
28
COVID-19 closures of our properties began on March 12, 2020 and continued through the reopening of our last property on July 3, 2020. These closures impacted most of our properties for the full second quarter of 2020 with traffic and tenant reopenings increasing through the third quarter of 2021. New or renewed restrictions in the jurisdictions where our properties are located may be implemented in response to evolving conditions and overall uncertainty about the timing and widespread availability, acceptance, and efficacy of vaccines and booster requirements, including in response to new, and potentially more aggressive, strains and variants. In some instances, certain markets have independently implemented new restrictions as a result of break-through cases and the increased spread of such new strains and variants, including the Delta variant. As such, as the pandemic continues and potentially intensifies or we experience resurgences, it is possible that additional closures will occur or limitations on operations will be imposed.
All of our properties have remained open since the third quarter of 2020 and are employing safety and sanitation measures designed to address the risks posed by COVID-19, with some of our tenants still operating at reduced capacity. Following the pandemic-related closures, approximately 4% of our tenants failed to re-open (inclusive of tenants that filed for bankruptcy protection in the aftermath). As a result of the challenging environment created by COVID-19, primarily beginning in the second quarter of 2020, many of our tenants have sought rent relief and deferral and several have failed to pay rent due. Although we continue to make progress in collecting COVID-19-period rents, we have also initiated legal proceedings against certain tenants for failure to pay. As of September 30, 2021, we had cash receipts of 92% of billed third quarter 2021 rents, an increase from cash receipts of 88% and 81% of billed rents as of June 30, 2021 and March 31, 2021, respectively. Including collections of other months’ rents, we collected 119% of our billed third quarter 2021 rents. We believe that our rent collections are probable, but expect that collections will continue to be below our tenants’ rent obligations as long as the effects of COVID-19 affect the financial strength of our tenants. The significance of COVID-19 on our business, however, will continue to depend on, among other things, the extent and duration of the pandemic, the severity of the disease and the number of people infected with the virus, and certain variants thereof, vaccination rates in regions in which our properties are located, further effects on the economy of the pandemic and of the measures taken by governmental authorities and other third parties restricting daily activities and the length of time that such measures remain in place or are renewed, implementation of governmental programs to assist businesses and consumers impacted by the COVID-19 pandemic, and the effect of any changes to current restrictions or recommended protocols, all of which could vary by geographic region in which our properties are located. We continue to experience uncertainty as to whether government authorities will maintain the relaxation of current restrictions on businesses in the regions in which our properties are located, if these restrictions have been relaxed at all, and whether government authorities will issue recommendations or impose requirements on landlords like us to further enhance health and safety protocols, or whether we will voluntarily adopt any of these requirements ourselves, which could result in increased operating costs and demands on our property management teams to ensure compliance with any of these requirements.
Net loss for the three months ended September 30, 20202021 was $29.6$38.4 million compared to net incomeloss of $24.7$29.6 million for the three months ended September 30, 2019.2020. This $54.3$8.8 million decreaseincrease in net loss was primarily due to: (a) a decreasean increase in real estate revenuegeneral and administrative expenses of $17.0 million resulting from the ongoing impact of COVID-19 on our tenants along with tenant requests for rent concessions;$4.9 million; (b) a decrease in equity partnership income of $4.8 million due to the same reasons as described above; (c) an increase in interest expense of $4.7$12.2 million driven by higher revolvingoverall outstanding debt balances our additional term loan facility entered into in August 2020 (the “Bridge Facility”) and higher interest rates in connection with our debt modifications;modifications in 2020; and (d)(c) a non-recurring gain on debt extinguishment of $29.6 million recognizeddecrease in the third quarter of 2019, which had a favorable impact on the prior year period; partially offset by a non-recurring gain on derecognition of property of $7.0 million. These decreases were partially offset by an increase in real estate revenue of $7.8 million, resulting from the assignmenta decrease in equity in loss of operations at Valley View Mall to a receiverpartnerships of $1.8 million, and a decrease in property operatingdepreciation and amortization expenses of $1.1 million related to ongoing impacts of COVID-19 during the third quarter of 2020.
26
Table of Contents$5.3 million.
Net loss for the nine months ended September 30, 20202021 was $66.2$107.8 million compared to net incomeloss of $2.4$66.2 million for the nine months ended September 30, 2019.2020. This $68.7$41.6 million decreaseincrease in net loss was primarily due to: (a) a decreasean increase in real estate revenuegeneral and administrative expenses of $52.2 million due to the COVID-19 related closure of our properties for the majority of the second quarter, as well as rent concession requests from tenants for rent abatements and deferrals;$9.0 million; (b) a decrease in equity partnership income of $8.9 million due to the same reasons as described above; (c) an increase in interest expense of $7.3$40.8 million driven by higher revolvingoverall outstanding debt balances our new Bridge Facility and higher interest rates in connection with our debt modifications;modifications in 2020; and (d) a non-recurring gain on debt extinguishment recognized for the nine months ended September 30, 2019 of $24.8 million recognized for the nine months ended September 30, 2019, which had a favorable impact on the prior year period; partially offset by: (a)(c) a decrease in property operating expenses of $7.9 million related to ongoing impacts of COVID-19 from the second and third quarters of 2020; (b) a decrease in general and administrative expenses of $2.7 million due to furloughs, headcount reductions and other cost reductions implemented in response to COVID-19; and (c) non-recurring gain on derecognition of property as described above, which provided a benefit of $7.0 millionmillion. These decreases were partially offset by an increase in the current year period and non-recurring gains on sales of real estate which provided a benefitrevenue of $8.5 million to the current year period.$16.4 million.
See “Non-GAAP Supplemental Financial Measures” below for more information about our use of Same Store NOI and Non Same Store NOI, which are non-GAAP measures.
We evaluate operating results and allocate resources on a property-by-property basis, and do not distinguish or evaluate our consolidated operations on a geographic basis. Due to the nature of our operating properties, which involve retail shopping, dining and entertainment, we have concluded that our individual properties have similar economic characteristics and meet all other aggregation criteria. Accordingly, we have aggregated our individual properties into one reportable segment. In addition, no single tenant accounts for 10% or more of our consolidated revenue, and none of our properties are located outside the United States.
Restructuring Support Agreement
On October 7, 2020, we and certain of our wholly owned direct and indirect subsidiaries (collectively, the “Company Parties”) entered into a Restructuring Support Agreement (the “RSA”) with certain of the lenders under our Credit Agreements (defined and discussed further under “Credit Agreements” below).
The RSA contemplates agreed-upon terms for a financial restructuring (the “Restructuring”) of the existing debt and certain other obligations of the Company Parties through either (i) an out-of-court restructuring on the terms set forth in the Out-of-Court Restructuring Term Sheet attached to the RSA or, if we are unable to obtain the consent of 100% of the lenders under the Credit Agreements, (ii) a prepackaged plan of reorganization on the terms set forth in the Plan Term Sheet attached to the RSA, a solicitation of votes therefor, and the commencement of voluntary cases (the “Chapter 11 Cases”) under chapter 11 of title 11 of the United States Code, 11 U.S.C. 101-1532 in the United States Bankruptcy Court for the District of Delaware. The RSA was amended on October 16, 2020 and again on October 23, 2020, to, among other things, extend the date by which the Company Parties were required to commence the solicitation and the Chapter 11 Cases.
On October 19, 2020, the Company Parties received letters from the Agent alleging events of default with respect to each of the Credit Agreements, in addition to a letter from certain lenders under the RSA regarding an alleged breach of the RSA (collectively, the “Reservation Letters”). The Reservation Letter in respect of the RSA asserts that the Company Parties’ failure to commence the Chapter 11 Cases on or before October 18, 2020 constituted a breach of their obligations under the RSA. The Reservation Letter in respect of the Bridge Credit Agreement asserts that an event of default has occurred thereunder as a result of the alleged breach of the Company Parties’ obligations under the RSA. The remaining Reservation Letters allege that an event of default occurred under the Bridge Credit Agreement, in turn triggering alleged cross-defaults under each of the 7-Year Term Loan Agreement and the 2018 Credit Agreement. The Reservation Letter in respect of each Credit Agreement states that interest will accrue on the outstanding principal balance of the loans under such Credit Agreement at the increased Post-Default Rate (as defined in such Credit Agreement) beginning on October 19, 2020. The Reservation Letters specify that the lenders have not waived their rights and remedies under the Credit Agreements or the RSA (as applicable), and that they expressly reserve all available rights and remedies thereunder and applicable law. The Company has responded to the Agent that it disputes the lenders’ characterization of the situation described in the Reservation Letters and that no breach of the RSA or event of default under any of the Credit Agreements has occurred.
On November 1, 2020, as a result of obtaining approval of approximately 95% of the lenders under the Credit Agreement, but not 100%, we filed a voluntary Chapter 11 Cases petition in the United States Bankruptcy Court for the District of Delaware to implement our prepackaged financial restructuring plan (the "Prepackaged Plan"). Under the Prepackaged Plan, we expect the Company to be recapitalized and our debt maturities extended. The filing of the Chapter 11 Cases permits us to continue business operations in compliance with the orders of the Bankruptcy Court and without interruption while we obtain necessary approvals of our restructuring plan. The Prepackaged Plan is subject to approval by the United States Bankruptcy Court for the District of Delaware. See Item 1A. “Risk Factors” elsewhere in this report for more discussion of the risks associated with our bankruptcy proceedings.
Current Economic and Industry Conditions and Impact of COVID-19
Conditions in the economy have caused fluctuations and variations in business and consumer confidence, retail sales, and consumer spending on retail goods.goods, destination dining and entertainment. Further, traditional mall tenants, including department store anchors and smaller format retail tenants face significant challenges resulting from changing consumer expectations, the convenience of e-commerce shopping, competition from fast fashion retailers, the expansion
27
of outlet centers, and declining mall traffic, among other factors. Since March 2020 when the World Health Organization declared the outbreak of a novel coronavirus (COVID-19) as a global pandemic, the pandemic has caused significant disruptions to our industry and many other industries and has contributed to significant volatility in the financial markets, a rise in unemployment in the U.S., decreases in consumer confidence levels and spending, and an overall worsening of U.S. economic conditions. Our business and operations and those of many of our tenants have been materially and adversely impacted by the government-mandated travel restrictions, business closures and property shutdowns and the implementation of “social distancing” and certain other measures to prevent the further spread of the virus.
As a result of the COVID-19 pandemic, in mid-March 2020, we began closing our enclosed shopping malls, which remained closed for the majority of the second quarter of 2020. All of our malls have since re-opened and are adhering to social distancing and sanitation and safety protocols designed to address the risks posed by COVID-19, but many of our tenants are operating at reduced capacity. Following the pandemic related closures, approximately 4% of our tenants failed to re-open (inclusive of tenants that filed for bankruptcy protection in the aftermath). Also, following re-opening, 163,000 square feet of new tenants have opened for business in the same store portfolio and 82,000 opened at Fashion District. Certain jurisdictions where our malls are located that have relaxed restrictions or have experienced limited public adherence with suggested safety measures are now contemplating or implementing new or renewed travel restrictions and business closures, which could result in additional closures of our properties. The pandemic’s effect has had a significant impact on our operations, financial condition, liquidity and results of operations through the third quarter of 2020 due to the slow or reduced reopening of our tenants at various properties. As a result of the challenging environment created by COVID-19, many of our tenants have sought rent relief and deferral. At this time, we continue to make progress in collecting COVID-period rents. As of September 30, 2020, we had cash receipts representing in excess of 67% of billed second quarter and third quarter 2020 rents. Specifically, our cash receipts through September 30, 2020 represent approximately 99% of billed third quarter rents, including payments toward prior months. We believe that our rent collections are probable, but expect that collections will continue to be below our tenants’ rent obligations as long as lingering effects of COVID-19 affect the financial strength of our tenants.
In recent years, there has been an increased level of tenant bankruptcies and store closings by tenants who have been significantly impacted by these factors. All of these factors have been exacerbated by the above factors, and the impacts of the global COVID-19 pandemic have created additional economic challenges for many of our tenants. In the second and third quarters of 2020, we saw an increased level of tenants filing for bankruptcy, including tenants that are substantial to our business in terms of size and quantity.
Although we opened certain tenants at our redevelopment projects in 2019 and early 2020 and expect additional tenant openings before the end of 2020, we also have tenants who continue to face significant economic challenges, particularly in lightimpact of the COVID-19 pandemic beginning in early 2020 and we continue to actively communicate to restructure certain leasing arrangements through, among other things, downsizing and rent relief, which may impact our operating results.continuing in 2021.
It continues to remain highly uncertain and difficult to predict how long the pandemic and the economic challenges and restrictions it has resulted in will last, but we expect the pandemic to continue to have an adverse impact on our business, financial condition, liquidity and results of operations. See “Item 1A. Risk Factors – The COVID-19 global pandemic and the public health and governmental actions in response have adversely affected, and will likely continue to adversely affect, our business, financial condition, liquidity and operating results. The extension and duration of such effects are uncertain, rapidly changing and difficult to predict. Additionally, the future outbreak of any other highly infectious or contagious diseases may materially and adversely affect our business, financial condition, liquidity and operating results.”
2829
The table below sets forth information related to our tenants in bankruptcy for our consolidated and unconsolidated properties (excluding tenants in bankruptcy at sold properties):
|
| Pre-bankruptcy |
|
| Units Closed |
|
| Pre-bankruptcy |
|
| Units Closed |
| ||||||||||||||||||||||||||||||||||||||||||||
Year |
| Number of Tenants (1) |
|
| Number of locations impacted |
|
| GLA(2) |
|
| PREIT’s Share of Annualized Gross Rent(3) (in thousands) |
|
| Number of locations closed |
|
| GLA(2) |
|
| PREIT’s Share of Annualized Gross Rent(3) (in thousands) |
|
| Number of |
|
| Number of |
|
| GLA(2) |
|
| PREIT’s |
|
| Number of |
|
| GLA(2) |
|
| PREIT’s |
| ||||||||||||||
2020 (Nine Months Ended September 30) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||
2021 (through September 30, 2021) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||
Consolidated properties |
|
| 16 |
|
|
| 82 |
|
|
| 2,056,091 |
|
| $ | 17,676 |
|
|
| 30 |
|
|
| 114,892 |
|
| $ | 5,121 |
|
| 5 |
| 10 |
| 331,314 |
| $ | 1,589 |
| 4 |
| 17,759 |
| $ | 370 |
| |||||||||||
Unconsolidated properties |
|
| 16 |
|
|
| 26 |
|
|
| 438,789 |
|
|
| 3,276 |
|
|
| 9 |
|
|
| 42,126 |
|
|
| 1,072 |
|
| 1 |
|
| 1 |
|
|
| 4,046 |
|
|
| 57 |
|
|
| 1 |
|
|
| 4,046 |
|
|
| 57 |
| ||
Total |
|
| 21 |
|
|
| 108 |
|
|
| 2,494,880 |
|
| $ | 20,952 |
|
|
| 39 |
|
|
| 157,018 |
|
| $ | 6,193 |
|
| 5 |
| 11 |
| 335,360 |
| $ | 1,646 |
| 5 |
| 21,805 |
| $ | 427 |
| |||||||||||
2019 (Full Year) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||
2020 (Full Year) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||
Consolidated properties |
|
| 9 |
|
|
| 71 |
|
|
| 400,516 |
|
| $ | 14,656 |
|
|
| 63 |
|
|
| 242,742 |
|
| $ | 9,480 |
|
| 17 |
| 91 |
| 2,068,153 |
| $ | 18,604 |
| 39 |
| 389,696 |
| $ | 6,771 |
| |||||||||||
Unconsolidated properties |
|
| 8 |
|
|
| 14 |
|
|
| 56,030 |
|
|
| 1,481 |
|
|
| 8 |
|
|
| 32,024 |
|
|
| 915 |
|
| 18 |
|
| 31 |
|
|
| 468,164 |
|
|
| 3,747 |
|
|
| 13 |
|
|
| 162,378 |
|
|
| 2,093 |
| ||
Total |
|
| 11 |
|
|
| 85 |
|
|
| 456,546 |
|
| $ | 16,137 |
|
|
| 71 |
|
|
| 274,766 |
|
| $ | 10,395 |
|
| 23 |
| 122 |
| 2,536,317 |
| $ | 22,351 |
| 52 |
| 552,074 |
| $ | 8,864 |
|
(1) Total represents unique tenants and includes both tenant-owned and landlord-owned stores. As a result, amounts may not total. (2) Gross Leasable Area (“GLA”) in square feet. (3) Includes our share of tenant gross rent from partnership properties based on PREIT’s ownership percentage in the respective equity method investments as of September 30, 2021.
|
|
|
|
|
|
Anchor Replacements
In recent years, through property dispositions, proactive store recaptures, lease terminations and other activities, we have made efforts to reduce our risks associated with certain department store concentrations.
During 2019, we re-opened or introduced additional tenants to former anchor positions at Woodland Mall in Grand Rapids, Michigan, Valley Mall in Hagerstown, Maryland and Plymouth Meeting Mall, in Plymouth Meeting, Pennsylvania.concentrations. In the first quarter of 2020, Dick’s Sporting Goods at Valley Mall opened in the first quarter of 2020.opened. At Plymouth Meeting Mall, we opened Michael’s in 2020 and Shake Shack and Ideal Image in 2021. In the firstsecond quarter of 2020. In 2017,2021, we purchased the Macy’s locationopened Power Warehouse at Moorestown Mall in Moorestown, New Jersey andCumberland Mall. We also opened HomeSense, Sierra Trading and Michael’s between 2018 and the first quarter of 2020.
Construction was completed in the first quarter of 2020 giving way to the opening of Burlington in place of a former Searsan Aldi at Dartmouth Mall in Dartmouth, Massachusetts. We expect to continue to move forward with several outparcels at Dartmouth Mall resulting from the Sears recapture and working with large format prospects for space adjacent to Burlington but have experienced delays due to the impactthird quarter of COVID-19.2021.
During 2019, an anchor tenant, Sears, closed at Exton Square Mall in Exton, Pennsylvania. In January 2020, the Lord & Taylor store at Moorestown Mall in Moorestown, New Jersey closed and we are working with several retail and entertainment prospects to fill the space. Sears closed its stores at Moorestown Mall in Moorestown, New Jersey and Jacksonville Mall in Jacksonville, North Carolina in April 2020. Sears continues to be financially obligated pursuant to the leases at these locations. In May 2020, J.C. Penney filed for bankruptcy and announced the closure of its stores at Mall of Prince Georges in Hyattsville, Maryland, and Magnolia Mall in Florence, South Carolina.
In response to anchor store closings and other trends in the retail space, we have been changing the mix of tenants at our properties. We believe our distinctive real estate is at the forefront of enabling communities to flourish through the built environment by providing opportunities to create vibrant multi-use destinations. In general, our malls include carefully curated retail and lifestyle offerings, including national and regional department stores, large format retailers and other anchors, mixed with destination dining and entertainment experiences. In recent years, we have been reducing the percentage of traditional mall tenants and increasing the share of space dedicated to non-traditional mall tenants, including life sciences, healthcare, supermarkets, fulfillment centers and self-storage facilities. Approximately 30% of our mall space is committed to non-traditional tenants offering services such as dining and entertainment, health and wellness, off-price retail and fast fashion, off price, and large format box tenants. This initiative has slowed down due to the impacts of the COVID-19 pandemic.fashion. Some of these changes may result in the redevelopment of all or a portion of our properties. See “— Capital Improvements, Redevelopment and Development Projects.”
To fund the capital necessary to replace anchors and to maintain a reasonable level of leverage, we expect to use a variety of means available to us, subject to and in accordance with the terms of our Credit Agreements. These steps might include (i) making additional borrowings under our Credit Agreements (assuming availability and continued compliance with the financial covenants thereunder), (ii) obtaining construction loans on specific projects, (iii) selling properties or interests in properties with values in excess of their mortgage loans (if applicable) and applying the excess proceeds to fund capital expenditures or for debt reduction, or (iv) obtaining capital from joint ventures or other partnerships or arrangements involving our contribution of assets with institutional investors, private equity investors or other REITs, or (v) obtaining equity capital, including through the issuance of common or preferred equity securities if market conditions are favorable, or through other actions. As discussed in Note 4 to our unaudited consolidated financial statements, we entered into amendments to our Credit Agreements in March 2020 to provide certain debt covenant relief and again in July and September 2020 to suspend certain debt covenants and reduce and ultimately eliminate our minimum liquidity requirement. The March, July and September 2020 amendments were made in anticipation of entering into restructured borrowing
29
Table of ContentsREITs.
agreements providing for a longer term solution as contemplated by the RSA before the applicable modifications expire. In light of the effects of COVID-19 on our business, operations, liquidity and financial condition, we executed forbearance and loan modification arrangements with the lenders of certain of our properties’ mortgage loans (refer to Note 4 to our unaudited consolidated financial statements).
Capital Improvements, Redevelopment and Development Projects
We might engage in various types of capital improvement projects at our operating properties. Such projects vary in cost and complexity, and can include building out new or existing space for individual tenants, upgrading common areas or exterior areas such as parking lots, or redeveloping the entire property, among other projects. Project costs are accumulated in “Construction in progress” on our consolidated balance sheet until the asset is placed into service, and amounted to $46.9$44.7 million as of September 30, 2020.2021.
As of September 30, 2020,2021, we had unaccrued contractual and other commitments related to our capital improvement projects and development projects at our consolidated and unconsolidated properties of $27.9$5.4 million, including $14.1$2.6 million of commitments related to the redevelopment of Fashion District Philadelphia, in the form of tenant allowances and contracts with general service providers and other professional service providers.
In 2014, we entered into a 50/50 joint venture with The Macerich Company (“Macerich”) to redevelop Fashion District Philadelphia. As we redevelop Fashion District Philadelphia, operating results in the short term, as measured by sales, occupancy, real estate revenue, property operating expenses, Net Operating Income (“NOI”) and depreciation, will continue to be affected until the newly constructed space is completed, leased and occupied. Fashion District Philadelphia opened in September 2019 and is not yet fully stabilized as development work is continuing.
30
In January 2018, we along withand Macerich our partner in the Fashion District Philadelphia redevelopment project, entered into a $250.0 million term loan (the “FDP Term Loan”). The initial term of the FDP Term Loan is five years, and bears interest at a variable rate of 2.00% over LIBOR. PREIT and Macerich secured the FDP Term Loan by pledging their respective equity interests of 50% each(as amended in the entities that own Fashion District Philadelphia. The entire $250.0 million available under the FDP Term Loan was drawn during the first quarter of 2018, and we received an aggregate $123.0 million as a distribution of our share of the draw in 2018. In July 2019 the FDP Term Loan was modified to increase the total maximum potential borrowings from $250.0 million to $350.0 million.million) to fund the ongoing redevelopment of Fashion District Philadelphia and to repay capital contributions to the venture previously made by the partners. A total of $51.0 million was drawn during the third quarter of 2019 and we received aggregate distributions of $25.0 million as our share of the draws.As discussed in Note 4 On December 10, 2020, PM Gallery LP, together with certain other subsidiaries owned indirectly by us and Macerich (including the fee and leasehold owners of the properties that are part of the Fashion District Philadelphia project), entered into an Amended and Restated Term Loan Agreement (the “FDP Loan Agreement”). In connection with the execution of the FDP Loan Agreement, a $100.0 million principal payment was made (and funded indirectly by Macerich, the “Partnership Loan”) to our unaudited consolidated financial statements, on October 19, 2020,pay down the borrowerexisting loan, reducing the outstanding principal under the FDP Term Loan received a letterAgreement from $301.0 million to $201.0 million. The joint venture must repay the administrative agent underPartnership Loan plus 15% accrued interest to Macerich, in its capacity as the FDP Term Loan alleging an eventlender, prior to the resumption of default under50/50 cash distributions to us and Macerich. In connection with the FDP Term Loan as a result of the alleged breach of the 2018 Credit Agreement and outlining the 45-day cure period that will expire on December 3, 2020. On November 2, 2020, the borrower under the FDP Term Loan received a subsequent letter from the administrative agent asserting an event of default as a result of the filing of the Chapter 11 Cases and the automatic accelerationexecution of the FDP Term Loan.Loan Agreement, the governing structure of PM Gallery LP was modified such that, effective as of January 1, 2021, Macerich is responsible for the entity’s operations and, subject to limited exceptions, controls major decisions. The administrative agentCompany considered the changes to the governing structure of PM Gallery LP and determined the investment qualifies as a variable interest entity and would continue to be accounted for under the equity method of accounting.
The FDP Term Loan isAgreement provides for (i) a party to the RSA, and PREIT has responded to the administrative agent with a letter expressly reserving its rights in connectionmaturity date of January 22, 2023, with the FDP Term Loanpotential for a one-year extension upon the borrowers’ satisfaction of certain conditions, (ii) an interest rate at the borrowers’ option with respect to each advance of either (A) the Base Rate (defined as the highest of (a) the Prime Rate, (b) the Federal Funds Rate plus 0.50%, and (c) the LIBOR Market Index Rate plus 1.00%) plus 2.50% or (B) LIBOR for the applicable period plus 3.50%, (iii) a full recourse guarantee of 50% of the borrowers’ obligations by PREIT Associates, L.P., on a several basis, (iv) a full recourse guarantee of certain of the borrowers’ obligations by The Macerich Partnership, L.P., up to a maximum of $50.0 million, on a several basis, (v) a pledge of the equity interests of certain indirect subsidiaries of PREIT and Macerich, as well as of PREIT-RUBIN, Inc. and one of its subsidiaries, that have a direct or indirect ownership interest in the eventborrowers, (vi) a non-recourse carve-out guaranty and a hazardous materials indemnity by each of PREIT Associates, L.P. and The Macerich Partnership, L.P., and (vii) mortgages of the Prepackaged Plan is not confirmed orborrowers’ fee and leasehold interests in the RSA is otherwise terminated, expressly reservingproperties that are part of the Fashion District Philadelphia project and certain other properties. The FDP Loan Agreement contains certain covenants typical for loans of its rights under the RSA and the Prepackaged Plan.type.
We also own one development property, but we do not expect to make any significant investment at this property in the short term.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Critical Accounting Policies are those that require the application of management’s most difficult, subjective, or complex judgments, often because of the need to make estimates about the effect of matters that are inherently uncertain and that might change in subsequent periods. In preparing the unaudited consolidated financial statements, management has made estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenue and expenses during the reporting periods. In preparing the unaudited consolidated financial statements, management has utilized available information, including our past history, industry standards and the current economic environment, among other factors, in forming its estimates and judgments, giving due consideration to materiality. Management has also considered events and changes in property, market and economic conditions, estimated future cash flows from property operations and the risk of loss on specific accounts or amounts in determining its estimates and judgments. Actual results may differ from these estimates. In addition, other companies may utilize different estimates, which may affect comparability of our results of operations to those of companies in a similar business. The estimates and assumptions made by management in applying Critical Accounting Policiescritical accounting policies have not changed materially during 2021 and 2020, or 2019, except as otherwise noted, and none of these estimates or assumptions have proven to be materially incorrect or resulted in our recording any significant adjustments relating to prior periods. We will continue to monitor the key factors underlying our estimates and judgments, but no change is currently expected.
For additional information regarding our Critical Accounting Policies, see “Critical Accounting Policies”Policies and Estimates” in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2019.
30
Table of Contents2020.
Asset Impairment
Impairment of Assets
Real estate investments and related intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the property might not be recoverable, which is referred to as a “triggering event.” The continued impact of COVID-19 on the economy and market conditions, together with delayed reopening of some tenants at our properties in the third quarter of 2020, was deemedrecoverable. A property to be a triggering event during the third quarter of 2020, which led to an impairment review. In connection with our review of our long-lived assets for impairment, we utilize qualitativeheld and quantitative factors in order toused is considered impaired only if management’s estimate fair value. The significant qualitative factors that we use include age and condition of the aggregate future cash flows, less estimated capital expenditures, to be generated by the property, market conditions inundiscounted and without interest charges, are less than the property’s trade area, competition with other shopping centers within the property’s trade area and the creditworthiness and performancecarrying value of the property’s tenants. The significant quantitativeproperty. This estimate takes into consideration factors that we use include historical and forecasted financial and operating information relating to the property, such as netexpected future operating income, occupancy statistics, vacancy projectionstrends and tenants’ sales levels.prospects, as well as the effects of demand, competition and other factors.
If there is a triggering event in relation to a property to be held and used, we will estimate the aggregate future cash flows, less estimated capital expenditures, to be generated by the property, undiscounted and without interest charges. In addition, this estimate may consider a probability weighted cash flow estimation approach when alternative courses of action to recover the carrying amount of a long-lived asset are under consideration or when a range of possible values is estimated.
The determination of undiscounted cash flows requires significant estimates by management, including the expected course of action at the balance sheet date that would lead to such cash flows. Subsequent changes in estimated undiscounted cash flows arising from changes in the
31
anticipated action to be taken with respect to the property could impact the determination of whether an impairmentexists and whether the effects could materially affect our net income. To the extent estimated undiscounted cash flows are less than the carrying value of the property, the loss will be measured as the excess of the carrying amount of the property over the estimated fair value of the property. Our intent is to hold and operate our properties long-term, which reduces the likelihood that our carrying value is not recoverable. A shortened holding period would increase the likelihood that the carrying value is not recoverable.
Assessment of our ability to recover certain lease-relatedlease related costs must be made when we have a reason to believe that the tenant might not be able to perform under the terms of the lease as originally expected. This requires us to make estimates as to the recoverability of such costs.
An other than temporaryother-than-temporary impairment of an investment in an unconsolidated joint venture is recognized when the carrying value of the investment is not considered recoverable based on evaluation of the severity and duration of the decline in value. To the extent impairment has occurred, the excess carrying value of the asset over its estimated fair value is charged to income. We concluded
During the nine months ended September 30, 2021, we recorded an impairment loss of $1.3 million in connection with our classification of Valley View Center as held for sale as of June 30, 2021 and eventual sale in August 2021 (see Note 2 to our unaudited consolidated financial statements for details). Valley View Center is a retail property adjacent to Valley View Mall that therewe previously owned. The impairment loss is included in impairment of assets in the consolidated statement of operations for the nine months ended September 30, 2021.
During the three months ended September 30, 2021, we entered into a purchase and sale agreement to sell a parcel of land at Monroe Marketplace. In connection with this transaction, we recorded an impairment loss of $0.3 million due to excess carrying value over the sale price. The asset was no impairmentclassified as held for sale as of September 30, 2020. 2021 as we concluded that we will likely complete the sale transaction within one year. These assets are included in assets held for sale in the consolidated balance sheet and the impairment loss is included in impairment of assets in the consolidated statement of operations for the three and nine months ended September 30, 2021.
Revenue and Receivables
We continue to monitor potential triggering events throughoutderive over 95% of our revenue from tenant rent and other tenant-related activities. Tenant rent includes base rent, percentage rent, expense reimbursements (such as reimbursements of costs of common area maintenance (“CAM”), real estate taxes and utilities), and the year for impairment indicators.amortization of above-market and below-market lease intangibles.
We accrue revenue under leases, provided that it is probable that we will collect substantially all of the lease revenue that is due under the terms of the lease both at inception and on an ongoing basis. When collectability of lease revenue is not probable, leases are prospectively accounted for on a cash basis and any difference between the revenue that has been accrued and the cash collected from the tenant over the life of the lease is recognized as a current period adjustment to lease revenue. We review the collectability of our tenant receivables related to tenant rent including base rent, straight-line rent, expense reimbursements and other revenue or income by specifically analyzing billed and unbilled revenues, including straight-line rent receivable, and considering historical collection issues, tenant creditworthiness and current economic and industry trends. Our revenue recognition and receivables collectability analysis places particular emphasis on past-due accounts and considers the nature and age of the receivables, the payment history and financial condition of the payor, the basis for any disputes or negotiations with the payor, and other information that could affect collectability.
We record base rent on a straight-line basis, which means that the monthly base rent revenue according to the terms of our leases with our tenants is adjusted so that an average monthly rent is recorded for each tenant over the term of its lease. When tenants vacate prior to the end of their lease, we accelerate amortization of any related unamortized straight-line rent balances, and unamortized above-market and below-market intangible balances are amortized as a decrease or increase to real estate revenue, respectively.
Percentage rent represents rental revenue that the tenant pays based on a percentage of its sales, either as a percentage of its total sales or as a percentage of sales over a certain threshold. In the latter case, we do not record percentage rent until the sales threshold has been reached.
Revenue for rent received from tenants prior to their due dates is deferred until the period to which the rent applies.
In addition to base rent, certain lease agreements contain provisions that require tenants to reimburse a fixed or pro rata share of certain CAM costs, real estate taxes and utilities. Tenants generally make monthly expense reimbursement payments based on a budgeted amount determined at the beginning of the year. We recognize fixed CAM revenue prospectively on a straight-line basis.
Certain lease agreements contain co-tenancy clauses that can change the amount of rent or the type of rent that tenants are required to pay, or, in some cases, can allow the tenant to terminate their lease, in the event that certain events take place, such as a decline in property occupancy levels below certain defined levels or the vacating of an anchor store. Co-tenancy clauses do not generally have any retroactive effect when they are triggered. The effect of co-tenancy clauses is applied on a prospective basis to recognize the new rent that is in effect.
Payments made to tenants as inducements to enter into a lease are treated as deferred costs that are amortized as a reduction of rental revenue over the term of the related lease.
32
Lease termination fee revenue is recognized in the period when a termination agreement is signed, collectability is assured, and the tenant has vacated the space. In the event that a tenant is in bankruptcy when the termination agreement is signed, termination fee income is deferred and recognized when it is received.
We also generate revenue by providing management services to third parties, including property management, brokerage, leasing and development. Management fees generally are a percentage of managed property revenue or cash receipts. Leasing fees are earned upon the consummation of new leases. Development fees are earned over the time period of the development activity and are recognized on the percentage of completion method. These activities are collectively included in “Other income” in the consolidated statements of operations.
Revenue from the reimbursement of marketing expenses is generated through tenant leases that require tenants to reimburse a defined amount of property marketing expenses. Our contractual performance obligations are fulfilled as marketing expenditures are made. Tenant payments are received monthly as required by the respective lease terms. We defer income recognition if the reimbursements exceed the aggregate marketing expenditures made through that date. Deferred marketing reimbursement revenue is recorded in tenants’ deposits and deferred rent on the consolidated balance sheet. The marketing reimbursements are recognized as revenue at the time that the marketing expenditures occur.
Property management revenue from management and development activities is generated through contracts with third party owners of real estate properties or with certain of our joint ventures, and is recorded in other income in the consolidated statements of operations. In the case of management fees, our performance obligations are fulfilled over time as the management services are performed and the associated revenues are recognized on a monthly basis when the customer is billed. In the case of development fees, our performance obligations are fulfilled over time as we perform certain stipulated development activities as set forth in the respective development agreements and the associated revenues are recognized on a monthly basis when the customer is billed.
New Accounting Developments
See Note 1 to our unaudited consolidated financial statements for descriptions of new accounting developments.
OFF BALANCE SHEET ARRANGEMENTS
We have no material off-balance sheet items other than (i) the partnerships described in Note 3 to our unaudited consolidated financial statements and in the “Overview” section above, (ii) unaccrued contractual commitments related to our capital improvement and development projects at our consolidated and unconsolidated properties, and (iii) specifically with respect to our joint venture formed with Macerich, to develop Fashion District Philadelphia, our operating partnership, PREIT Associates, has jointly and severally guaranteed the obligations of the joint venture to complete a comprehensive redevelopment of that property costing not less than $300.0 million within 48 months after commencement of construction, which was March 14, 2016, and has severally guaranteed its 50% share of the FDP Term Loan (see Note 3 to our unaudited consolidated financial statements), which currently has $301.0$194.6 million outstanding (our share of which is $150.5$97.3 million). If our Fashion District Philadelphia joint venture were unable to satisfy its obligations under the FDP Term Loan and we were required to satisfy its payment obligations under the guarantee, this could have a material impact on our liquidity and available capital resources. The FDP Term Loan balance will become due in 2023.
31
33
RESULTS OF OPERATIONS
Overview
Net loss for the three months ended September 30, 20202021 was $29.6$38.4 million compared to net incomeloss of $24.7$29.6 million for the three months ended September 30, 2019.2020. This $54.3$8.8 million decreaseincrease in net loss was primarily due to: (a) a decreasean increase in real estate revenuegeneral and administrative expenses of $17.0 million resulting from the ongoing impact of COVID-19 on our tenants along with tenant requests for rent concessions;$4.9 million; (b) a decrease in equity partnership income of $4.8 million due to the same reasons as described above; (c) an increase in interest expense of $4.7$12.2 million driven by higher revolvingoverall outstanding debt balances our additional Bridge Facility entered into in August 2020 and higher interest rates in connection with our debt modifications;modifications in 2020; and (d)(c) a non-recurring gain on debt extinguishment of $29.6 million recognizeddecrease in the third quarter of 2019, which had a favorable impact on the prior year period; partially offset by a non-recurring gain on derecognition of property of $7.0 million. These decreases were partially offset by an increase in real estate revenue of $7.8 million, resulting from assignmenta decrease in equity in loss of operations at Valley View Mall to a receiverpartnerships of $1.8 million, and a decrease in property operatingdepreciation and amortization expenses of $1.1 million related to ongoing impacts of COVID-19 during the third quarter of 2020.$5.3 million.
Net loss for the nine months ended September 30, 20202021 was $66.2$107.8 million compared to net incomeloss of $2.4$66.2 million for the nine months ended September 30, 2019.2020. This $68.7$41.6 million decreaseincrease in net loss was primarily due to: (a) a decreasean increase in real estate revenuegeneral and administrative expenses of $52.2 million due to the COVID-19 related closure of our properties for the majority of the second quarter, as well as rent concession requests from tenants for rent abatements and deferrals;$9.0 million; (b) a decrease in equity partnership income of $8.9 million due to the same reasons as described above; (c) an increase in interest expense of $7.3$40.8 million driven by higher revolvingoverall outstanding debt balances our new Bridge Facility and higher interest rates in connection with our debt modifications;modifications in 2020; and (d) a non-recurring gain on debt extinguishment recognized for the nine months ended September 30, 2019 of $24.8 million recognized for the nine months ended September 30, 2019, which had a favorable impact on the prior year period; partially offset by: (a)(c) a decrease in property operating expenses of $7.9 million related to ongoing impacts of COVID-19 from the second and third quarters of 2020; (b) a decrease in general and administrative expenses of $2.7 million due to furloughs, headcount reductions and other cost reductions implemented in response to COVID-19; and (c) non-recurring gain on derecognition of property as described above, which provided a benefit of $7.0 millionmillion. These decreases were partially offset by an increase in the current year period and non-recurring gains on sales of real estate which provided a benefitrevenue of $8.5 million to the current year period.$16.4 million.
Occupancy
The table below sets forth certain occupancy statistics for our properties as of September 30, 20202021 and 2019:2020:
|
| Occupancy(1) at September 30, |
| |||||||||||||||||||||
|
| Consolidated |
|
| Unconsolidated |
|
| Combined(2) |
| |||||||||||||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||||
Retail portfolio weighted average: (3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total excluding anchors |
|
| 88.3 | % |
|
| 88.1 | % |
|
| 83.0 | % |
|
| 85.0 | % |
|
| 86.7 | % |
|
| 87.2 | % |
Total including anchors |
|
| 89.6 | % |
|
| 92.3 | % |
|
| 86.2 | % |
|
| 87.9 | % |
|
| 88.8 | % |
|
| 91.3 | % |
Core Malls weighted average: (4) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total excluding anchors |
|
| 90.4 | % |
|
| 90.0 | % |
|
| 84.0 | % |
|
| 81.9 | % |
|
| 89.7 | % |
|
| 89.1 | % |
Total including anchors |
|
| 90.5 | % |
|
| 93.8 | % |
|
| 89.0 | % |
|
| 87.6 | % |
|
| 90.3 | % |
|
| 93.2 | % |
(1) Occupancy for all periods presented includes all tenants irrespective of the term of their agreement.
|
| Occupancy(1) at September 30, |
| |||||||||||||||||||||
|
| Consolidated Properties |
|
| Unconsolidated Properties |
|
| Combined(2) |
| |||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||||
Retail portfolio weighted average:(3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total excluding anchors |
|
| 88.1 | % |
|
| 90.2 | % |
|
| 88.2 | % |
|
| 89.9 | % |
|
| 88.1 | % |
|
| 90.1 | % |
Total including anchors |
|
| 92.3 | % |
|
| 92.7 | % |
|
| 90.3 | % |
|
| 91.8 | % |
|
| 91.9 | % |
|
| 92.5 | % |
Core Malls weighted average:(4) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total excluding anchors |
|
| 90.0 | % |
|
| 91.6 | % |
|
| 81.9 | % |
|
| 86.6 | % |
|
| 89.1 | % |
|
| 91.1 | % |
Total including anchors |
|
| 93.8 | % |
|
| 94.8 | % |
|
| 87.6 | % |
|
| 90.9 | % |
|
| 93.2 | % |
|
| 94.4 | % |
|
|
|
|
|
|
|
|
32(3) Retail portfolio includes all retail properties including Fashion District Philadelphia.
(4) Core Malls excludes Exton Square Mall, power centers and Gloucester Premium Outlets.
34
Leasing Activity
The table below sets forth summary leasing activity information with respect to our consolidated and unconsolidated properties for the three months ended September 30, 2020:2021:
|
|
|
| Number |
|
| GLA |
|
| Term |
|
| Initial Rent |
|
| Previous |
|
| Initial Gross Rent |
|
| Average Rent |
|
| Annualized |
| ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ |
|
| % |
|
| % |
|
|
|
| |||||||||
Non Anchor |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
New Leases |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Under 10k square feet ("sf") |
|
|
|
| 33 |
|
|
| 59,939 |
|
|
| 4.6 |
|
| $ | 47.45 |
|
| N/A |
|
| N/A |
|
|
|
|
| N/A |
|
|
| 7.06 |
| ||||
Over 10k sf |
|
|
|
| 3 |
|
|
| 38,292 |
|
|
| 3.8 |
|
|
| 6.61 |
|
| N/A |
|
| N/A |
|
| N/A |
|
| N/A |
|
|
| 0.07 |
| ||||
Total New Leases |
|
|
|
| 36 |
|
|
| 98,231 |
|
|
| 4.3 |
|
|
| 31.53 |
|
| N/A |
|
| N/A |
|
| N/A |
|
| N/A |
|
|
| 4.63 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Renewal Leases |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Under 10k sf |
|
|
|
| 14 |
|
|
| 42,711 |
|
|
| 3.7 |
|
|
| 43.81 |
|
|
| 45.00 |
|
|
| (1.19 | ) |
|
| (2.6 | %) |
|
| (2.3 | %) |
|
| - |
|
Over 10k sf |
|
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 0.0 | % |
|
| 0.0 | % |
|
| - |
|
Total Fixed Rent |
|
|
|
| 14 |
|
|
| 42,711 |
|
|
| 3.7 |
|
|
| 43.81 |
|
|
| 45.00 |
|
|
| (1.19 | ) |
|
| (2.6 | %) |
|
| (2.3 | %) |
|
| - |
|
Total Percentage in Lieu |
|
|
|
| 6 |
|
|
| 18,403 |
|
|
| 2.4 |
|
|
| 24.56 |
|
|
| 23.18 |
|
|
| 1.38 |
|
|
| 6.0 | % |
|
| 0.0 | % |
|
| - |
|
Total Renewal Leases |
|
|
|
| 20 |
|
|
| 61,114 |
|
|
| 3.3 |
|
|
| 38.01 |
|
|
| 38.43 |
|
|
| (0.42 | ) |
|
| (1.1 | %) |
| N/A |
|
|
| - |
| |
Total Non Anchor (4) |
|
|
|
| 56 |
|
|
| 159,345 |
|
|
| 3.9 |
|
|
| 34.01 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Anchor |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
New Leases |
|
|
|
| 2 |
|
|
| 224,594 |
|
|
| 5.7 |
|
|
| 4.50 |
|
| N/A |
|
| N/A |
|
| N/A |
|
| N/A |
|
|
| 1.45 |
| ||||
Renewal Leases |
|
|
|
| 1 |
|
|
| 40,332 |
|
|
| 2.0 |
|
|
| 23.12 |
|
|
| 25.00 |
|
|
| (1.88 | ) |
|
| (7.5 | %) |
| N/A |
|
|
| - |
| |
Total |
|
|
|
| 3 |
|
|
| 264,926 |
|
|
| 4.5 |
|
| $ | 7.33 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Initial gross rent renewal spread is computed by comparing the initial rent per square foot in the new lease to the final rent per square foot amount in the expiring lease. For purposes of this computation, the rent amount includes minimum rent, common area maintenance (“CAM”) charges, estimated real estate tax reimbursements and marketing charges, but excludes percentage rent. In certain cases, a lower rent amount may be payable for a period of time until specified conditions in the lease are satisfied.
(2) Average rent renewal spread is computed by comparing the average rent per square foot over the new lease term to the final rent per square foot amount in the expiring lease. For purposes of this computation, the rent amount includes minimum rent and fixed CAM charges, but excludes pro rata CAM charges, estimated real estate tax reimbursements, marketing charges and percentage rent.
|
|
|
| Number |
|
| GLA |
|
| Term |
|
| Initial Rent per square foot ("psf") |
|
| Previous Rent psf |
|
| Initial Gross Rent Renewal Spread(1) |
|
| Average Rent Renewal Spread(2) |
|
| Annualized Tenant Improvements psf(3) |
| ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ |
|
| % |
|
| % |
|
|
|
|
| |||
Non Anchor |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New Leases |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Under 10k square feet ("sf") |
|
|
|
| 5 |
|
|
| 8,194 |
|
|
| 1.8 |
|
| $ | 36.78 |
|
| N/A |
|
| N/A |
|
| N/A |
|
| N/A |
|
| $ | - |
| ||||
Over 10k sf |
|
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
| N/A |
|
| N/A |
|
| N/A |
|
| N/A |
|
|
| - |
| ||||
Total New Leases |
|
|
|
| 5 |
|
|
| 8,194 |
|
|
| 1.8 |
|
| $ | 36.78 |
|
| N/A |
|
| N/A |
|
| N/A |
|
| N/A |
|
| $ | - |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Renewal Leases |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Under 10k sf |
|
|
|
| 19 |
|
|
| 30,009 |
|
|
| 1.9 |
|
| $ | 66.82 |
|
| $ | 71.05 |
|
| $ | (4.23 | ) |
|
| (6.0 | %) |
|
| (9.1 | %) |
| $ | - |
|
Over 10k sf |
|
|
|
| 1 |
|
|
| 12,608 |
|
|
| 5.0 |
|
|
| 14.00 |
|
|
| 13.50 |
|
|
| 0.50 |
|
|
| 3.7 | % |
|
| 3.7 | % |
|
| - |
|
Total Fixed Rent |
|
|
|
| 20 |
|
|
| 42,617 |
|
|
| 2.8 |
|
| $ | 51.19 |
|
| $ | 54.02 |
|
| $ | (2.83 | ) |
|
| (5.2 | %) |
|
| (8.1 | %) |
| $ | - |
|
Total Percentage in Lieu |
|
|
|
| 6 |
|
|
| 28,535 |
|
|
| 1.3 |
|
|
| 39.14 |
|
|
| 46.98 |
|
|
| (7.85 | ) |
|
| (16.7 | %) |
| N/A |
|
|
| - |
| |
Total Renewal Leases |
|
|
|
| 26 |
|
|
| 71,152 |
|
|
| 2.2 |
|
| $ | 46.36 |
|
| $ | 51.20 |
|
| $ | (4.84 | ) |
|
| (9.5 | %) |
|
|
|
|
| $ | - |
|
Total Non Anchor |
|
|
|
| 31 |
|
|
| 79,346 |
|
|
| 2.2 |
|
| $ | 45.37 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3) These leasing costs are presented as annualized amounts per square foot and are spread uniformly over the initial lease term. (4) Includes 6 leases and 11,084 square feet of GLA with respect to our unconsolidated partnerships. We own a 25% to 50% interest in each of our unconsolidated properties and do not control such properties. Our percentage ownership is not necessarily indicative of the legal and economic implications of our ownership interest. See “— Non-GAAP Supplemental Financial Measures” for further details on our ownership interests in our unconsolidated properties. 35 |
|
|
|
|
|
33
The table below sets forth summary leasing activity information with respect to our consolidated and unconsolidated properties for the nine months ended September 30, 2020:2021:
|
|
|
| Number |
|
| GLA |
|
| Term |
|
| Initial Rent |
|
| Previous |
|
| Initial Gross Rent |
|
| Average Rent |
|
| Annualized |
| ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ |
|
| % |
|
| % |
|
|
|
| |||||||||
Non Anchor |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
New Leases |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Under 10k square feet ("sf") |
|
|
|
| 114 |
|
|
| 256,188 |
|
|
| 4.9 |
|
| $ | 42.83 |
|
| N/A |
|
| N/A |
|
| N/A |
|
| N/A |
|
| $ | 4.95 |
| ||||
Over 10k sf |
|
|
|
| 8 |
|
|
| 225,747 |
|
|
| 17.5 |
|
|
| 8.85 |
|
| N/A |
|
| N/A |
|
| N/A |
|
| N/A |
|
|
| 1.09 |
| ||||
Total New Leases |
|
|
|
| 122 |
|
|
| 481,935 |
|
|
| 10.8 |
|
| $ | 26.91 |
|
| N/A |
|
| N/A |
|
|
| 0.0 | % |
|
| 0.0 | % |
| $ | 2.02 |
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Renewal Leases |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Under 10k sf |
|
|
|
| 120 |
|
|
| 239,438 |
|
|
| 3.7 |
|
|
| 59.82 |
|
|
| 65.11 |
|
|
| (5.28 | ) |
|
| (8.1 | %) |
|
| (5.3 | %) |
|
| - |
|
Over 10k sf |
|
|
|
| 8 |
|
|
| 302,597 |
|
|
| 4.7 |
|
|
| 21.23 |
|
|
| 19.68 |
|
|
| 1.55 |
|
|
| 7.9 | % |
|
| 10.1 | % |
|
| - |
|
Total Fixed Rent |
|
|
|
| 128 |
|
|
| 542,035 |
|
|
| 4.3 |
|
|
| 38.28 |
|
|
| 39.75 |
|
|
| (1.47 | ) |
|
| (3.7 | %) |
|
| (1.1 | %) |
|
| - |
|
Total Percentage in Lieu |
|
|
|
| 59 |
|
|
| 260,956 |
|
|
| 1.6 |
|
|
| 23.48 |
|
|
| 25.79 |
|
|
| (2.31 | ) |
|
| (8.9 | %) |
|
|
|
|
| - |
| |
Total Renewal Leases |
|
|
|
| 187 |
|
|
| 802,991 |
|
|
| 3.4 |
|
|
| 33.47 |
|
|
| 35.21 |
|
|
| (1.74 | ) |
|
| (4.9 | %) |
|
|
|
|
| - |
| |
Total Non Anchor (4) |
|
|
|
| 309 |
|
|
| 1,284,926 |
|
|
| 6.2 |
|
|
| 31.01 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Anchor |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
New Leases |
|
|
|
| 4 |
|
|
| 409,684 |
|
|
| 6.1 |
|
|
| 3.40 |
|
| N/A |
|
| N/A |
|
| N/A |
|
| N/A |
|
|
| 0.95 |
| ||||
Renewal Leases |
|
|
|
| 6 |
|
|
| 690,850 |
|
|
| 4.5 |
|
|
| 5.51 |
|
|
| 5.61 |
|
|
| (0.10 | ) |
|
| (1.8 | %) |
| N/A |
|
|
| - |
| |
Total |
|
|
|
| 10 |
|
|
| 1,100,534 |
|
|
| 5.1 |
|
| $ | 4.72 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)Initial gross rent renewal spread is computed by comparing the initial rent per square foot in the new lease to the final rent per square foot amount in the expiring lease. For purposes of this computation, the rent amount includes minimum rent, common area maintenance (“CAM”) charges, estimated real estate tax reimbursements and marketing charges, but excludes percentage rent. In certain cases, a lower rent amount may be payable for a period of time until specified conditions in the lease are satisfied.
(2)Average rent renewal spread is computed by comparing the average rent per square foot over the new lease term to the final rent per square foot amount in the expiring lease. For purposes of this computation, the rent amount includes minimum rent and fixed CAM charges, but excludes pro rata CAM charges, estimated real estate tax reimbursements, marketing charges and percentage rent.
|
|
|
| Number |
|
| GLA |
|
| Term |
|
| Initial Rent per square foot ("psf") |
|
| Previous Rent psf |
|
| Initial Gross Rent Renewal Spread(1) |
|
| Average Rent Renewal Spread(2) |
|
| Annualized Tenant Improvements psf(3) |
| ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ |
|
| % |
|
| % |
|
|
|
|
| |||
Non Anchor |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New Leases |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Under 10k square feet ("sf") |
|
|
|
| 34 |
|
|
| 75,658 |
|
|
| 6.0 |
|
| $ | 40.60 |
|
| N/A |
|
| N/A |
|
| N/A |
|
| N/A |
|
| $ | 9.06 |
| ||||
Over 10k sf |
|
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
| N/A |
|
| N/A |
|
| N/A |
|
| N/A |
|
|
| - |
| ||||
Total New Leases |
|
|
|
| 34 |
|
|
| 75,658 |
|
|
| 6.0 |
|
| $ | 40.60 |
|
| N/A |
|
| N/A |
|
| N/A |
|
| N/A |
|
| $ | 9.06 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Renewal Leases |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Under 10k sf |
|
|
|
| 81 |
|
|
| 201,084 |
|
|
| 2.6 |
|
| $ | 52.96 |
|
| $ | 56.33 |
|
| $ | (3.37 | ) |
|
| (6.0 | %) |
|
| (2.5 | %) |
| $ | 0.01 |
|
Over 10k sf |
|
|
|
| 3 |
|
|
| 61,345 |
|
|
| 4.5 |
|
|
| 15.92 |
|
|
| 16.28 |
|
|
| (0.36 | ) |
|
| (2.2 | %) |
|
| (12.8 | %) |
|
| - |
|
Total Fixed Rent |
|
|
|
| 84 |
|
|
| 262,429 |
|
|
| 3.1 |
|
| $ | 44.30 |
|
| $ | 46.97 |
|
| $ | (2.67 | ) |
|
| (5.7 | %) |
|
| (3.4 | %) |
| $ | 0.01 |
|
Total Percentage in Lieu |
|
|
|
| 24 |
|
|
| 76,509 |
|
|
| 1.3 |
|
|
| 33.64 |
|
|
| 44.38 |
|
|
| (10.74 | ) |
|
| (24.2 | %) |
| N/A |
|
|
| - |
| |
Total Renewal Leases (4) |
|
|
|
| 108 |
|
|
| 338,938 |
|
|
| 2.7 |
|
| $ | 41.89 |
|
| $ | 46.38 |
|
| $ | (4.49 | ) |
|
| (9.7 | %) |
|
|
|
|
| $ | 0.01 |
|
Total Non Anchor |
|
|
|
| 142 |
|
|
| 414,596 |
|
|
| 3.3 |
|
| $ | 41.66 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3)These leasing costs are presented as annualized amounts per square foot and are spread uniformly over the initial lease term. (4) Includes 26 leases and 91,038 square feet of GLA with respect to our unconsolidated partnerships. We own a 25% to 50% interest in each of our unconsolidated properties and do not control such properties. Our percentage ownership is not necessarily indicative of the legal and economic implications of our ownership interest. See “— Non-GAAP Supplemental Financial Measures” for further details on our ownership interests in our unconsolidated properties. 36
|
|
|
|
|
|
|
|
The following table sets forth our results of operations for the three and nine months ended September 30, 20202021 and 2019.
|
| Three Months Ended September 30, |
|
| % Change 2019 to 2020 |
| Nine Months Ended September 30, |
|
| % Change 2019 to 2020 | ||||||||||||||||
(in thousands of dollars) |
| 2020 |
|
| 2019 |
|
|
|
| 2020 |
|
| 2019 |
|
|
| ||||||||||
Real estate revenue |
| $ | 63,849 |
|
| $ | 80,876 |
|
|
| (21.1 | ) | % |
| $ | 194,437 |
|
| $ | 246,629 |
|
|
| (21.2 | ) | % |
Property operating expenses |
|
| (33,045 | ) |
|
| (34,165 | ) |
|
| (3.3 | ) | % |
|
| (95,088 | ) |
|
| (103,056 | ) |
|
| (7.7 | ) | % |
Other income |
|
| 340 |
|
|
| 498 |
|
|
| (31.7 | ) | % |
|
| 764 |
|
|
| 1,440 |
|
|
| (46.9 | ) | % |
Depreciation and amortization |
|
| (34,420 | ) |
|
| (31,236 | ) |
|
| 10.2 |
| % |
|
| (95,597 | ) |
|
| (98,085 | ) |
|
| (2.5 | ) | % |
General and administrative expenses |
|
| (9,526 | ) |
|
| (10,605 | ) |
|
| (10.2 | ) | % |
|
| (30,790 | ) |
|
| (33,419 | ) |
|
| (7.9 | ) | % |
Provision for employee separation expenses |
|
| (60 | ) |
|
| (218 | ) |
|
| (72.5 | ) | % |
|
| (1,173 | ) |
|
| (1,078 | ) |
|
| 8.8 |
| % |
Insurance recoveries, net |
|
| - |
|
|
| 2,878 |
|
|
| (100.0 | ) | % |
|
| 586 |
|
|
| 4,494 |
|
|
| (87.0 | ) | % |
Project costs and other expenses |
|
| (124 | ) |
|
| (80 | ) |
|
| 55.0 |
| % |
|
| (287 | ) |
|
| (267 | ) |
|
| 7.5 |
| % |
Interest expense, net |
|
| (20,260 | ) |
|
| (15,534 | ) |
|
| 30.4 |
| % |
|
| (54,300 | ) |
|
| (46,986 | ) |
|
| 15.6 |
| % |
Gain on debt extinguishment, net |
|
| - |
|
|
| 29,600 |
|
|
| (100.0 | ) | % |
|
| - |
|
|
| 24,832 |
|
|
| (100.0 | ) | % |
Gain on derecognition of property |
|
| 7,006 |
|
|
| - |
|
|
| 100.0 |
| % |
|
| 7,006 |
|
|
| - |
|
|
| 100.0 |
| % |
Impairment of development land parcel |
|
| - |
|
|
| - |
|
|
| 0.0 |
| % |
|
| - |
|
|
| (1,464 | ) |
|
| (100.0 | ) | % |
Equity in (loss) income of partnerships |
|
| (3,259 | ) |
|
| 1,531 |
|
|
| (312.9 | ) | % |
|
| (2,798 | ) |
|
| 6,136 |
|
|
| (145.6 | ) | % |
Gain on sales of real estate by equity method investee |
|
| - |
|
|
| - |
|
|
| 0.0 |
| % |
|
| - |
|
|
| 553 |
|
|
| (100.0 | ) | % |
(Loss) gain on sales of real estate, net |
|
| (94 | ) |
|
| 1,171 |
|
|
| (108.0 | ) | % |
|
| 11,169 |
|
|
| 2,684 |
|
|
| 316.1 |
| % |
Gain (loss) on sales of interests in non operating real estate |
|
| 16 |
|
|
| - |
|
|
| 100.0 |
| % |
|
| (174 | ) |
|
| - |
|
|
| 100.0 |
| % |
Net (loss) income |
| $ | (29,577 | ) |
| $ | 24,716 |
|
|
| (219.7 | ) | % |
| $ | (66,245 | ) |
| $ | 2,413 |
|
|
| (2,845.3 | ) | % |
34
Table of Contents2020.
|
| Three Months Ended |
|
| % Change |
| Nine Months Ended |
|
| % Change | ||||||||||||||||
(in thousands of dollars) |
| 2021 |
|
| 2020 |
|
|
|
| 2021 |
|
| 2020 |
|
|
| ||||||||||
Real estate revenue |
| $ | 71,593 |
|
| $ | 63,849 |
|
|
| 12.1 |
| % |
| $ | 210,827 |
|
| $ | 194,437 |
|
|
| 8.4 |
| % |
Property operating expenses |
|
| (32,129 | ) |
|
| (33,045 | ) |
|
| (2.8 | ) | % |
|
| (96,052 | ) |
|
| (95,088 | ) |
|
| 1.0 |
| % |
Other income |
|
| 143 |
|
|
| 340 |
|
|
| (57.9 | ) | % |
|
| 430 |
|
|
| 764 |
|
|
| (43.7 | ) | % |
Depreciation and amortization |
|
| (29,142 | ) |
|
| (34,420 | ) |
|
| (15.3 | ) | % |
|
| (88,667 | ) |
|
| (95,597 | ) |
|
| (7.2 | ) | % |
General and administrative expenses |
|
| (14,453 | ) |
|
| (9,526 | ) |
|
| 51.7 |
| % |
|
| (39,819 | ) |
|
| (30,790 | ) |
|
| 29.3 |
| % |
Provision for employee separation expenses |
|
| (39 | ) |
|
| (60 | ) |
|
| (35.0 | ) | % |
|
| (279 | ) |
|
| (1,173 | ) |
|
| (76.2 | ) | % |
Insurance recoveries, net |
|
| — |
|
|
| — |
|
|
| 0.0 |
| % |
|
| 670 |
|
|
| 586 |
|
|
| 14.3 |
| % |
Project costs and other expenses |
|
| (27 | ) |
|
| (124 | ) |
|
| (78.2 | ) | % |
|
| (206 | ) |
|
| (287 | ) |
|
| (28.2 | ) | % |
Interest expense, net |
|
| (32,426 | ) |
|
| (20,260 | ) |
|
| 60.0 |
| % |
|
| (95,135 | ) |
|
| (54,300 | ) |
|
| 75.2 |
| % |
Reorganization expenses |
|
| — |
|
|
| — |
|
|
| 100.0 |
| % |
|
| (267 | ) |
|
| — |
|
|
| 100.0 |
| % |
Gain on debt extinguishment, net |
|
| — |
|
|
| — |
|
|
| 100.0 |
| % |
|
| 4,587 |
|
|
| — |
|
|
| 100.0 |
| % |
Gain on derecognition of property |
|
| — |
|
|
| 7,006 |
|
|
| (100.0 | ) | % |
|
| — |
|
|
| 7,006 |
|
|
| (100.0 | ) | % |
Impairment of assets |
|
| (262 | ) |
|
| — |
|
|
| 100.0 |
| % |
|
| (1,564 | ) |
|
| — |
|
|
| 100.0 |
| % |
Equity in loss of partnerships |
|
| (1,429 | ) |
|
| (3,259 | ) |
|
| (56.2 | ) | % |
|
| (2,429 | ) |
|
| (2,798 | ) |
|
| (13.2 | ) | % |
(Loss) on sales of real estate by equity method investee |
|
| (10 | ) |
|
| — |
|
|
| 100.0 |
| % |
|
| 1,337 |
|
|
| — |
|
|
| 100.0 |
| % |
(Loss) gain on sales of real estate, net |
|
| (217 | ) |
|
| (94 | ) |
|
| 130.9 |
| % |
|
| (1,191 | ) |
|
| 11,169 |
|
|
| (110.7 | ) | % |
Gain on sales of interests in non operating real estate |
|
| — |
|
|
| 16 |
|
|
| (100.0 | ) | % |
|
| — |
|
|
| (174 | ) |
|
| (100.0 | ) | % |
Net loss |
| $ | (38,398 | ) |
| $ | (29,577 | ) |
|
| 29.8 |
| % |
| $ | (107,758 | ) |
| $ | (66,245 | ) |
|
| 62.7 |
| % |
The amounts in the preceding tables reflect our consolidated properties and our unconsolidated properties. Our unconsolidated properties are presented under the equity method of accounting in the line item “Equity in incomeloss of partnerships.”
Real Estate Revenue
Effective January 1, 2019, we adopted Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842) (“ASC 842”) and related guidance using the optional transition method and elected to apply the provisions of the standard as of the adoption date rather than the earliest date presented. Prior period amounts were not restated. Since we adopted the practical expedient in ASC 842, which allows us to avoid separating lease (minimum rent) and non-lease rental income (common area maintenance and real estate tax reimbursements),We include all rental income earned pursuant to tenant leases is reflected as oneunder the “Lease revenue” line “Lease revenue,”item in the consolidated statementstatements of operations. Utility reimbursements are presented separately in “Expense reimbursements.” We review the collectability of both billed and unbilled lease revenues each reporting period, taking into consideration the tenant’s payment history, credit profile and other factors, including itsthe tenant’s operating performance. For any tenant receivable balancesbalance deemed to be uncollectible, under ASC 842 we record an offset for credit losses directly to Lease revenue in the consolidated statementstatements of operations. Previously, under ASC 840, uncollectible tenants’ receivables were reported in Other property operating expenses in the consolidated statement of operations.
The following table reports the breakdown of real estate revenues based on the terms of the lease contracts for the three and nine months ended September 30, 20202021 and 2019:2020:
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||
(in thousands of dollars) |
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
Contractual lease payments: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Base rent |
| $ | 47,998 |
|
| $ | 47,258 |
|
| $ | 143,529 |
|
| $ | 136,085 |
|
CAM reimbursement income |
|
| 8,485 |
|
|
| 8,974 |
|
|
| 25,146 |
|
|
| 29,043 |
|
Real estate tax income |
|
| 6,941 |
|
|
| 7,999 |
|
|
| 20,562 |
|
|
| 25,015 |
|
Percentage rent |
|
| 1,376 |
|
|
| 84 |
|
|
| 1,581 |
|
|
| 84 |
|
Lease termination revenue |
|
| 829 |
|
|
| 2,011 |
|
|
| 1,487 |
|
|
| 2,236 |
|
|
|
| 65,629 |
|
|
| 66,326 |
|
|
| 192,305 |
|
|
| 192,463 |
|
Less: credit (losses) recoveries |
|
| (86 | ) |
|
| (7,853 | ) |
|
| 1,259 |
|
|
| (14,149 | ) |
Lease revenue |
|
| 65,543 |
|
|
| 58,473 |
|
|
| 193,564 |
|
|
| 178,314 |
|
Expense reimbursements |
|
| 4,650 |
|
|
| 4,040 |
|
|
| 12,436 |
|
|
| 11,321 |
|
Other real estate revenue |
|
| 1,400 |
|
|
| 1,336 |
|
|
| 4,828 |
|
|
| 4,802 |
|
Total real estate revenue |
| $ | 71,593 |
|
| $ | 63,849 |
|
| $ | 210,828 |
|
| $ | 194,437 |
|
|
| Three Months Ended September, |
|
| Nine Months Ended September 30, |
| ||||||||||
(in thousands of dollars) |
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||
Contractual lease payments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Base rent |
| $ | 47,258 |
|
| $ | 53,688 |
|
| $ | 136,084 |
|
| $ | 163,676 |
|
CAM reimbursement income |
|
| 8,974 |
|
|
| 10,816 |
|
|
| 29,043 |
|
|
| 33,365 |
|
Real estate tax income |
|
| 7,999 |
|
|
| 9,114 |
|
|
| 25,015 |
|
|
| 27,494 |
|
Percentage rent |
|
| 85 |
|
|
| 772 |
|
|
| 84 |
|
|
| 935 |
|
Lease termination revenue |
|
| 2,011 |
|
|
| 11 |
|
|
| 2,236 |
|
|
| 480 |
|
|
|
| 66,327 |
|
|
| 74,401 |
|
|
| 192,462 |
|
|
| 225,950 |
|
Less: credit losses |
|
| (7,853 | ) |
|
| (1,091 | ) |
|
| (14,149 | ) |
|
| (2,282 | ) |
Lease revenue |
|
| 58,474 |
|
|
| 73,310 |
|
|
| 178,313 |
|
|
| 223,668 |
|
Expense reimbursements |
|
| 4,040 |
|
|
| 5,364 |
|
|
| 11,321 |
|
|
| 15,342 |
|
Other real estate revenue |
|
| 1,335 |
|
|
| 2,202 |
|
|
| 4,803 |
|
|
| 7,619 |
|
Total real estate revenue |
| $ | 63,849 |
|
| $ | 80,876 |
|
| $ | 194,437 |
|
| $ | 246,629 |
|
The Company has presented the above information to provide additional detail about the components of lease revenue based on the terms of the underlying lease contracts. The presentation of contractual lease payments is not, and is not intended to be, a presentation in accordance with GAAP. The Company believes this information is useful to investors, securities analysts and other interested parties to evaluate the Company’s performance.
Real Estate Revenue
Real estate revenue decreasedincreased by $17.0$7.8 million, or 21%12.1%, for the three months ended September 30, 2021 compared to the three months ended September 30, 2020, primarily due to:
37
Real estate revenue increased by $16.3 million, or 8.4%, in the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020, primarily due to:
38
Property Operating Expenses
Property operating expenses decreased by $0.9 million, or 2.8%, for the three months ended September 30, 2021 compared to the three months ended September 30, 2019,2020, primarily due to:
Property operating expenses increased by $1.0 million, or 1.0%, for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020, primarily due to:
|
|
Depreciation and Amortization
Depreciation and amortization expense decreased by $5.3 million, or 15.3%, for the three months ended September 30, 2021 compared to the three months ended September 30, 2020, primarily due to:
|
|
Depreciation and amortization expense decreased by $6.9 million, or 7.2%, for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020, primarily due to:
|
|
39 |
|
|
|
35
|
|
|
|
|
|
|
Real estate revenue decreasedGeneral and Administrative Expenses
General and administrative expenses increased by $52.1$4.9 million, or 21%51.7%, infor the three months ended September 30, 2021 compared to the three months ended September 30, 2020 primarily due to higher professional fees incurred and incentive compensation expenses related to increased costs for equity compensation plans.
General and administrative expenses increased by $9.0 million, or 29.3%, for the nine months ended September 30, 20202021 compared to the nine months ended September 30, 2019,2020 primarily due to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property Operating Expenses
Property operating expenses decreased by $1.1 million, or 3%, into the same factors driving the variance for the three months ended September 30 2020comparison.
Interest Expense
Interest expense increased by $12.2 million, or 60.0%, for the three months ended September 30, 2021 compared to the three months ended September 30, 2019, primarily due to:
|
|
|
|
36
|
|
|
|
|
|
Property operating expenses decreased by $8.0 million, or 8%, in the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019, primarily due to:
|
|
|
|
|
|
|
|
|
|
Depreciation and Amortization
Depreciation and amortization expense increased by $3.2 million, or 10.2%, in the three months ended September 30, 2020 compared to the three months ended September 30, 2019, primarily due to:
|
|
|
|
Depreciation and amortization expense decreased by $2.5 million, or 3.0%, in the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019, primarily due to:
|
|
|
|
|
|
General and administrative expenses
General and administrative expenses decreased by $1.1 million, or 10.2%, in the three months ended September 30, 2020 compared to the three months ended September 30, 2019 primarily due to lower payroll and incentive compensation expenses.
37
General and administrative expenses decreased by $2.6 million, or 7.9%, in the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019 primarily due to lower payroll and incentive compensation expenses.
Interest expense
Interest expense increased by $4.7 million, or 30.4%, in the three months ended September 30, 2020 compared to the three months ended September 30, 2019.2020. This increase was primarily due to higher weighted average debt balances and higher weighted average interest rates. Our weighted average effective borrowing rate was 7.00% for the three months ended September 30, 2021 compared to 4.45% for the three months ended September 30, 2020 compared to 4.28%2020. Our weighted average debt balance was $1,854.3 million for the three months ended September 30, 2019. Our weighted average debt balance was2021, compared to $1,820.0 million for the three months ended September 30, 2020, compared to $1,700.0 million for the three months ended September 30, 2019.2020.
Interest expense increased by $6.8$40.8 million, or 14.5%75.2%, infor the nine months ended September 30, 20202021 compared to the nine months ended September 30, 2019.2020. This increase was primarily due to higher weighted average debt balances and higher weighted average interest rates. Our weighted average effective borrowing rate was 6.85% for the nine months ended September 30, 2021 compared to 4.20% for the nine months ended September 30, 2020 compared to 4.26%2020. Our weighted average debt balance was $1,855.4 million for the nine months ended September 30, 2019. Our weighted average debt balance was2021, compared to $1,768.8 million for the nine months ended September 30, 2020, compared to $1,687.42020.
Gain on Debt Extinguishment
During the second quarter, we were notified that the full principal balance and accrued interest on our loan under the Paycheck Protection Program (PPP) of the Coronavirus Aid, Relief, and Economic Security (CARES) Act was forgiven. As a result of the forgiveness, we recorded a gain on debt extinguishment of $4.6 million which is included in our results of operations for the nine months ended September 30, 2019.2021.
Impairment of Assets
Gain on debt extinguishment, net
In March 2019,During the second quarter, we defeasedentered into a $58.5 million mortgage loan including accrued interest, secured by Capital City Mall in Camp Hill, Pennsylvania using funds from our 2018 Revolving Facilitypurchase and the balance from available working capital. We recorded a loss on debt extinguishment of $4.8 million in March 2019 insale agreement to sell Valley View Center. In connection with this defeasance.
In September 2019,transaction, we conveyed Wyoming Valley Mall to the lender of the mortgage loan secured by the property. The loan had a balance of approximately $72.8 million as of the conveyance on September 26, 2019. As a result of the transfer, having previously recognizedrecorded an asset impairment loss of approximately $32.2$1.3 million due to excess carrying value over the sale price. In August 2021, we closed on the valuesale of the property, we recorded a gain on extinguishmentValley View Center for $3.5 million with net proceeds of debt of $29.6 million during$3.2 million. During the three months ended September 30, 2019.2021, we entered into a purchase and sale agreement to sell a parcel of land next to Monroe Marketplace. In connection with this transaction, we recorded an impairment loss of $0.3 million due to excess carrying value over the sale price.
Reorganization Expenses
Gain on derecognition of property
In August 2020, a court order assigned a receiver to operate Valley View Mall on behalf of the lender of the mortgage loan secured by the property. We no longer operate the property as a result of court order assigning the receiver. As a result, we derecognized the assets associated with Valley View Mall and recognized a gain on derecognition of property of $7.0 million in the consolidated statement of operations for the three and nine months ended September 30, 2020.
Impairment of Assets
There was no impairment of assets for the three months ended September 30, 2020 and 2019 or forDuring the nine months endedended September 30, 2020.
Impairment2021, we incurred costs of development land parcel for the nine months ended September 30, 2019 was $1.5$0.3 million in connection with our efforts to finalize our Financial Restructuring that were directly attributable to our bankruptcy proceedings, which we classified within reorganization expenses in the saleconsolidated statements of a land parcel in Gainesville, Florida.operations.
Equity in (loss) incomeLoss of partnershipsPartnerships
Equity in (loss) incomeloss of partnerships decreased by $4.8was $1.4 million or 312.9%, for the three months ended September 30, 2020 compared to the three months ended September 30, 2019, primarily due to lower real estate revenues due to COVID-19 related property closures continuing into the third quarter of 2020.
Equity in income of partnerships decreased by $8.9 million, or 145.6%, for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019, primarily due to the reasons described above for the three months ended September 30, 2020 and higher operating expenses, interest expense and depreciation and amortization at our partnership properties in 2020.
Gain on sales of real estate by equity method investee
There were no sales of real estate by equity method investees in the three months ended September 30, 2020 and 20192021 compared to a loss of $3.3 million in the prior year period, reflecting a change of $1.9 million, or 56.2%, primarily due to higher real estate revenues across our partnership properties.
Equity in loss of partnerships was $2.4 million in the nine months ended September 30, 2020.2021 compared to a loss of $2.8 million in the prior year period, reflecting a change of $0.4 million, or 13.2%, primarily resulting from lower real estate revenues across all of our partnership properties due to COVID-19, and higher property operating expenses and interest expense primarily at Fashion District Philadelphia.
During(Loss) Gain on Sales of Real Estate
In May 2021, we closed on the nine months ended September 30, 2019,sale of a partnership in whichparcel of property at Moorestown Mall for $10.1 million. In connection with the sale, we holdpaid a 25% interest share sold an undeveloped land parcel adjacent to Gloucester Premium Outlets$9.0 million lease termination fee for $3.8a portion of the property that was under a lease agreement for net proceeds of $0.8 million. The partnershipWe recorded a gain on sale of $2.3 million, of which our share was $0.6 million, which is recorded in gainloss on sale of real estate by equity method investeeof $1.0 million in connection with the accompanying consolidated statementsale. In August 2021, we closed on the sale of operations.
38
(Loss) gain on sales of real estate
During the three months ended September 30, 2020, weValley View Center for $3.5 million, and recorded unfavorable adjustments to previously recognized real estate sales described in the next paragraph, which resulted in a loss on salessale of real estate of $0.1 million.approximately $0.2 million in connection with the transaction.
In January 2020, we completed the sale of an outparcel at Woodland Mall in Grand Rapids, Michigan for total consideration of $5.2 million. In March 2020, we completed the sale of two outparcels at Magnolia Mall in Florence, South Carolina for total consideration of $2.9 million. In connection with the March sale, we recorded a gain of $2.0 million. In June 2020, we completed the sale of six outparcels at Magnolia Mall, Jacksonville Mall and Valley Mall for total consideration of $14.4 million and net gain of $9.3 million.
40
In April 2019, we sold a Whole Foods store located on a parcel adjacent to Exton Square Mall for total consideration of $22.1 million. In
connection with this sale, we recorded a gain of $1.3 million.
During the three months ended September 30, 2020, we recorded favorable adjustments to the previously recognized real estate sales described below.
In April 2019, we sold an undeveloped land parcel located in New Garden Township, Pennsylvania, for total consideration of $11.0 million,
consisting of $8.25 million in cash and $2.75 million of preferred stock. We ascribed no value for accounting purposes to the preferred shares as they are not tradeable, cannot be transferred or sold and have no redemption feature. Up to $1.25 million of the cash consideration received is subject to claw-back if the buyer does not receive entitlements for a stipulated number of housing units. In connection with this sale, we recorded a gain of $0.2 million.
NON-GAAP SUPPLEMENTAL FINANCIAL MEASURES
Overview
Overview
The preceding discussion analyzes our financial condition and results of operations in accordance with generally accepted accounting principles, or GAAP, for the periods presented. We also use Net Operating Income (“NOI”) and Funds from Operations (“FFO”), which are non-GAAP financial measures, to supplement our analysis and discussion of our operating performance:
We believe that NOI is helpful to management and investors as a measure of operating performance because it is an indicator of the return on property investment and provides a method of comparing property performance over time. When we use and present NOI, we also do so on a same store (“Same Store NOI”) and non-same store (“Non Same Store NOI”) basis to differentiate between properties that we have owned for the full periods presented and properties acquired, sold or under redevelopment during those periods. Furthermore, our use and presentation of NOI combines NOI from our consolidated properties and NOI attributable to our share of unconsolidated properties in order to arrive at total NOI. We believe that this is also helpful information because it reflects the pro rata contribution from our unconsolidated properties that are owned through investments accounted for under GAAP as equity in income of partnerships. See “Unconsolidated Properties and Proportionate Financial Information” below. We believe that FFO is also helpful to management and investors as a measure of operating performance because it excludes various items included in net loss that do not relate to or are not indicative of operating performance, such as gains on sales of operating real estate and depreciation and amortization of real estate, among others. In addition to FFO and FFO per diluted share and OP Unit, when applicable, we also present FFO, as adjusted and FFO per diluted share and OP Unit, as adjusted, which we believe is helpful to management and investors because they adjust FFO to exclude items that management does not believe are indicative of operating performance, such as gain on debt extinguishment and insurance recoveries. We use both NOI and FFO, or related terms like Same Store NOI and, when applicable, Funds From Operations, as adjusted, for determining incentive compensation amounts under certain of our performance-based executive compensation programs.
|
|
|
|
|
|
NOI and FFO are commonly used non-GAAP financial measures of operating performance in the real estate industry, and we use them as supplemental non-GAAP measures to compare our performance between different periods and to compare our performance to that of our industry peers. Our computation of NOI, FFO and other non-GAAP financial measures, such as Same Store NOI, Non Same Store NOI, NOI attributable to our share of unconsolidated properties, and FFO, as adjusted, may not be comparable to other similarly titled measures used by our industry peers. None of these measures are measures of performance in accordance with GAAP, and they have limitations as analytical tools. They should not be considered as alternative measures of our net income,loss, operating performance, cash flow or liquidity. They are not indicative of funds available for our cash needs, including our ability to make cash distributions. Please see below for a discussion of these non-GAAP measures and their respective reconciliation to the most directly comparable GAAP measure.
39
Unconsolidated Properties and Proportionate Financial Information
The non-GAAP financial measures presented below incorporate financial information attributable to our share of unconsolidated properties. This proportionate financial information is non-GAAP financial information, but we believe that it is helpful information because it reflects the pro rata contribution from our unconsolidated properties that are owned through investments accounted for under GAAP using the equity method of accounting. Under such method, earnings from these unconsolidated partnerships are recorded in our statements of operations prepared in accordance with GAAP under the caption entitled “Equity in (loss) income of partnerships.”
To derive the proportionate financial information reflected in the tables below as “unconsolidated,” we multiplied the percentage of our economic interest in each partnership on a property-by-property basis by each line item. Under the partnership agreements relating to our current unconsolidated partnerships with third parties, we own a 25% to 50% economic interest in such partnerships, and there are generally no provisions in such partnership agreements relating to special non-pro rata allocations of income or loss, and there are no preferred or priority returns of capital or other similar provisions. While this method approximates our indirect economic interest in our pro rata share of the revenue and expenses of our unconsolidated partnerships, we do not have a direct legal claim to the assets, liabilities, revenues or expenses of the unconsolidated partnerships beyond our rights as an equity owner in the event of any liquidation of such entity. Our percentage ownership is not necessarily indicative of the legal and economic implications of our ownership interest. Accordingly, NOI and FFO results based on our share of the results of unconsolidated partnerships do not represent cash generated from our investments in these partnerships.
We have determined that we hold a non controllingnoncontrolling interest in each of our unconsolidated partnerships, and account for such partnerships using the equity method of accounting, because:
Except for one property that we co-manage with our partner, all of the other entities are managed on a day-to-day basis by one of our other partners as the managing general partner in each of the respective partnerships. In the case of the co-managed property, all decisions in the ordinary course of business are made jointly. The managing general partner is responsible for establishing the operating and capital decisions of the partnership, including budgets, in the ordinary course of business. 41 All major decisions of each partnership, such as the sale, refinancing, expansion or rehabilitation of the property, require the approval of all partners. Voting rights and the sharing of profits and losses are generally in proportion to the ownership percentages of each partner.
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We hold legal title to a property owned by one of our unconsolidated partnerships through a tenancy in common arrangement. For this property, such legal title is held by us and another entity, and each has an undivided interest in title to the property. With respect to this property, under the applicable agreements between us and the entity with ownership interests, we and such other entity have joint control because decisions regarding matters such as the sale, refinancing, expansion or rehabilitation of the property require the approval of both us and the other entity owning an interest in the property. Hence, we account for this property like our other unconsolidated partnerships using the equity method of accounting. The balance sheet items arising from this property appear under the caption “Investments in partnerships, at equity.”
For further information regarding our unconsolidated partnerships, see Notenote 3 to our unaudited consolidated financial statements.
Net Operating Income (“NOI”)
NOI (a non-GAAP measure) is derived from real estate revenue (determined in accordance with GAAP, including lease termination revenue), minus property operating expenses (determined in accordance with GAAP), plus our pro rata share of revenue and property operating expenses of our unconsolidated partnership investments. NOI excludes other income, generaldoes not represent cash generated from operating activities in accordance with GAAP and administrative expenses, insurance recoveries, employee separation expenses, interest expense, depreciationshould not be considered to be an alternative to net loss (determined in accordance with GAAP) as an indication of our financial performance or to be an alternative to cash flow from operating activities (determined in accordance with GAAP) as a measure of our liquidity. It is not indicative of funds available for our cash needs, including our ability to make cash distributions. We believe NOI is helpful to management and amortization, impairmentinvestors as a measure of assets, gains/losses in salesoperating performance because it is an indicator of interest in non operating real estate, gainthe return on salesproperty investment, and provides a method of interest in real estate by equity method investee, gains/ losses on sales of interests in real estate, net, gain or loss on debt extinguishment, and project costs and other expenses, in addition to equity in loss/income of partnerships.comparing property performance over time. We believe that net incomeloss is the most directly comparable GAAP measure to NOI. NOI excludes other income, depreciation and amortization, general and administrative expenses, insurance recoveries, net, provision for employee separation expenses, project costs and other expenses, interest expense, reorganization expenses, impairment of assets, equity in loss/income of partnerships, gain on extinguishment of debt, gain/loss on sale of real estate and gain/loss on sales of non-operating real estate.
Same Store NOI is calculated using retail properties owned for the full periods presented and excludes properties acquired or disposed of, under redevelopment, or designated as non-core during the periods presented. In 2018, Wyoming Valley Mall was designated as non-core and subsequently conveyed to the lender of the mortgage loan secured by that property in September 2019. In 2019, Exton Square and Valley View Malls were designated as non-core and are excluded from Same Store NOI. Non Same Store NOI is calculated using the retail properties excluded from the calculation of Same Store NOI.
40
The table below reconciles net (loss) incomeloss to NOI of our consolidated properties for the three and nine months ended September 30, 20202021 and 2019:2020:
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||
(in thousands of dollars) |
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
Net loss |
| $ | (38,398 | ) |
| $ | (29,577 | ) |
| $ | (107,758 | ) |
| $ | (66,245 | ) |
Other income |
|
| (143 | ) |
|
| (338 | ) |
|
| (430 | ) |
|
| (765 | ) |
Depreciation and amortization |
|
| 29,142 |
|
|
| 34,420 |
|
|
| 88,667 |
|
|
| 95,597 |
|
General and administrative expenses |
|
| 14,453 |
|
|
| 9,526 |
|
|
| 39,819 |
|
|
| 30,790 |
|
Insurance recoveries, net |
|
| — |
|
|
| — |
|
|
| (670 | ) |
|
| (586 | ) |
Provision for employee separation expenses |
|
| 39 |
|
|
| 60 |
|
|
| 279 |
|
|
| 1,173 |
|
Project costs and other expenses |
|
| 27 |
|
|
| 124 |
|
|
| 205 |
|
|
| 287 |
|
Interest expense, net |
|
| 32,426 |
|
|
| 20,260 |
|
|
| 95,135 |
|
|
| 54,300 |
|
Reorganization expenses |
|
| — |
|
|
| — |
|
|
| 267 |
|
|
| — |
|
Impairment of assets |
|
| 262 |
|
|
| — |
|
|
| 1,564 |
|
|
| — |
|
Equity in loss of partnerships |
|
| 1,429 |
|
|
| 3,259 |
|
|
| 2,429 |
|
|
| 2,798 |
|
Gain on extinguishment of debt |
|
| — |
|
|
| — |
|
|
| (4,587 | ) |
|
| — |
|
Gain on decrecognition of property |
|
| — |
|
|
| (7,006 | ) |
|
| — |
|
|
| (7,006 | ) |
Loss (gain) on sales of real estate by equity method investee |
|
| 10 |
|
|
| — |
|
|
| (1,337 | ) |
|
| - |
|
Loss (gain) on sales of real estate, net |
|
| 217 |
|
|
| 94 |
|
|
| 1,191 |
|
|
| (11,169 | ) |
(Gain) loss on sales of non-operating real estate |
|
| — |
|
|
| (16 | ) |
|
| — |
|
|
| 174 |
|
NOI from consolidated properties |
| $ | 39,464 |
|
| $ | 30,806 |
|
| $ | 114,774 |
|
| $ | 99,348 |
|
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||
(in thousands of dollars) |
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||
Net (loss) income |
| $ | (29,577 | ) |
| $ | 24,716 |
|
| $ | (66,245 | ) |
| $ | 2,413 |
|
Other income |
|
| (338 | ) |
|
| (498 | ) |
|
| (765 | ) |
|
| (1,440 | ) |
Depreciation and amortization |
|
| 34,420 |
|
|
| 31,236 |
|
|
| 95,597 |
|
|
| 98,085 |
|
General and administrative expenses |
|
| 9,526 |
|
|
| 10,605 |
|
|
| 30,790 |
|
|
| 33,419 |
|
Insurance recoveries, net |
|
| - |
|
|
| (2,878 | ) |
|
| (586 | ) |
|
| (4,494 | ) |
Provision for employee separation expenses |
|
| 60 |
|
|
| 218 |
|
|
| 1,173 |
|
|
| 1,078 |
|
Project costs and other expenses |
|
| 124 |
|
|
| 80 |
|
|
| 287 |
|
|
| 267 |
|
Interest expense, net |
|
| 20,260 |
|
|
| 15,534 |
|
|
| 54,300 |
|
|
| 46,986 |
|
Impairment of development land parcel |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 1,464 |
|
Equity in loss (income) of partnerships |
|
| 3,259 |
|
|
| (1,531 | ) |
|
| 2,798 |
|
|
| (6,136 | ) |
Gain on debt extinguishment, net |
|
| - |
|
|
| (29,600 | ) |
|
| - |
|
|
| (24,832 | ) |
Gain on derecognition of property |
|
| (7,006 | ) |
|
| - |
|
|
| (7,006 | ) |
|
| - |
|
Gain on sales of real estate by equity method investee |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (553 | ) |
Loss (gain) on sales of interests in real estate, net |
|
| 94 |
|
|
| (1,171 | ) |
|
| (11,169 | ) |
|
| (2,684 | ) |
(Gain) loss on sales of interest in non operating real estate |
|
| (16 | ) |
|
| - |
|
|
| 174 |
|
|
| - |
|
NOI from consolidated properties |
| $ | 30,806 |
|
| $ | 46,711 |
|
| $ | 99,348 |
|
| $ | 143,573 |
|
42
The table below reconciles equity in (loss) incomeloss of partnerships to NOI of our share of unconsolidated properties for the three and nine months ended September 30, 20202021 and 2019:2020:
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||
(in thousands of dollars) |
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
Equity in loss of partnerships |
| $ | (1,429 | ) |
| $ | (3,259 | ) |
| $ | (2,429 | ) |
| $ | (2,798 | ) |
Other income |
|
| — |
|
|
| (12 | ) |
|
| — |
|
|
| (38 | ) |
Depreciation and amortization |
|
| 3,095 |
|
|
| 5,095 |
|
|
| 9,257 |
|
|
| 12,396 |
|
Impairment of assets |
|
| — |
|
|
| — |
|
|
| 265 |
|
|
| — |
|
Interest and other expenses |
|
| 5,568 |
|
|
| 2,942 |
|
|
| 16,384 |
|
|
| 8,733 |
|
NOI from equity method investments at ownership share |
| $ | 7,234 |
|
| $ | 4,766 |
|
| $ | 23,477 |
|
| $ | 18,293 |
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| |||||||||||
(in thousands of dollars) |
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||
Equity in (loss) income of partnerships |
| $ | (3,259 | ) |
| $ | 1,531 |
|
| $ | (2,798 | ) |
| $ | 6,136 |
|
Other income |
|
| (12 | ) |
|
| (24 | ) |
|
| (38 | ) |
|
| (46 | ) |
Depreciation and amortization |
|
| 5,095 |
|
|
| 2,403 |
|
|
| 12,396 |
|
|
| 6,453 |
|
Interest and other expenses |
|
| 2,942 |
|
|
| 2,823 |
|
|
| 8,733 |
|
|
| 8,414 |
|
NOI from equity method investments at ownership share |
| $ | 4,766 |
|
| $ | 6,733 |
|
| $ | 18,293 |
|
| $ | 20,957 |
|
The table below presents total NOI and total NOI excluding lease termination revenue for the three months ended September 30, 20202021 and 2019:2020:
|
| Same Store |
|
| Non Same Store |
|
| Total (non-GAAP) |
| |||||||||||||||
(in thousands of dollars) |
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||||
NOI from consolidated properties |
| $ | 38,966 |
|
| $ | 30,662 |
|
| $ | 498 |
|
| $ | 144 |
|
| $ | 39,464 |
|
| $ | 30,806 |
|
NOI from equity method investments at ownership share |
|
| 7,226 |
|
|
| 4,759 |
|
| �� | 7 |
|
|
| 6 |
|
|
| 7,233 |
|
|
| 4,766 |
|
Total NOI |
|
| 46,192 |
|
|
| 35,421 |
|
|
| 505 |
|
|
| 150 |
|
|
| 46,697 |
|
|
| 35,572 |
|
Less: lease termination revenue |
|
| 740 |
|
|
| 2,011 |
|
|
| 138 |
|
|
| — |
|
|
| 878 |
|
|
| 2,011 |
|
Total NOI excluding lease termination revenue |
| $ | 45,452 |
|
| $ | 33,410 |
|
| $ | 367 |
|
| $ | 150 |
|
| $ | 45,819 |
|
| $ | 33,561 |
|
|
| Same Store |
|
| Non Same Store |
|
| Total (non-GAAP) |
| |||||||||||||||
(in thousands of dollars) |
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||||
NOI from consolidated properties |
| $ | 30,662 |
|
| $ | 43,858 |
|
| $ | 144 |
|
| $ | 2,853 |
|
| $ | 30,806 |
|
| $ | 46,711 |
|
NOI from equity method investments at ownership share |
|
| 5,421 |
|
|
| 7,029 |
|
|
| (655 | ) |
|
| (296 | ) |
|
| 4,766 |
|
|
| 6,733 |
|
Total NOI |
|
| 36,083 |
|
|
| 50,887 |
|
|
| (511 | ) |
|
| 2,557 |
|
|
| 35,572 |
|
|
| 53,444 |
|
Less: lease termination revenue |
|
| 2,011 |
|
|
| 55 |
|
|
| - |
|
|
| - |
|
|
| 2,011 |
|
|
| 55 |
|
Total NOI excluding lease termination revenue |
| $ | 34,072 |
|
| $ | 50,832 |
|
| $ | (511 | ) |
| $ | 2,557 |
|
| $ | 33,561 |
|
| $ | 53,389 |
|
Total NOI decreasedincreased by $17.9$11.1 million in the three months ended September 30, 20202021 compared to the three months ended September 30, 20192020 due to (a) a $14.8 million decreasethe same increase in Same Store NOI. This increase in Same Store NOI is primarily due the reasons described in “— Real Estate Revenue” and (b)“— Property Operating Expenses.” See “— Real Estate Revenue” and “— Property Operating Expenses” above for further information about the factors affecting NOI from our consolidated properties.
The table below presents total NOI and total NOI excluding lease termination revenue for the nine months ended September 30, 2021 and 2020:
|
| Same Store |
|
| Non Same Store |
|
| Total (non-GAAP) |
| |||||||||||||||
(in thousands of dollars) |
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||||
NOI from consolidated properties |
| $ | 114,289 |
|
| $ | 98,169 |
|
| $ | 485 |
|
| $ | 1,180 |
|
| $ | 114,774 |
|
| $ | 99,349 |
|
NOI from equity method investments at ownership share |
|
| 23,482 |
|
|
| 18,273 |
|
|
| (5 | ) |
|
| 22 |
|
|
| 23,477 |
|
|
| 18,295 |
|
Total NOI |
|
| 137,771 |
|
|
| 116,442 |
|
|
| 480 |
|
|
| 1,202 |
|
|
| 138,251 |
|
|
| 117,644 |
|
Less: lease termination revenue |
|
| 3,911 |
|
|
| 2,236 |
|
|
| 138 |
|
|
| — |
|
|
| 4,049 |
|
|
| 2,236 |
|
Total NOI excluding lease termination revenue |
| $ | 133,860 |
|
| $ | 114,206 |
|
| $ | 342 |
|
| $ | 1,202 |
|
| $ | 134,202 |
|
| $ | 115,408 |
|
Total NOI increased by $20.6 million in the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020 due to a $21.3 million increase in Same Store NOI offset by a decrease of $3.1$0.7 million in Non Same Store NOI. The decreaseincrease in Same Store NOI is primarily due to lost revenues from bankrupt tenants, an increasethe reasons described in credit losses“— Real Estate Revenue” and a decrease in percentage of sales revenue due to COVID-19 related mall closures.“— Property Operating Expenses”. The decrease in NOI from Non Same Store properties is due to the conveyance of Wyoming Valley Mall and derecognition of Valley View Mall in the third quarter of 2020. See “— Real Estate Revenue” and “— Property Operating Expenses” above for further information about the factors affecting NOI from our consolidated properties.
41
The table below presents total NOI and total NOI excluding lease termination revenue for the nine months ended September 30, 2020 and 2019:
|
| Same Store |
|
| Non Same Store |
|
| Total (non-GAAP) |
| |||||||||||||||
(in thousands of dollars) |
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||||
NOI from consolidated properties |
| $ | 98,169 |
|
| $ | 133,210 |
|
| $ | 1,180 |
|
| $ | 10,363 |
|
| $ | 99,349 |
|
| $ | 143,573 |
|
NOI from equity method investments at ownership share |
|
| 17,510 |
|
|
| 21,148 |
|
|
| 784 |
|
|
| (191 | ) |
|
| 18,294 |
|
|
| 20,957 |
|
Total NOI |
|
| 115,679 |
|
|
| 154,358 |
|
|
| 1,964 |
|
|
| 10,172 |
|
|
| 117,643 |
|
|
| 164,530 |
|
Less: lease termination revenue |
|
| 2,236 |
|
|
| 513 |
|
|
| - |
|
|
| 17 |
|
|
| 2,236 |
|
|
| 530 |
|
Total NOI excluding lease termination revenue |
| $ | 113,443 |
|
| $ | 153,845 |
|
| $ | 1,964 |
|
| $ | 10,155 |
|
| $ | 115,407 |
|
| $ | 164,000 |
|
Total NOI decreased by $46.9 million in the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019 due to (a) a $38.7 million decrease in Same Store NOI and (b) a decrease of $8.2 million in Non Same Store NOI. The decrease in Same Store NOI is primarily due to lost revenues from bankrupt tenants, an increase in credit losses and a decrease in percentage of sales revenue due to COVID-19 related mall closures. The decrease in NOI from Non Same Store properties is due to the conveyance of Wyoming Valley Mall and lower contributions from Exton Square Mall, resulting from an anchor closing and related co-tenancy revenue adjustments, the sale of an outparcel during the second quarter of 2019 and a decrease in other non-recurring revenues compared to 2019. See “— Real Estate Revenue” and “— Property Operating Expenses” above for further information about the factors affecting NOI from our consolidated properties.
Funds From Operations (“FFO”)
The National Association of Real Estate Investment Trusts (“NAREIT”) defines FFO,Funds From Operations (“FFO”), which is a non-GAAP measure commonly used by REITs, as net income (computed in accordance with GAAP) excluding (i) depreciation and amortization related toof real estate, (ii) gains and losses from the saleon sales of certain real estate assets, (iii) gains and losses from change in control and (iv) impairment write-downs of certain real estate assets and investments in entities when the impairment is directly attributable to decreases in the value of depreciable real estate held by the entity. We compute FFO in accordance with standards established by NAREIT, which may not be comparable to FFO reported by other REITs that do not define the term in accordance with the current NAREIT definition, or that interpret the current NAREIT definition differently than we do. NAREIT’s established guidance provides that excluding impairment write downs of depreciable real estate is consistent with the NAREIT definition.
43
FFO is a commonly used measure of operating performance and profitability among REITs. We use FFO and FFO per diluted share and unit of limited partnership interest in our operating partnership (“OP Unit”) and, when applicable, related measures such as Funds From Operations, as adjusted, in measuring our performance against our peers and as one of the performance measures for determining incentive compensation amounts earned under certain of our performance-based executive compensation programs.
FFO does not include gains and losses on sales of operating real estate assets or impairment write downs of depreciable real estate (including development land parcels), which are included in the determination of net incomeloss in accordance with GAAP. Accordingly, FFO is not a comprehensive measure of our operating cash flows. In addition, since FFO does not include depreciation on real estate assets, FFO may not be a useful performance measure when comparing our operating performance to that of other non-real estate commercial enterprises. We compensate for these limitations by using FFO in conjunction with other GAAP financial performance measures, such as net incomeloss and net cash provided byused in operating activities, and other non-GAAP financial performance measures, such as NOI. FFO does not represent cash generated from operating activities in accordance with GAAP and should not be considered to be an alternative to net incomeloss (determined in accordance with GAAP) as an indication of our financial performance or to be an alternative to cash flow from operating activities (determined in accordance with GAAP) as a measure of our liquidity, nor is it indicative of funds available for our cash needs, including our ability to make cash distributions. We believe that net incomeloss is the most directly comparable GAAP measurement to FFO.
WeWhen applicable, we also present Funds From Operations,FFO, as adjusted, and Funds From OperationsFFO per diluted share and OP Unit, as adjusted, which are non-GAAP measures, for the three and nine months ended September 30, 20202021 and 2019, respectively,2020, to show the effect of such items as gain or loss on debt extinguishment (including accelerated amortization of financing costs), impairment of assets, provision for employee separation expense, and insurance recoveries or losses, net, gain on derecognition of property, gain or loss on hedge ineffectiveness and reorganization expenses which affectedhad an effect on our results of operations, but are not, in our opinion, indicative of our ongoing operating performance.
We believe that FFO is helpful to management and investors as a measure of operating performance because it excludes various items included in net loss that do not relate to or are not indicative of operating performance, such as gains on sales of operating real estate and depreciation and amortization of real estate, among others. We believe that Funds From Operations, as adjusted, is helpful to management and investors as a measure of operating performance because it adjusts FFO to exclude items that management does not believe are indicative of our operating performance, such as provision for employee separation expense, gain on hedge ineffectiveness and reorganization expenses.
4244
The following table presents a reconciliation of net (loss) incomeloss determined in accordance with GAAP to FFO attributable to common shareholders and OP Unit holders, FFO attributable to common shareholders and OP Unit holders per diluted share and OP Unit, FFO attributable to common shareholders and OP Unit holders, as adjusted and FFO attributable to common shareholders and OP Unit holders, as adjusted per diluted share and OP Unit, as adjusted for the three and nine months ended September 30, 20202021 and 2019: 2020:
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||
(in thousands, except per share amounts) |
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
Net loss |
| $ | (38,398 | ) |
| $ | (29,577 | ) |
| $ | (107,758 | ) |
| $ | (66,245 | ) |
Depreciation and amortization on real estate: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Consolidated properties |
|
| 28,812 |
|
|
| 34,053 |
|
|
| 87,653 |
|
|
| 94,538 |
|
PREIT’s share of equity method investments |
|
| 3,095 |
|
|
| 5,095 |
|
|
| 9,257 |
|
|
| 12,396 |
|
Gain on sales of real estate by equity method investee |
|
| 10 |
|
|
| — |
|
|
| (1,337 | ) |
|
| — |
|
Loss (gain) on sales of real estate, net |
|
| 217 |
|
|
| 94 |
|
|
| 1,191 |
|
|
| (11,169 | ) |
Impairment of Assets: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Consolidated properties |
|
| 262 |
|
|
| — |
|
|
| 1,564 |
|
|
| — |
|
PREIT’s share of equity method investments |
|
| — |
|
|
| — |
|
|
| 265 |
|
|
| — |
|
Preferred share dividends declared and paid (1) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (13,688 | ) |
Funds from operations attributable to common shareholders and OP Unit holders |
|
| (6,002 | ) |
|
| 9,665 |
|
|
| (9,165 | ) |
|
| 15,832 |
|
Provision for employee separation expense |
|
| 39 |
|
|
| 60 |
|
|
| 279 |
|
|
| 1,173 |
|
Gain on hedge ineffectiveness |
|
| (532 | ) |
|
| — |
|
|
| (2,329 | ) |
|
| — |
|
Gain on debt extinguishment |
|
| — |
|
|
| — |
|
|
| (4,587 | ) |
|
| — |
|
Gain on derecognition of property |
|
| — |
|
|
| (7,006 | ) |
|
| — |
|
|
| (7,006 | ) |
Insurance recoveries, net |
|
| — |
|
|
| — |
|
|
| (670 | ) |
|
| (586 | ) |
Reorganization expenses |
|
| — |
|
|
| — |
|
|
| 267 |
|
|
| — |
|
Funds from operations, as adjusted, attributable to common shareholders and OP Unit holders |
| $ | (6,495 | ) |
| $ | 2,719 |
|
| $ | (16,205 | ) |
| $ | 9,413 |
|
Funds from operations attributable to common shareholders and OP Unit holders per diluted share and OP Unit (1) |
| $ | (0.07 | ) |
| $ | 0.12 |
|
| $ | (0.12 | ) |
| $ | 0.20 |
|
Funds from operations, as adjusted, attributable to common shareholders and OP Unit holders per diluted share and OP Unit (1) |
| $ | (0.08 | ) |
| $ | 0.03 |
|
| $ | (0.21 | ) |
| $ | 0.12 |
|
Weighted average number of shares outstanding |
|
| 79,184 |
|
|
| 77,401 |
|
|
| 78,330 |
|
|
| 77,149 |
|
Weighted average effect of full conversion of OP Units |
|
| 1,226 |
|
|
| 2,023 |
|
|
| (1,723 | ) |
|
| 2,023 |
|
Effect of common share equivalents |
|
| 1,081 |
|
|
| 357 |
|
|
| 897 |
|
|
| 411 |
|
Total weighted average shares outstanding, including OP Units |
|
| 81,490 |
|
|
| 79,781 |
|
|
| 77,504 |
|
|
| 79,583 |
|
(1)
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||
(in thousands, except per share amounts) |
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||
Net (loss) income |
| $ | (29,577 | ) |
| $ | 24,716 |
|
| $ | (66,245 | ) |
| $ | 2,413 |
|
Depreciation and amortization on real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated properties |
|
| 34,053 |
|
|
| 30,948 |
|
|
| 94,538 |
|
|
| 97,126 |
|
PREIT’s share of equity method investments |
|
| 5,095 |
|
|
| 2,402 |
|
|
| 12,396 |
|
|
| 6,453 |
|
Loss (gain) on sales of interest in real estate, net |
|
| 94 |
|
|
| (1,171 | ) |
|
| (11,169 | ) |
|
| (2,684 | ) |
Preferred share dividends declared and paid (1) |
|
| - |
|
|
| (6,843 | ) |
|
| (13,688 | ) |
|
| (20,531 | ) |
Funds from operations attributable to common shareholders and OP Unit holders |
|
| 9,665 |
|
|
| 50,052 |
|
|
| 15,832 |
|
|
| 82,777 |
|
Gain on debt extinguishment, net |
|
| - |
|
|
| (29,600 | ) |
|
| - |
|
|
| (24,832 | ) |
Gain on derecognition of property |
|
| (7,006 | ) |
|
| - |
|
|
| (7,006 | ) |
|
| - |
|
Impairment of development land parcel |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 1,464 |
|
Provision for employee separation expense |
|
| 60 |
|
|
| 218 |
|
|
| 1,173 |
|
|
| 1,078 |
|
Insurance recoveries, net |
|
| - |
|
|
| (2,878 | ) |
|
| (586 | ) |
|
| (4,494 | ) |
Funds from operations, as adjusted, attributable to common shareholders and OP Unit holders |
| $ | 2,719 |
|
| $ | 17,792 |
|
| $ | 9,413 |
|
| $ | 55,993 |
|
Funds from operations attributable to common shareholders and OP Unit holders per diluted share and OP Unit (1) |
| $ | 0.12 |
|
| $ | 0.63 |
|
| $ | 0.20 |
|
| $ | 1.05 |
|
Funds from operations, as adjusted, attributable to common shareholders and OP Unit holders per diluted share and OP Unit (1) |
| $ | 0.03 |
|
| $ | 0.23 |
|
| $ | 0.12 |
|
| $ | 0.71 |
|
Weighted average number of shares outstanding |
|
| 77,401 |
|
|
| 76,492 |
|
|
| 77,149 |
|
|
| 74,771 |
|
Weighted average effect of full conversion of OP Units |
|
| 2,023 |
|
|
| 2,023 |
|
|
| 2,023 |
|
|
| 3,625 |
|
Effect of common share equivalents |
|
| 357 |
|
|
| 332 |
|
|
| 411 |
|
|
| 375 |
|
Total weighted average shares outstanding, including OP Units |
|
| 79,781 |
|
|
| 78,847 |
|
|
| 79,583 |
|
|
| 78,771 |
|
(1)Does not include the impact of $6.8 million and $20.5 million of accrued, undeclared and unpaid preferred share dividends for each of the three and nine months ended September 30, 2020.2021, respectively. The Company cannot declare and pay cash dividends on common shares while there exists a preferred dividend arrearage.
FFO attributable to common shareholders and OP Unit holders was a loss of $6.0 million for the three months ended September 30, 2021, a decrease of $15.7 million or 162.1%, compared to a gain of $9.7 million for the three months ended September 30, 2020, a decrease of $40.4 million, or 80.7%, compared to $50.1 million for the three months ended September 30, 2019.2020.
FFO attributable to common shareholders and OP Unit holders per diluted share and OP Unit was $0.12$(0.07) and $0.63$0.12 for the three months ended September 30, 2021 and 2020, and 2019, respectively.
FFO, as adjusted, attributable to common shareholders and OP Unit holders per diluted share and OP Unit was $0.03$(0.08) and $0.23$0.03 for the three months ended September 30, 2021 and 2020, and 2019, respectively.
FFO attributable to common shareholders and OP Unit holders was a loss of $9.2 million for the nine months ended September 30, 2021, a decrease of $25.0 million or 157.9%, compared to a gain of $15.8 million for the nine months ended September 30, 2020, a decrease of $67.0 million or, 80.9%, compared to $82.8 million for the nine months ended September 30, 2019.2020.
FFO attributable to common shareholders and OP Unit holders per diluted share and OP Unit was $0.20$(0.12) and $1.05$0.20 for the nine months ended September 30, 2021 and 2020, and 2019, respectively.
FFO, as adjusted, attributable to common shareholders and OP Unit holders per diluted share and OP Unit was $0.12$(0.21) and $0.71$0.12 for the nine months ended September 30, 2021 and 2020, and 2019, respectively.
4345
LIQUIDITY AND CAPITAL RESOURCES
This “Liquidity and Capital Resources” section contains certain “forward-looking statements” that relate to expectations and projections that are not historical facts. These forward-looking statements reflect our current views about our future liquidity and capital resources, and are subject to risks and uncertainties that might cause our actual liquidity and capital resources to differ materially from the forward-looking statements. Additional factors that might affect our liquidity and capital resources include those discussed herein and in the section entitled “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 20192020 filed with the SEC. We do not intend to update or revise any forward-looking statements about our liquidity and capital resources to reflect new information, future events or otherwise.
Capital Resources
We currently expect to meet certain of our short-term liquidity requirements, including operating expenses, recurring capital expenditures, tenant improvements and leasing commissions, but excluding acquisitions and redevelopment and development projects, generally through our available working capital and our restructuring plan. PursuantFirst Lien Revolving Facility, subject to the July 2020 amendments toterms and conditions of our First Lien Credit Agreements as well as the Bridge Facility, as discussed furtherAgreement. See “Credit Agreements” below and in Note 1 and Note 4 to our unaudited consolidated financial statements we are prohibited from declaring or paying cash dividends on our common shares and preferred shares duringfor more information about the Suspension Period as well as while any event of default is continuing. See “Identical covenants and common provisions contained in theour Credit Agreements” below for covenant information.Agreements. We expect to spend approximately $27.9$5.4 million related to our unaccrued contractual obligations for capital improvements and development projects however,in 2021 and 2022. We believe that our net cash provided by operations will be sufficient to allow us to make any distributions necessary to enable us to continue to qualify as a REIT under the timingInternal Revenue Code of this spending is uncertain.
During1986, as amended. Our Credit Agreements limit our ability to declare and pay dividends on our common and preferred shares, subject to certain exceptions. We have deferred payments on our preferred shares and suspended payments on our common shares since the third quarter of 2020,2020. Other than as may be required to maintain our status as a REIT, we received proceedsdo not anticipate that we will pay any cash dividends to holders of $22.5 million through borrowingsour common or preferred shares for the foreseeable future.
As a result of the existing cumulative unpaid dividends on our preferred shares and our bankruptcy filing, we are no longer able to register the offer and sale of securities on Form S-3. This creates additional limitations on our ability to raise capital in the capital markets, potentially increasing our costs of raising capital in the future. Our ability to raise capital in the capital markets may also be impacted by market fluctuations more generally, including as a result of the COVID-19 pandemic and related economic downturn.
We have availability under our Bridge Facility.revolving facility of $75.2 million as of September 30, 2021. We are actively seeking to raise additional capital, including through asset dispositions identified through our portfolio property reviews. Disposing of these properties can enable us to redeploy or recycle our capital to other uses. In many cases, we are marketing land parcels for development for a variety of different nontraditional, non-retail uses, including hotel, multifamily residential and healthcare uses, which we believe can also help position our portfolio within differentiated mixed-use environments. During December 20192020 and subsequently,through the third quarter of 2021, we have executed agreements of sale thatfor five land parcels for anticipated multifamily development, one land parcel for anticipated hotel development, a development land parcel and an anchor box at a property, which are expected to provide an aggregate of up to approximately $97.5$105.4 million in gross proceeds and net liquidity improvement. These agreements includethrough 2023. We also closed on the sale of land parcels for multifamily residential development,a property during the salethird quarter of operating outparcels and the sale of land parcels for hotel development. We have also executed letters of intent with other potential buyers2021. The proceeds from our anticipated property sales will primarily be used to sell several land parcels for multifamily residential development.repay amounts outstanding under our Credit Agreements. Each of the transactions is subject to numerous closing conditions, including the completion of due diligence and securing of entitlements, which in several cases has been delayed due to the effects of COVID-19 on business operations and availability of financing. During the third quarter of 2020, we terminated agreements for a sale-leaseback transaction for five properties with estimated proceeds of $153.6 million. Closing of the transactions cannot be assured or the timing of theirthe completion yet estimated with certainty, with several transactions not expected to close until 2021.certainty.
In October 2020, we entered into the RSA with certain of the lenders under our Credit Agreements. The RSA contemplates agreed-upon terms for a restructuring of the existing debt and certain other obligations of the Company Parties. The Restructuring is anticipated to be effected through either (i) an out-of-court restructuring on the terms set forth in the Out-of-Court Restructuring Term Sheet attached to the RSA or, if the Company is unable to obtain the consent of 100% of the lenders under the Credit Agreements, (ii) a prepackaged plan of reorganization on the terms set forth in the Plan Term Sheet attached to the RSA (the plan of reorganization described therein, the “Plan”), a solicitation of votes therefor, and the commencement by the Company of voluntary cases (the “Chapter 11 Cases”). The RSA was amended on October 16, 2020 and again on October 23, 2020, to, among other things, extend the date by which the Company Parties were required to commence the solicitation and the Chapter 11 Cases.
On November 1, 2020, we filed the Chapter 11 Cases with the United States Bankruptcy Court of Delaware to implement our Prepackaged Plan, which is intended to help us recapitalize our business and extend our debt maturities. We expect that the filing of the Chapter 11 Cases will permit us to continue business operations in compliance with the orders of the Bankruptcy Court and without interruption while we obtain the necessary approvals of our financial restructuring plan. The Prepackaged Plan is subject to the approval and monitoring of the US Bankruptcy Court of Delaware.
The following are some of the factors that could affect our cash flows and require the funding of future cash distributions, recurring capital expenditures, tenant improvements or leasing commissions with sources other than operating cash flows:
adverse changes or prolonged downturns in general, local or retail industry economic, financial, credit or capital market or competitive conditions, as a result of the COVID-19 pandemic or otherwise, leading to a reduction in real estate revenue or cash flows or an increase in expenses; continued deterioration in our tenants’ business operations and financial stability, particularly in light of the COVID-19 pandemic, and unsettled recovery, including anchor or non-anchor tenant bankruptcies, leasing delays or terminations, or lower sales, causing deferrals or declines in rent, percentage rent and cash flows; inability to achieve targets for, or decreases in, property occupancy and rental rates, resulting in lower or delayed real estate revenue and operating income; increases in operating costs, including those related to improved health and safety protocols, and increases that cannot be passed on to tenants, resulting in reduced operating income and cash flows; and increases in interest rates, resulting in higher borrowing costs.
|
|
|
|
|
|
|
|
44
|
|
|
|
In addition, we are continuing to monitor the COVID-19 pandemic and the related business and travel restrictions and changes to behavior intended to reduce its spread, and its impact on our tenants, their supply chains and customers and the retail industry. Thus far, the pandemic and the actions taken to address it and the related overall worsening of economic conditions have had an adverse effect on our business, operations, liquidity and financial condition.
46
For the third quarter
As of 2020,September 30, 2021, all of our malls had re-opened while adhering to social distancing and sanitation and safety protocols designed to address the risks posed by COVID-19, however, many of our tenants continue to operate at reduced capacity. The pandemic’s effect, continued to haveprimarily beginning in the second quarter of 2020, had a significant impact on our operations, financial condition, liquidity and results of operations in 2020 and the third quarterearly part of 20202021 and its impact is expected to continue through future periods. During theAs of September 30, 2021, we had cash receipts of 92% of billed third quarter 2021 rents, an increase from cash receipts of 2020,88% and 81% of billed rents as of June 30, 2021 and March 31, 2021, respectively. Including collections of other months’ rents, we collected nearly 100%119% of our billed third quarter 2021 rents, however, a substantial amountand generally, collections of contractual rent receivables frombilled rents are improving when compared to prior quarters remain outstanding and are under negotiation.periods since the beginning of the COVID-19 pandemic. We believe that our rent collections are probable, but expect that collections will continue to be below our tenants’ rent obligations as long as lingering effects of COVID-19, including new or renewed restrictions and business closures, affect the return of customers to malls and the financial strength of our tenants. While we continue to record rental revenue, the reduced collection levels have impacted our liquidity position and may continue to do so.
The magnitudeextent and duration of the pandemicsuch effects are uncertain, and its continuing impact on our business, operations, liquidity and financial condition are currently uncertain, as this continuescontinue to evolve globally. However, ifand remain difficult to predict. Additionally, the continued spreadfuture outbreak of COVID-19any other highly infectious or contagious diseases may materially and its impacts continue on their current trajectory, such impacts could continue to grow and negatively affect us in a material way. To the extent that our tenants and their customers and suppliers continue to be impacted by the coronavirus outbreak, or by the other risks, this could continue to materially disrupt our business operations. See “Item 1A. Risk Factors -The COVID-19 global pandemic and the public health and governmental actions in response have adversely affected, and will likely continue to adversely affect our business, financial condition, liquidity and operating results. The extent and duration of such effects are highly uncertain and cannot be predicted.”
We expect to meet certain of our longer-term requirements, such as obligations to fund redevelopment and development projects, certain capital requirements, (including scheduled debt maturities), future property and portfolio acquisitions, renovations, expansions and other non-recurring capital improvements, through a variety of capital sources, subject to the terms and conditions of our Credit Agreements, as further described below.
The capital and credit markets fluctuate and, at times, limit access to debt and equity financing for companies. While we generally expect to be able to access capital, as a result of the COVID-19 pandemic, access to debt and equity financing is currently limited and there is no assurance we will be able to access capital and credit markets in the future or on terms and conditions that are attractive or acceptable to us.
LIBOR Alternative
In July 2017, the Financial Conduct Authority (“FCA”), which is the authority that regulates LIBOR, announced it intends to stop compelling banks to submit rates for the calculation of LIBOR after 2021. The Alternative Reference Rates Committee ("ARRC"(“ARRC”) has identified the Secured Overnight Financing Rate ("SOFR"(“SOFR”) as the rate that represents best practice as the alternative to USD-LIBOR for use in derivatives and other financial contracts that are currently indexed to USD-LIBOR. We are not able to predict when LIBOR will cease to be available or when there will be sufficient liquidity in the SOFR markets. Any changes adopted by FCA or other governing bodies in the method used for determining LIBOR may result in a sudden or prolonged increase or decrease in reported LIBOR. If that were to occur, our interest payments could change, perhaps substantially. In addition, uncertainty about the extent and manner of future changes may result in interest rates and/or payments that are higher or lower than if LIBOR were to remain available in its current form.
We have material contracts that are indexed to LIBOR and are monitoring and evaluating the related risks, which include interest on loans or amounts received and paid on derivative instruments. These risks arise in connection with transitioning contracts to a new alternative rate, including any resulting value transfer that may occur. The value of loans, securities, and derivative instruments tied to LIBOR could also be affected if LIBOR is limited or discontinued. For some instruments, the method of transitioning to an alternative rate may be challenging, as they may require negotiation with the respective counterparty.
If a contract is not transitioned to an alternative rate and LIBOR is discontinued, the impact on our contracts is likely to vary by contract. If LIBOR is discontinued or if the methods of calculating LIBOR change from their current form, interest rates on our current or future indebtedness may be adversely affected.
45
While we expect LIBOR to be available in substantially its current form until the end of 2021, it is possible that LIBOR will become unavailable prior to that point. This could occur, for example, if a requisite number of banks decline to make submissions to the LIBOR administrator. In that case, the risks associated with the transition to an alternative reference rate would be accelerated and magnified.
Credit Agreements
We have entered into threetwo secured credit agreements: (1)agreements (collectively, as amended, the 2018“Credit Agreements”): (a) the First Lien Credit Agreement, which, as described in more detail below, includes (a)(i) the $375.0$130.0 million 2018First Lien Revolving Facility, and (ii) the $384.5 million First Lien Term Loan Facility, and (b) the $300.0Second Lien Credit Agreement, which, as described in more detail below, includes the $535.2 million 2018Second Lien Term Loan Facility, (2) the $250.0 million 2014 7-Year Term Loan Agreement (collectively, as amended, the “Credit Agreements”), and (3) the Bridge Facility. The 2018First Lien Term Loan Facility and the 2014 7-YearSecond Lien Term Loan Facility are collectively referred to as the “Term Loans.” As discussed further below and in Note 1 to our unaudited consolidated financial statements, on March 30, 2020 and again on July 27, 2020, we entered into amendments of our Credit Agreements. OurThe Credit Agreements were also amended on May 1, 2020refinanced our previously existing credit agreements in effect prior to extend the required deliveryeffective date, of compliance certificates covering the fiscal quarter ended March 31, 2020 by six days and again on September 30, 2020 to, among other things, extend the Suspension Period until October 31, 2020. Among other things, the March 2020 amendments reduced the aggregate Revolving Commitmentsincluding our secured term loan under the 2018 Revolving Facility by $25.0 million to $375.0 million. The $375.0 million aggregate Revolving Commitments under the 2018 Credit Agreement were permanently terminated pursuant to the July 2020 amendment to the 2018 Credit Agreement. Ondated as of August 11, 2020 we entered into(as amended, the Bridge Facility which provided for up to $30.0 million of additional term loans and an original maturity date of September 30, 2020. Subsequent to August 11, 2020, references to the“Bridge Credit Agreements include the Bridge Facility. On September 30, 2020, we amendedAgreement”), our Credit Agreements to, among other things, extend the Suspension Period and the maturity date of the Bridge Facility until October 31, 2020 and to provide for the ability to request additional commitments of up to $25.0 million under our Bridge Facility. The September 2020 amendments also eliminated the minimum liquidity requirement under each of the 7-YearSeven-Year Term Loan Agreement and 2018 Credit Agreement. We subsequentlyentered into on January 8, 2014 (as amended, the Bridge Facility“7-Year Term Loan”), and our 2018 Amended and Restated Credit Agreement entered into on October 16, 2020 to, among other things, increaseMay 24, 2018 (as amended, the aggregate amount of commitments thereunder by $25.0 million.“2018 Credit Agreement”).
As of September 30, 2020,2021, we had borrowed $538.0$953.8 million available under the Term Loans the full $375.0and $54.8 million under the 2018First Lien Revolving Facility and $22.5 million under our Bridge Facility. The carrying value of the Term Loans on our consolidated balance sheet as of September 30, 20202021 is net of $1.5$8.3 million of unamortized debt issuance costs. The maximum amount that was available to us to be borrowed under the First Lien Revolving Facility as of September 30, 2021 was $75.2 million.
Identical covenants47
Our obligations under the Credit Agreements are guaranteed by certain of our subsidiaries. Our obligations under the Credit Agreements and common provisions containedthe guaranties are secured by mortgages and deeds of trust on a portfolio of 12 of our subsidiaries’ properties, including nine malls and three additional parcels. The obligations are further secured by a lien on substantially all of our personal property pursuant to collateral agreements and a pledge of substantially all of the equity interests held by us and the guarantors, pursuant to pledge agreements, in each case subject to limited exceptions.
The maturity date of the Credit Agreements is December 10, 2022 (or such earlier date that the obligations under the applicable Credit Agreement have been accelerated), unless extended by one year until December 10, 2023 at our option (the “Maturity Date”). Any such extension would be subject to our fulfillment of certain conditions including maintaining minimum liquidity of $35.0 million, a minimum corporate debt yield of 8.0% and a maximum loan-to-value ratio of 105% for the total first lien and second lien loans and letters of credit and the Borrowing Base Properties as determined by an appraisal (provided that we may obtain a second appraisal of each Borrowing Base Property prepared by a nationally recognized appraisal firm and use the highest appraised value), and provided that no default or event of default exists and our representations and warranties are true in all material respects.
First Lien Credit Agreement
On December 10, 2020, we entered into an Amended and Restated First Lien Credit Agreement (the “First Lien Credit Agreement”) with Wells Fargo Bank, National Association (“Wells Fargo Bank”) and the other financial institutions signatory thereto and their assignees, for secured loan facilities consisting of: (i) a secured first lien revolving credit facility allowing for borrowings up to $130.0 million, including a sub-facility for letters of credit to be issued thereunder in an aggregate stated amount of up to $10.0 million (collectively, the “First Lien Revolving Facility”), and (ii) a $384.5 million secured first lien term loan facility (the “First Lien Term Loan Facility”).
Amounts borrowed under the First Lien Credit Agreement may be either Base Rate Loans or LIBOR Loans. Base Rate Loans bear interest at the highest of (a) the Prime Rate, (b) the Federal Funds Rate plus 0.50% and (c) the LIBOR Market Index Rate plus 1.0%, provided that the Base Rate will not be less than 1.50% per annum, in each case plus (w) for revolving loans, 2.50% per annum, and (x) for term loans, 4.74% per annum. LIBOR Loans bear interest at LIBOR plus (y) for revolving loans, 3.50% per annum, and (z) for term loans, 5.74% per annum, in each case, provided that LIBOR will not be less than 0.50% per annum. Interest is due to be paid in cash on the last day of each applicable interest period (with rolling 30-day interest periods) and on the Maturity Date. We must pay certain fees to the administrative agent for the account of the lenders in connection with the First Lien Credit Agreement, including an unused fee for the account of the revolving lenders, which will accrue (i) 0.35% per annum on the daily amount of the unused revolving commitments when that amount is greater than or equal to 50% of the aggregate amount of revolving commitments, and (ii) 0.25% when that amount is less than 50% of the aggregate amount of revolving commitments. Accrued and unpaid unused fees will be payable quarterly in arrears during the term of the First Lien Credit Agreement and on the Revolving Termination Date (or any earlier date of termination of the revolving commitments or reduction of the revolving commitments to zero).
Letters of credit and the proceeds of revolving loans may be used (i) to refinance indebtedness under the Bridge Credit Agreement (which agreement was cancelled and refinanced upon our entry into the Credit Agreement), (ii) for working capital and general corporate purposes (subject to certain exceptions set forth in the First Lien Credit AgreementsAgreement, including limitations on investments in non-Borrowing Base Properties), and (iii) to fund professional fee payments and other fees and expenses subject to the provisions of the Plan and related confirmation order and for other uses permitted by the provisions of the First Lien Credit Agreement, Plan and confirmation order, in each case consistent with an approved annual business plan. The proceeds of term loans may only be used to refinance existing indebtedness under the 2018 Credit Agreement and the 7-Year Term Loan. We may terminate or reduce the amount of the revolving commitments at any time and from time to time without penalty or premium, subject to the terms of the First Lien Credit Agreement.
Second Lien Credit Agreement
On December 10, 2020, we also entered into a Second Lien Credit Agreement (the “Second Lien Credit Agreement”) with Wells Fargo Bank and the other financial institutions signatory thereto and their assignees for a $535.2 million secured second lien term loan facility (the “Second Lien Term Loan Facility”).
Amounts borrowed under the Second Lien Credit Agreement may be either Base Rate Loans or LIBOR Loans. Base Rate Loans bear interest at the highest of (a) the Prime Rate, (b) the Federal Funds Rate plus 0.50% and (c) the LIBOR Market Index Rate plus 1.0%, provided that the Base Rate will not be less than 1.50% per annum, in each case plus 7.00% per annum. LIBOR Loans bear interest at LIBOR plus 8.00% per annum, provided that LIBOR will not be less than 0.50% per annum. Interest is due to be paid in kind on the last day of each applicable interest period (with rolling 30-day interest periods) by adding the accrued and unpaid amount thereof to the principal balance of the loans under the Second Lien Credit Agreement and then accruing interest on the increased principal amount (provided that after the discharge of our Senior Debt Obligations, interest will be paid in cash). We must pay certain fees to the administrative agent for the account of the lenders in connection with the Second Lien Credit Agreement.
The proceeds of loans under the Second Lien Credit Agreement may only be used to refinance existing indebtedness under the 2018 Credit Agreement and the 7-Year Term Loan.
48
On February 8, 2021, the Company entered into the first amendment to the Second Lien Credit Agreement (“First Amendment”). The First Amendment provided for elimination of approximately $5.3 million of the disputed default interest that was capitalized into the principal balance of the Second Lien Term Loan Facility, reducing the outstanding principal amount of loans outstanding under the Second Lien Credit Agreement, retroactively as of December 10, 2020, to $535.2 million. The First Amendment also eliminated the disputed PIK interest that was capitalized through the date of the amendment.
On April 13, 2021, we entered into Agency Resignation, Appointment, Acceptance and Waiver Agreements pursuant to which Wells Fargo Bank resigned as Administrative Agent and Wilmington Savings Fund Society, FSB was appointed successor Administrative Agent under the First Lien Credit Agreement, the Second Lien Credit Agreement and, in each case, the related loan documents. There is currently no successor letter of credit issuer under the First Lien Revolving Facility, accordingly, the Company cannot currently access the letters of credit sub-facility.
See our Annual Report on Form 10-K for the year ended December 31, 2020 and Note 4 to our unaudited consolidated financial statements for additional information on the Credit Agreements.
FDP Loan Agreement
As described in note 4 of our consolidated financial statements, PM Gallery LP, a descriptionDelaware limited partnership and joint venture entity owned indirectly by us and The Macerich Company (“Macerich”), previously entered into a $250.0 million term loan in January 2018 (as amended in July 2019 to increase the total maximum potential borrowings to $350.0 million) to fund the ongoing redevelopment of Fashion District Philadelphia and to repay capital contributions to the venture previously made by the partners. On December 10, 2020, PM Gallery LP, together with certain other subsidiaries owned indirectly by us and Macerich (including the fee and leasehold owners of the identical covenants and common provisions contained inproperties that are part of the Credit Agreements.
On March 30, 2020, and again on July 27, 2020, weFashion District Philadelphia project), entered into amendments of our Credit Agreements. The primary purposean Amended and Restated Term Loan Agreement (the “FDP Loan Agreement”). In connection with the execution of the March amendmentsFDP Loan Agreement, a $100.0 million principal payment was made (and funded indirectly by Macerich) to provide certain debt covenant relief through September 30, 2020. Our Credit Agreements were also amended on Maypay down the existing loan, reducing the outstanding principal under the FDP Loan Agreement from $301.0 million to $201.0 million. In connection with the execution of the FDP Loan Agreement, the governing structure of PM Gallery LP was modified such that, effective as of January 1, 20202021, Macerich is responsible for the entity’s operations and, subject to extend the required deliverylimited exceptions, controls major decisions.
The FDP Loan Agreement provides for (i) a maturity date of compliance certificates coveringJanuary 22, 2023, with the fiscal quarter ended March 31, 2020 by six days. Further deterioration in our financial results due to COVID-19 affected our ability to comply with our financial covenants prior to September 30, 2020. In anticipation of not meeting certain financial covenants as of June 30, 2020, we entered intopotential for a one-year extension upon the July 2020 amendments, which suspended certain debt covenants from and including June 30, 2020 until but excluding August 31, 2020, reduced our minimum liquidity requirement from $25 million to $8.5 million during the debt covenant suspension period, which was initially extended until September 30, 2020 based on our fulfillmentborrowers’ satisfaction of certain conditions, including entering into(ii) an interest rate at the Bridge Facilityborrowers’ option with respect to each advance of either (A) the Base Rate (defined as the highest of (a) the Prime Rate, (b) the Federal Funds Rate plus 0.50%, and agreeing(c) the LIBOR Market Index Rate plus 1.00%) plus 2.50% or (B) LIBOR for the applicable period plus 3.50%, (iii) a full recourse guarantee of 50% of the borrowers’ obligations by PREIT Associates, L.P., on a several basis, (iv) a full recourse guarantee of certain of the borrowers’ obligations by The Macerich Partnership, L.P., up to a non-binding term sheetmaximum of $50.0 million, on a several basis, (v) a pledge of the equity interests of certain indirect subsidiaries of PREIT and Macerich, as well as of PREIT-RUBIN, Inc. and one of its subsidiaries, that have a direct or indirect ownership interest in the borrowers, (vi) a non-recourse carve-out guaranty and a hazardous materials indemnity by each of PREIT Associates, L.P. and The Macerich Partnership, L.P., and (vii) mortgages of the borrowers’ fee and leasehold interests in the properties that are part of the Fashion District Philadelphia project and certain other properties. The FDP Loan Agreement contains certain covenants typical for loans of its type.
Preferred Shares
We have 3,450,000 7.375% Series B Cumulative Redeemable Perpetual Preferred Shares (the “Series B Preferred Shares”) outstanding, 6,900,000 7.20% Series C Cumulative Redeemable Perpetual Preferred Shares (the “Series C Preferred Shares”) outstanding and 5,000,000 6.875% Series D Cumulative Redeemable Perpetual Preferred Shares (the “Series D Preferred Shares”) outstanding. Upon 30 days’ notice, we may redeem any or all of the Series B Preferred Shares at $25.00 per share plus any accrued and unpaid dividends. We may not redeem the Series C Preferred Shares and the Series D Preferred Shares before January 27, 2022 and September 15, 2022, respectively, except to terms of further amendments topreserve our Credit Agreements and further extended until October 31, 2020 by additional amendments to our Credit Agreements entered into on September 30, 2020 (such period,status as a REIT or upon the “Suspension Period”) and permit limited additional debt. The September 2020 amendments eliminated the minimum liquidity requirement under the Credit Agreements. The July 2020 amendments prohibit us from taking any action (or omitting from taking any action) during the Suspension Period where such action would be otherwise prohibited to be taken or omitted during the existenceoccurrence of a default or eventChange of default, including but not limited to making certain Restricted Payments (asControl, as defined in the Credit Agreements), creating, assumingTrust Agreement addendums designating the Series C and Series D Preferred Shares, respectively. On and after January 27, 2022 and September 15, 2022, we may redeem any or incurring liensall of the Series C Preferred Shares or the Series D Preferred Shares, respectively, at $25.00 per share plus any accrued and unpaid dividends. In addition, upon the occurrence of a Change of Control, we may redeem any or all of the Series C Preferred Shares or the Series D Preferred Shares for cash within 120 days after the first date on our assets, incomewhich such Change of Control occurs at $25.00 per share plus any accrued and unpaid dividends. The Series B Preferred Shares, the Series C Preferred Shares and the Series D Preferred Shares have no stated maturity, are not subject to any sinking fund or profits,mandatory redemption and engaging in certain transactions regarding mergers, acquisitionswill remain outstanding indefinitely unless we redeem or otherwise repurchase them or they are converted.
In 2020, the Company suspended payment of its preferred share dividends. Dividends on the Series B, Series C and salesSeries D preferred shares are cumulative and therefore will continue to accrue at an annual rate of assets, in each case unless permitted by$1.8436 per share, $1.80 per share and $1.7188 per share, respectively. As of September 30, 2021, the Credit Agreements. Restricted Payments (as defined in the Credit Agreements) include cash dividends with respect to our shares. As such, the Credit Agreements, as amended, restrict our ability to declare and paycumulative amount of unpaid dividends on our common sharesissued and outstanding preferred shares for the duration of the Suspension Period. As discussed, above on September 30, 2020 we executed additional amendments to extend the Suspension Period through October 31, 2020.totaled $34.2 million.
On November 1, 2020, as a result of obtaining approval of approximately 95% of the lenders under the Credit Agreements, but not 100%, we filed the Chapter 11 Cases petition in the United States Bankruptcy Court for the District of Delaware to implement our Prepackaged Plan. Under the Prepackaged Plan, the Company would be recapitalized and its debt maturities extended. The filing of the Chapter 11 Cases permits us to continue business operations in compliance with the orders of the Bankruptcy Court and without interruption while we obtain necessary approvals of the restructuring plan. The Prepackaged Plan is subject to approval by the United States Bankruptcy Court for the District of Delaware. Due to the inherent risks, unknown results and significant uncertainties associated with each of these matters and the direct correlation between these matters and our ability to satisfy our financial obligations that may arise in 2020, we are unable to conclude that it is probable that we will be able to meet our obligations arising within twelve months of the date of issuance of these financial statements and continue as a going concern.
4649
As a result, management evaluated whether this was mitigatedThis consisted of unpaid dividends per share on the Series B, Series C and Series D preferred shares of $2.30 per share, $2.25 per share and $2.15 per share, respectively.
Both the First Lien Credit Agreement and the Second Lien Credit Agreement prohibit any redemption of preferred shares so long as such agreements remain in effect.
Mortgage Loan Activity—Consolidated Properties
Francis Scott Key Mall
On June 25, 2021, certain of our consolidated subsidiaries entered into an amendment to our mortgage loan secured by our approved plans and expectationsproperty at Francis Scott Key Mall, in Frederick, Maryland, which provided for the applicable period under the second stepa reduction in principal balance from property cash on hand to $60.5 million, an extension of the going concern accounting standard. Our abilitymaturity date until June 25, 2024, with an option to meet our ongoing obligations and fund recurring costsextend an additional year if certain criteria are met. Among other things, the amendment also provides for a variable interest rate of operations, particularly in light ofone month LIBOR plus 3.6% with interest only payments. Also, the costs associated with our bankruptcy proceedings andamendment provides for excess cash flow from the current COVID-19 pandemic and resulting adverse impacts on our business, is dependent upon, among other things: (i) our abilityproperty to comply with the terms and conditions of anybe deposited into a cash collateral order that mayaccount which will be entered byused at the Bankruptcy Courtadministrative agent’s discretion to pay down the loan balance until certain requirements are met. The Company capitalized $0.3 million of lender fees as additional debt issuance costs in connection with the Chapter 11 Cases, (ii)amendment.
Viewmont Mall
On June 25, 2021, certain of our abilityconsolidated subsidiaries entered into an amendment to maintain adequate cash on hand, (iii) our ability$67.2 million mortgage loan secured by our property at Viewmont Mall in Scranton, Pennsylvania, which provides for an extension of the maturity date until June 25, 2024, with an option to generateextend an additional year if certain criteria are met. Among other things, the amendment also provides for a variable interest rate of one month LIBOR plus 3.6% with interest only payments. Also, the amendment provides for excess cash flow from operations, (iv)the property to be deposited into a cash collateral account which will be used at the administrative agent’s discretion to pay down the loan balance until certain requirements are met. The Company capitalized $0.5 million of lender fees as additional debt issuance costs in connection with the amendment.
Woodland Amendment
On February 8, 2021, certain of our abilityconsolidated subsidiaries entered into an amendment to develop, confirm and consummateour mortgage loan secured by the Prepackaged Plan orWoodland Mall in Grand Rapids, Michigan, which provides for an alternative restructuring transaction, (v) the cost, duration and outcomeextension of the Chapter 11 Cases; (vi) our execution ofmaturity date until December 10, 2021, with an option to extend an additional year if certain criteria are met. Among other things, the sale of certain real estate assets, which sales would provide cash,amendment also (i) reduces the cap on guarantor liability for PREIT Associates, L.P. to $10.0 million; (ii) restricts the lenders from exercising their rights and (vii) controlling costs. While certain of these factors are within management’s control to some extent, all of them involve performance by third parties and therefore cannot be considered probable of occurring.
The filing of the Chapter 11 Cases constitutes an event of defaultremedies under the Credit Agreements, however, any efforts to enforce the payment obligations under the Credit Agreements are automatically stayed asguaranty until December 10, 2022, unless there is a result of the Chapter 11 Cases and the lenders’ rights of enforcement are subjectbankruptcy filing with respect to the Bankruptcy Code.
See “Item 1A. Risk Factors—If we are unableborrowers or guarantor; (iii) adjusts the interest rate; (iv) provides for the pledge of additional collateral as security for the borrowers’ obligations (including the anchor parcel at Woodland Mall which was released as collateral from our senior secured credit facilities); and (v) requires the borrowers to complypay to the lenders a $5.0 million remargin payment. We capitalized $0.3 million of lender fees as additional debt issuance costs in connection with the covenants in our credit agreements, we might be adversely affected,”“—We have determined that there is substantial doubt about our ability to continue as a going concern,” “—We are subject to the risks and uncertainties associated with Chapter 11 proceedings, which could have a material adverse effect on our business, financial condition, results of operations and liquidity,” “—The RSA is subject to significant conditions and milestones that may be beyond our control, depend on the actions of third parties and may be difficult for us to satisfy. If the RSA is terminated, our ability to confirm and consummate the Prepackaged Plan could be materially and adversely affected,”amendment. and “—As a result of the Chapter 11 Cases, our financial results may be volatile and may not reflect historical trends.”
Forbearance Agreements
Interest Rate Derivative Agreements
As of September 30, 2020, we had interest rate swap agreements outstanding with a weighted average base interest rate of 2.13% on a notional amount of $794.4 million, maturing on various dates through May 2023. We entered into these interest rate swap agreements in order to hedge the interest payments associated with our issuances of variable interest rate long term debt. The interest rate swap agreements are net settled monthly.
We made no swap payments in May and June 2020 and were not required to pay in July or August 2020. Beginning in September 2020, the payments increased to make up for the deferrals.
We assessed the effectiveness of these swap agreements as hedges at inception and continue to do so on a quarterly basis. As of September 30, 2020, we considered these interest rate swap agreements to be highly effective as cash flow hedges.
As of September 30, 2020, the fair value of derivatives in a liability position, which excludes accrued interest but includes any adjustment for nonperformance risk related to these agreements, was $27.7 million. If we had breached any of the default provisions in these agreements as of September 30, 2020, we might have been required to settle our obligations under the agreements at their termination value (including accrued interest) of $30.1 million. We had not breached any of these provisions as of September 30, 2020.
The carrying amount of the associated assets are recorded in “Deferred costs and other assets,” liabilities are reflected in “Fair value of derivative instruments” and the net unrealized loss is reflected in “Accumulated other comprehensive loss” in the accompanying consolidated balance sheets and consolidated statements of comprehensive income.
Mortgage Loan Activity
During the nine monthsyear ended September 30,December 31, 2020, we entered into forbearance and loan modification agreements for our consolidated properties Cherry Hill Mall, Cumberland Mall, Dartmouth Mall, Francis Scott Key Mall, Metroplex, Springfield Mall, Viewmont Mall, and Woodland Mall and for our unconsolidated partnership properties Metroplex and Springfield Mall. These arrangements allowed us to defer principal payments, and in some cases interest as well, on the mortgages between May and August of 2020 depending on the terms of the contract. At the end of each deferment period, the repayment period spans from four to six months to pay back the deferred amounts. The repayment periods rangeranged from August 2020 through February 2021 depending on the terms of the specific agreements. As of September 30, 2021, we had repaid all principal and interest deferrals.
Valley View Mall
In the second quarter of 2020, we defaulted on the mortgage loan secured by Valley View Mall due to a missed payment on June 1, 2020, and not paying the balloon payment of $27.3 million. In the third quarter of 2020, the operations of the property were transferred to a receiver and foreclosure was filed. We recorded a gain on derecognition of property during the three months ended September 30,third quarter 2020 and have recorded the mortgage balance and an offsetting contract asset on our consolidated balance sheetsheets as of September 30, 2021 and December 31, 2020, both of which will be eliminated when the property foreclosure sale is completed.
Mortgage Loans
47
As of September 30, 2020, ourOur mortgage loans, which are secured by eightnine of our consolidated properties, are due in installments over various terms extending to Octoberthe year 2025. FiveOur nine properties include Valley View Mall, which was assigned to a receiver in the third quarter 2020. Although we have not yet conveyed Valley View Mall because foreclosure proceedings are ongoing, we no longer control or operate the property as a result of a court order assigning the receiver. The mortgage principal balance of Valley View Mall was $27.2 million at September 30, 2021 and December 31, 2020, which we will continue to recognize until the foreclosure process is completed. Six of these mortgage loans bear interest at fixed interest rates that range from 3.88% to 5.95% and had a weighted average interest rate of 4.08%4.09% at September 30, 2020.2021. Three of our mortgage loans bear interest at variable rates a portion of which have been swapped to fixed rates, and taking into consideration the impact of interest rate swaps, had a weighted average interest rate of 2.42%3.72% at September 30, 2020.2021. The weighted average interest rate of all consolidated mortgage loans was 3.60%3.98% at September 30, 2020.2021. Mortgage loans for properties owned by unconsolidated partnerships are
50
accounted for in “Investments in partnerships, at equity” and “Distributions in excess of partnership investments” on the consolidated balance sheetsinvestments,” and are not included in the table below.
The following table outlines the timing of principal payments relatedand balloon payments pursuant to the terms of our mortgage loans on our consolidated mortgage loansproperties as of September 30, 2020:2021:
(in thousands of dollars) |
| Total |
|
| Remainder of 2020 |
|
| 2021-2022 |
|
| 2023-2024 |
|
| Thereafter |
|
| Total |
|
| Remainder of |
|
| 2022-2023 |
|
| 2024-2025 |
| |||||||||
Principal payments |
| $ | 55,030 |
|
| $ | 5,759 |
|
| $ | 31,876 |
|
| $ | 12,989 |
|
| $ | 4,406 |
|
| $ | 35,370 |
| $ | 4,701 |
| $ | 19,858 |
| $ | 10,811 |
| |||
Balloon payments |
|
| 837,000 |
|
|
| 27,161 |
|
|
| 545,194 |
|
|
| 53,299 |
|
|
| 211,346 |
|
|
| 822,971 |
|
|
| 141,363 |
|
|
| 342,577 |
|
|
| 339,031 |
|
Total |
|
| 892,030 |
|
| $ | 32,920 |
|
| $ | 577,070 |
|
| $ | 66,288 |
|
| $ | 215,752 |
|
| 858,340 |
| $ | 146,064 |
|
| $ | 362,435 |
|
| $ | 349,842 |
| ||
Less: unamortized debt issuance costs |
|
| 1,182 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 1,354 |
|
|
|
|
|
|
|
|
|
| |||
Carrying value of mortgage notes payable |
| $ | 890,848 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 856,986 |
|
|
|
|
|
|
|
|
|
|
Contractual Obligations
The following table presents our aggregate contractual obligations as of September 30, 20202021 for the periods presented:
(in thousands of dollars) |
| Total |
|
| Remainder of |
|
| 2022-2023 |
|
| 2024-2025 |
|
| Thereafter |
| |||||
Mortgage loans |
| $ | 858,341 |
|
| $ | 146,064 |
| (1) | $ | 362,435 |
|
| $ | 349,842 |
|
| $ | — |
|
Term Loans |
|
| 953,782 |
|
|
| — |
|
|
| 953,782 |
| (2) |
| — |
|
|
| — |
|
First Lien Revolving Facility |
|
| 54,830 |
|
|
| — |
|
|
| 54,830 |
|
|
| — |
|
|
| — |
|
Interest on indebtedness(3) |
|
| 94,215 |
|
|
| 15,521 |
|
|
| 61,016 |
|
|
| 17,678 |
|
|
| — |
|
Operating leases |
|
| 9,890 |
|
|
| 284 |
|
|
| 1,993 |
|
|
| 1,730 |
|
|
| 5,883 |
|
Ground leases |
|
| 51,964 |
|
|
| 424 |
|
|
| 3,168 |
|
|
| 3,103 |
|
|
| 45,269 |
|
Finance leases |
|
| 6,168 |
|
|
| 247 |
|
|
| 1,971 |
|
|
| 1,878 |
|
|
| 2,072 |
|
Development and redevelopment commitments(4) |
|
| 5,403 |
|
|
| 4,364 |
|
|
| 1,039 |
|
|
| — |
|
|
| — |
|
Total |
| $ | 2,034,593 |
|
| $ | 166,904 |
|
| $ | 1,440,234 |
|
| $ | 374,231 |
|
| $ | 53,224 |
|
(1) The 2021 balance includes $27.2 million for our mortgage loan secured by Valley View Mall, which was in default as of September 30, 2021. We do not expect to pay the principal balance remaining.
(2) Includes our First Lien Term Loan of $380.1 million and the anticipated maturity date balance of our Second Lien Term Loan Facility of $573.7 million, which includes estimated capitalized PIK interest based on current interest rates.
(in thousands of dollars) |
| Total |
|
| Remainder of 2020 |
|
| 2021-2022 |
|
| 2023-2024 |
|
| Thereafter |
| |||||
Mortgage loan principal payments |
| $ | 892,030 |
|
| $ | 32,920 |
|
| $ | 577,070 |
|
| $ | 66,288 |
|
| $ | 215,752 |
|
Term Loans |
|
| 560,500 |
|
|
| 22,500 |
|
|
| 244,545 |
|
|
| 293,455 |
|
|
| — |
|
2018 Revolving Facility |
|
| 375,000 |
|
|
| — |
|
|
| 375,000 |
|
|
| — |
|
|
| — |
|
Interest on indebtedness(1) |
|
| 158,650 |
|
|
| 20,867 |
|
|
| 112,743 |
|
|
| 18,659 |
|
|
| 6,381 |
|
Operating leases |
|
| 10,404 |
|
|
| 126 |
|
|
| 1,812 |
|
|
| 1,774 |
|
|
| 6,692 |
|
Ground leases |
|
| 53,777 |
|
|
| 437 |
|
|
| 3,319 |
|
|
| 3,168 |
|
|
| 46,853 |
|
Development and redevelopment commitments(2) |
|
| 27,914 |
|
|
| 24,175 |
|
|
| 3,739 |
|
|
| — |
|
|
| — |
|
Total |
| $ | 2,078,275 |
|
| $ | 101,025 |
|
| $ | 1,318,228 |
|
| $ | 383,344 |
|
| $ | 275,678 |
|
(3) | Includes interest payments expected to be made on consolidated debt, including those |
|
|
Preferred Share Dividends
On August 12, 2020, in connection with interest rate swap agreements.
(4) The timing of the Company’s negotiationpayments of amendmentsthese amounts is uncertain. We expect that a significant majority of such payments (of which we include 100% of our obligations related to its Credit Agreements, the Company announced that all dividends on common and Preferred SharesFashion District Philadelphia, which opened in September 2019) will be suspended formade prior to December 31, 2021, but cannot provide any assurance that changed circumstances at these projects will not delay the Suspension Periodsettlement of these obligations.
Interest Rate Derivative Agreements
As of September 30, 2021, we had interest rate swap agreements designated in qualifying hedging relationships outstanding with a weighted average base interest rate of 2.57% on a notional amount of $439.8 million, maturing on various dates through May 2023. As of September 30, 2021, our non-designated swaps outstanding with a weighted average base interest rate of 1.85% on a notional amount of $175.0 million, maturing on various dates through December 2021. We originally entered into these interest rate swap agreements in order to hedge the interest payments associated with our issuances of variable interest rate long term debt. The interest rate swap agreements are net settled monthly.
For derivatives that have been designated and that qualify as cash flow hedges of interest rate risk, the gain or loss on the derivative is recorded in “Accumulated other comprehensive (loss) income” and subsequently reclassified into “Interest expense, net” in the same periods during which the hedged transaction affects earnings. Through December 10, 2020, all of our derivatives were designated and qualified as cash flow hedges of interest rate risk.
On December 10, 2020 as a result of the Financial Restructuring, we did not pay dividendsde-designated seven of our interest rate swaps which were previously designated cash flow hedges against the 2018 Credit Facility and 7-year Term Loan, as the hedged forecasted transactions were no longer probable to occur during the third quarter of 2020. In addition to complying with any applicable contractual limitations, the declaration and payment of future quarterly dividends remains subjecthedged time period due to the boardFinancial Restructuring as described in Note 1. As such, the Company accelerated the reclassification of trustees’ determination.a portion of the amounts in other comprehensive (loss) income to earnings which resulted in a loss of $2.8 million that was recorded within interest expense, net in the consolidated statement of operations. Additionally, on December 10, 2020, the Company voluntarily de-designated the remaining thirteen interest swaps that were also previously designated as cash flow hedges against the 2018 Credit Facility and 7-year Term Loan. Upon de-designation, the accumulated other comprehensive (loss) income balance of each of these de-designated derivatives will be separately reclassified to earnings as the originally hedged forecasted transactions affect earnings. Through
51
December 10, 2020, the changes in fair value of the derivatives were recorded to accumulated other comprehensive (loss) income in the consolidated balance sheets.
On December 22, 2020, we re-designated nine interest rate swaps with a notional amount of $375.0 million as cash flow hedges of interest rate risk against the First Lien Term Loan Facility. These interest rate swaps qualified for hedge accounting treatment with changes in the fair value of the derivatives recorded through accumulated other comprehensive (loss) income.
During the nine months ended September 30, 2021, we had three designated swaps mature. As of September 30, 2021, we had 10 total derivatives which were designated as cash flow hedges.
We recognize all derivatives at fair value as either assets or liabilities in the accompanying consolidated balance sheets. Our derivative assets are recorded in “Deferred costs and other assets” and our derivative liabilities are recorded in “Fair value of derivative instruments.”
Over the next twelve months we estimate that $8.4 million will be reclassified as an increase to interest expense in connection with our designated derivatives. The recognition of these amounts could be accelerated in the event that we repay amounts outstanding on the debt instruments and do not replace them with new borrowings.
Derivatives not designated as hedges are not speculative and are also used to manage the Company’s exposure to interest rate movements and other identified risks but do not meet the strict hedge accounting requirements. For swaps that were not re-designated subsequent to December 10, 2020, changes in the fair value of derivatives are recorded directly in earnings as interest expense in the consolidated statement of operations. During the nine months ended September 30, 2021, we had four non-designated swaps mature. As of September 30, 2021, we had seven total derivatives which were non-designated.
CASH FLOWS
Net cash provided by operating activities totaled $38.2 million for the nine months ended September 30, 2021 compared to net cash used in operating activities totaledof $8.8 million for the nine months ended September 30, 2020 compared to net cash provided by operating activities of $79.7 million for the nine months ended September 30, 2019.2020. This decreaseincrease in cash provided by operating activities was due to changes in working capital between periods dilution fromprimarily as a result of strong collection efforts of our outstanding accounts receivable in the nine months ended September 30, 2021, which are included in change in other assets sold in 2019, and distributions from partnerships, among other factors.our statement of cash flows.
Cash flows used in investing activities were $15.2 million for the nine months ended September 30, 2021 compared to cash flows used in investing activities of $61.2 million for the nine months ended September 30, 2020 compared to cash2020. Cash flows used in investing activities of $87.9 million for the nine months ended September 30, 2019. 2021 included $5.5 million of additions to construction in progress and $12.6 million of investments in real estate improvements.
Cash flows used in investing activities for the nine months ended September 30, 2020 included $21.9$22.0 million of proceeds from asset sales including the sale of three outparcels. Cash flows used in investing
48
activities included additions to construction in progress of $20.2$31.5 million, investments in partnerships of $30.2 million (primarily at Fashion District Philadelphia), and real estate improvements of $27.7$16.4 million (primarily related to ongoing improvements at our properties).
Cash flows used in financing activities were $33.4 million for the nine months ended September 30, 2021 compared to cash flows provided by investingfinancing activities of $92.9 million for the nine months ended September 30, 2020. Cash flows used in financing activities for the nine months ended September 30, 20192021 included $44.2a $4.0 million pay down of our First Lien Term Loan, $19.7 million of principal payments on mortgage loans, $135.2 million in paydowns of Francis Scott Key and Viewmont Malls’ mortgages, along with $1.0 million of deferred financing costs paid for our Woodland Mall, Francis Scott Key Mall, and Viewmont Mall mortgage extensions. These were offset by $127.7 million proceeds from asset sales includingrefinancing of the sale of two land parcelsFrancis Scott Key and two outparcels, the sale of a mortgage loan and cash distributions of proceeds from real estate sold by an equity method investee, as well as $7.0Viewmont Malls mortgages. We also had $0.6 million of insurance proceeds, and $25.0 million of distributions from the drawsshares retired under our expanded Fashion District Philadelphia term loan. Cash flows used in investing activities included additions to construction in progressequity compensation plan, net of $86.2 million, investments in partnerships of $55.2 million (primarily at Fashion District Philadelphia), and real estate improvements of $21.5 million (primarily related to ongoing improvements at our properties).shares issued.
Cash flows provided by financing activities were $92.9 million for the nine months ended September 30, 2020 compared to cash flows used in financing activities of $6.4 million for the nine months ended September 30, 2019. Cash flows provided by financing activitiesand included $120.0 million in net borrowings under our 2018 Revolving Facility, $22.5 million of net borrowing under our Bridge Facility, and $4.5 million of proceeds from the note payable described in Note 4 to our unaudited consolidated financial statements. Cash flows used in financing activities for the nine months ended September 30, 2020 includedThese were offset by aggregate dividends and distributions of $32.2 million, and principal installments on mortgage loans of $9.5 million, and net repayments of term loans of $12.0 million.
ENVIRONMENTAL
Cash flows used in financing activities for the first nine months of 2019 included aggregate dividends and distributions of $70.6 million, principal installments on mortgage loans of $12.8 million, and $71.2 million used to defease the mortgage loans secured by Capital City Mall and the release of escrow funds relating to the conveyance of the mortgage loan secured by Wyoming Valley Mall to the lender, partially offset by $148.0 million of net borrowings under our 2018 Revolving Facility.
ENVIRONMENTAL
We are aware of certain environmental matters at some of our properties. We have, in the past, performed remediation of such environmental matters, and we are not aware of any significant remaining potential liability relating to these environmental matters or of any obligation to satisfy requirements for further remediation. We may be required in the future to perform testing relating to these matters. We have insurance coverage for certain environmental claims up to $25.0$10.0 million per occurrence and up to $25.0$10.0 million in the aggregate.aggregate over our two year policy term. See our Annual Report on Form 10-K for the year ended December 31, 2019,2020, in the section entitled “Item 1A. Risk Factors— Risks
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Related to Our Business and Our Properties—We might incur costs to comply with environmental laws, which could have an adverse effect on our results of operations.”
COMPETITION AND TENANT CREDIT RISK
Competition in the retail real estate market is intense. We compete with other public and private retail real estate companies, including companies that own or manage malls, power centers, strip centers, lifestyle centers, factory outlet centers, theme/festival centers and community centers, as well as other commercial real estate developers and real estate owners, particularly those with properties near our properties, on the basis of several factors, including location and rent charged. We compete with these companies to attract customers to our properties, as well as to attract anchor and non-anchor storesstore and other tenants. We also compete to acquire land for new site development or to acquire parcels or properties to add to our existing properties. Our malls and our other operating properties face competition from similar retail, destination dining and entertainment centers, including more recently developed or renovated centers that are near our retail properties. We also face competition from a variety of different retail formats, including internet retailers, discount or value retailers, home shopping networks, mail order operators, catalogs, and telemarketers. Our tenants face competition from companies at the same and other properties and from other retail formats as well, including internet retailers. They also face competition for employees in the current highly constrained labor market, which could impact their operations and operating costs. This competition could have a material adverse effect on our ability to lease space and on the amount of rent and expense reimbursements that we receive.
The existence or development of competing retail properties and the related increased competition for tenants might, subject to the terms and conditions of the Credit Agreements, require us to make capital improvements to properties that we would have deferred or would not have otherwise planned to make and might also affect the total sales, sales per square foot, occupancy and net operating income of such properties. Any such capital improvements, undertaken individually or collectively, would involve costs and expenses that could adversely affect our results of operations.
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We compete with many other entities engaged in real estate investment activities forIf we seek to make acquisitions, of malls, other retail properties and prime development sites or sites adjacent to our properties, includingcompetitors (such as institutional pension funds,investors, other REITs and other owner-operators of retail properties. When we seek to make acquisitions, competitorsproperties) might drive up the price we must pay for properties, parcels, other assets or other companies or might themselves succeed in acquiring those properties, parcels, assets or companies. In addition, our potential acquisition targets might find our competitors to be more attractive suitors if they have greater resources, are willing to pay more, or have a more compatible operating philosophy. In particular, larger REITs might enjoy significant competitive advantages that result from, among other things, a lower cost of capital, a better ability to raise capital, a better ability to finance an acquisition, better cash flow and enhanced operating efficiencies. We might not succeed in acquiring retail properties or development sites that we seek, or, if we pay a higher price for a property and/or generate lower cash flow from an acquired property than we expect, our investment returns will be reduced, which will adversely affect the value of our securities.
We receive a substantial portion of our operating income as rent under leases with tenants. At any time, any tenant having space in one or more of our properties could experience a downturn in its business that might weaken its financial condition. Such tenants might enter into or renew leases with relatively shorter terms. Such tenants might also defer or fail to make rental payments when due, delay or defer lease commencement, voluntarily vacate the premises or declare bankruptcy, which could result in the termination of the tenant’s lease or preclude the collection of rent in connection with the space for a period of time, and could result in material losses to us and harm to our results of operations. Also, it might take time to terminate leases of underperforming or nonperforming tenants and we might incur costs to remove such tenants. The COVID-19 pandemic and the economic challenges resulting from it have exacerbated these risks. Some of our tenants occupy stores at multiple locations in our portfolio, and so the effect of any bankruptcy or store closings of those tenants might be more significant to us than the bankruptcy or store closings of other tenants. See “Item 2. Properties—Major Tenants” in our Annual Report on Form 10-K for the year ended December 31, 2019. In addition, under many of our leases, our tenants pay rent based, in whole or in part, on a percentage of their sales. Accordingly, declines in these tenants’ sales directly affect our results of operations. Also, if tenants are unable to comply with the terms of their leases, or otherwise seek changes to the terms, including changes to the amount of rent, we might modify lease terms in ways that are less favorable to us. Given current conditions in the economy, certain industries and the capital markets, particularly in light of the COVID-19 pandemic, in some instances retailers that have sought protection from creditors under bankruptcy law have had difficulty in obtaining debtor-in-possession financing, which has decreased the likelihood that such retailers will emerge from bankruptcy protection and has limited their alternatives. All of these factors have been exacerbated by the impact of the COVID-19 pandemic in 2020 and 2021.
SEASONALITY
SEASONALITY
There is seasonality in the retail real estate industry. Retail property leases often provide for the payment of all or a portion of rent based on a percentage of a tenant’s sales revenue, or sales revenue over certain levels. Income from such rent is recorded only after the minimum sales levels have been met. The sales levels are often met in the fourth quarter, during the November/December holiday season. Also, many new and temporary leases are entered into later in the year in anticipation of the holiday season and a higher number of tenants vacate their space early in the year. As a result, our occupancy and cash flows are generally higher in the fourth quarter and lower in the first and second quarters. Our concentration in the retail sector increases our exposure to seasonality and has resulted, and is expected to continue to result, in a greater percentage of our cash flows being received in the fourth quarter. We expect holiday season sales levels at our properties to be impacted by the continuing effects of COVID-19 given the reduced traffic and the COVID-19 mitigation measures implemented by many of our tenants.
INFLATION
Inflation can have many effects on financial performance. Retail property leases often provide for the payment of rent based on a percentage of sales, which might increase with inflation. Leases might also provide for tenants to bear all or a portion of operating expenses, which might reduce the impact of such increases on us. However, rent increases might not keep up with inflation, or if we recover a smaller proportion of property operating expenses, we might bear more costs if such expenses increase because of inflation.
FORWARD LOOKING STATEMENTS
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This Quarterly Report on Form 10-Q for the quarter ended September 30, 20202021 , together with other statements and information publicly disseminated by us, contain certain forward-looking statements that can be identified by the use of words such as “anticipate,” “believe,” “estimate,” “expect,” “project,” “intend,” “may” or similar expressions. Forward-looking statements relate to expectations, beliefs, projections, future plans, strategies, anticipated events, trends and other matters, including our expectations regarding the impact of COVID-19 on our business, that are not historical facts. These forward-looking statements reflect our current views about future events, achievements, results, cost reductions, dividend payments and the impact of COVID-19 and are subject to risks, uncertainties and changes in circumstances that might cause future events, achievements or results to differ materially from those expressed or implied by the forward-looking statements. In particular, our business might be materially and adversely affected by the following:
the effectiveness of our financial restructuring and any additional strategies that we may employ to address our liquidity and capital resources in the future; our ability to achieve forecasted revenue and pro forma leverage ratio and generate free cash flow to further reduce indebtedness; the COVID-19 global pandemic and the public health and governmental response, which have and may continue to exacerbate many of the risks listed herein; changes in the retail and real estate industries, including bankruptcies, consolidation and store closings, particularly among anchor tenants; current economic conditions, including current high rates of unemployment and its effects on consumer confidence and spending, supply chain challenges and the corresponding effects on tenant business performance, prospects, solvency and leasing decisions; our inability to collect rent due to the bankruptcy or insolvency of tenants or otherwise; our ability to maintain and increase property occupancy, sales and rental rates; increases in operating costs that cannot be passed on to tenants; the effects of online shopping and other uses of technology on our retail tenants; risks related to our development and redevelopment activities, including delays, cost overruns and our inability to reach projected occupancy or rental rates; social unrest and acts of vandalism or violence at malls, including our properties, or at other similar spaces, and the potential effect on traffic and sales; the frequency, severity and potential impact of extreme weather events at or near our properties, including potential property damage, some or all of which may not be covered by insurance, the potential effect on traffic and sales, and the potential increased costs of insurance coverage; our ability to sell properties that we seek to dispose of or our ability to obtain prices we seek; potential losses on impairment of certain long-lived assets, such as real estate, including losses that we might be required to record in connection with any disposition of assets; our substantial debt and our ability to remain in compliance with our financial covenants under our debt facilities; our ability to raise capital, including through sales of properties or interests in properties, subject to the terms of our Credit Agreements; and potential dilution from any capital raising transactions or other equity issuances.
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Additional factors that might cause future events, achievements or results to differ materially from those expressed or implied by our forward-looking statements include those discussed herein and in our Annual Report on Form 10-K for the year ended December 31, 20192020 in the section entitled “Item 1A. Risk Factors” and any subsequent reports we file with the SEC. WeAny forward-looking statements made by us speak only as of the date on which they are made, and we do not intend to update or revise any forward-looking statements to reflect new information, future events or otherwise.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The analysis below presents the sensitivity of the market value of our financial instruments to selected changes in market interest rates. As of September 30, 2020,2021, our consolidated debt portfolio consisted of $890.8$857.0 million of fixed and variable rate mortgage loans (net of debt issuance costs), $293.5$54.8 million outstanding under our First Lien Revolver, which bore interest at a rate of 4.0%, $380.1 million borrowed under our 2018First Lien Term Loan Facility, which bore interest at a rate of 4.5%6.2%, $244.5and $573.7 million borrowed under our 2014 7-YearSecond Lien Term Loan which bore interest at a rate of 2.41% and $22.5 million borrowed under our Bridge Facility, which bore interest at 9.0%. As of September 30, 2020, $375.0 million was outstanding under our 2018 Revolving Facility, which bore interest at a rate of 4.15%8.5%.
Our mortgage loans, which are secured by eightnine of our consolidated properties, are due in installments over various terms extending to October 2025. FiveOur nine properties include Valley View Mall, which was assigned to a receiver in the third quarter 2020. Although we have not yet conveyed Valley View Mall because foreclosure proceedings are ongoing, we no longer control or operate the property as a result of thesea court order assigning the receiver. The mortgage principal balance of Valley View Mall was $27.2 million at September 30, 2021 and December 31, 2020, which we will continue to recognize until the foreclosure process is completed. Six of our mortgage loans bear interest at fixed interest rates that range from 3.88% to 5.95%, and had a weighted average interest rate of 4.08%4.09% at September 30, 2020.2021. Three of our mortgage loans bear interest at variable rates, a portion of which has been swapped to fixed rates, and taking into consideration the impact of interest rate swaps, had a weighted average interest rate of 2.41%3.72% at September 30, 2020.2021. The weighted average interest rate of all consolidated mortgage loans was 3.60%3.98% at September 30, 2020.2021. Mortgage loans for properties owned by unconsolidated partnerships are accounted for in “Investments in partnerships, at equity” and “Distributions in excess of partnership investments” on the consolidated balance sheets and are not included in the table below.
Our interest rate risk is monitored using a variety of techniques. The table below presents the principal amounts of the expected annual maturities due in the respective years and the weighted average interest rates for the principal payments in the specified periods:
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| Fixed Rate Debt |
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| Variable Rate Debt |
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(in thousands of dollars) For the Year Ending December 31, |
| Principal Payments |
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| Principal Payments |
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| Weighted Average Interest Rate(1) |
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2021 |
| $ | 31,214 |
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| 4.01% |
| $ | 114,850 |
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| 3.75 | % |
2022 |
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| 302,548 |
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| 3.96% |
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| 1,008,613 |
| (2) | 7.40 | % |
2023 |
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| 59,887 |
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| 3.99% |
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| — |
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| — |
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2024 |
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| 6,405 |
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| 4.04% |
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| 127,685 |
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| 3.69 | % |
2025 and thereafter |
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| 215,752 |
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| 4.02% |
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| — |
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| — |
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| Fixed Rate Debt |
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| Variable Rate Debt |
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(in thousands of dollars) For the Year Ending December 31, |
| Principal Payments |
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| Weighted Average Interest Rate(1) |
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| Principal Payments |
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| Weighted Average Interest Rate(1) |
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2020 |
| $ | 32,500 |
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| 4.01 | % |
| $ | 22,920 |
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| 8.64 | % |
2021 |
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| 16,297 |
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| 4.01 | % |
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| 435,867 |
| (2) |
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| 2.38 | % |
2022 |
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| 302,539 |
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| 3.96 | % |
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| 441,912 |
| (2) |
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| 3.66 | % |
2023 |
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| 59,883 |
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| 3.99 | % |
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| 293,455 |
| (2) |
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| 4.50 | % |
2024 and thereafter |
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| 222,156 |
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| 4.04 | % |
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| — |
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| — |
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(1) Based on the weighted average interest rates in effect as of September 30, 2021 and does not include the effect of our interest rate swap derivative instruments as described below.
(2) Includes term loan debt of $953.8 million under our First Lien Term Loan Facility and Second Lien Term Loan Facility with a weighted average interest rate of 7.60% as of September 30, 2021.
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As of September 30, 2020,2021, we had $1,194$1,251.1 million of variable rate debt. To manage interest rate risk and limit overall interest cost, we may employ interest rate swaps, options, forwards, caps and floors, or a combination thereof, depending on the underlying exposure. Interest rate differentials that arise under swap contracts are recognized in interest expense over the life of the contracts. If interest rates rise, the resulting cost of funds is expected to be lower than that which would have been available if debt with matching characteristics was issued directly. Conversely, if interest rates fall, the resulting costs would be expected to be, and in some cases have been, higher. We may also employ forwards or purchased options to hedge qualifying anticipated transactions. Gains and losses are deferred and recognized in net incomeloss in the same period that the underlying transaction occurs, expires or is otherwise terminated. See Note 6 of the notes to our unaudited consolidated financial statements for further information.
As of September 30, 2020,2021, we had interest rate swap agreements outstanding with an aggregatea weighted average base interest rate of 2.13%2.36% on a notional amount of $794.4$614.8 million, maturing on various dates through May 2023. See Item 2. Management’s Discussion and Analysis—Liquidity and Capital Resources—Interest Rate Derivative Agreements for a discussion of changes to the designation of certain of our interest rate swap agreements in 2021.
Changes in market interest rates have different effects on the fixed and variable rate portions of our debt portfolio. A change in market interest rates applicable to the fixed portion of theour debt portfolio affects the fair value, but it has no effect on interest incurred or cash flows. A change in market interest rates applicable to the variable portion of theour debt portfolio affects the interest incurred and cash flows, but does not affect the fair value. The following sensitivity analysis related to our debt portfolio, which includes the effects of our interest rate swap agreements, assumes an immediate 100 basis point change in interest rates from their actual September 30, 20202021 levels, with all other variables held constant.
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A 100 basis point increase in market interest rates would have resulted in a decrease in our net financial instrument position of $48.3$25.3 million at September 30, 2020.2021. A 100 basis point decrease in market interest rates would have resulted in an increase in our net financial instrument position of $20.3$12.6 million at September 30, 2020.2021. Based on the variable rate debt included in our debt portfolio at September 30, 2020,2021, a 100 basis point increase in interest rates would have resulted in an additional $4.0$6.4 million in interest expense annually. A 100 basis point decrease would have reduced interest incurred by $4.0$6.4 million annually.
Because the information presented above includes only those exposures that existed as of September 30, 2020,2021, it does not consider changes, exposures or positions which have arisen or could arise after that date. The information presented herein has limited predictive value. As a result, the ultimate realized gain or loss or expense with respect to interest rate fluctuations will depend on the exposures that arise during the period, our hedging strategies at the time and interest rates.
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ITEM 4. CONTROLS AND PROCEDURES.
We are committed to providing accurate and timely disclosure in satisfaction of our SEC reporting obligations. In 2002, we established a Disclosure Committee to formalize our disclosure controls and procedures. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that:
Our Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this quarterly report on Form 10-Q. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that as of September 30, 2020,2021, our disclosure controls and have concluded as follows:procedures were not effective due to a material weakness in our internal control over financial reporting.
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We have continued to address the effects of COVID-19 on our control structure, including modifications to business modeling, forecasting and estimations, as well as for the consequences of reductions in headcount and remote working arrangements. We believe that these modifications to our control environment enhanced our internal control over financial reporting givenwas due to the current environment, and provided us an appropriate control environment for the preparation and filing of this Form 10-Q. We are continually monitoring and assessing the COVID-19 pandemic’s effect onfollowing material weakness in our internal control processesover financial reporting which we identified and previously reported in Item 9A of our Annual Report on Form 10-K for the year ended December 31, 2020: (i) attracting and retaining sufficient personnel with requisite financial expertise, (ii) the assessment of the risk of fraud, including risks of management override of controls and proper segregation of duties, and (iii) assessing changes in the external environment and the potential impact of those changes on the design, operating effectiveness and monitoring of internal controls over financial reporting.
Management’s Remediation Plan
The Company and its Board of Trustees are committed to maintaining a strong internal control environment. In order to minimizeremediate the material weakness described above, we intend to continue to implement additional policies and procedures and take necessary actions, which include:
Management is continuing the process of implementing and monitoring the effectiveness of these and other processes, procedures and controls and will make any further changes deemed appropriate. Management believes our planned remedial efforts will effectively remediate the identified material weakness, but remediation will only be deemed complete after the applicable remedial controls operate for a sufficient period of time and management is able to their designconclude, through testing, that the controls are operating effectively. As we continue to evaluate and operating effectiveness. Therework to improve our internal control over financial reporting, management may determine it is necessary to take additional measures to address control deficiencies or determine it necessary to modify the remediation plan described above.
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Changes in Internal Control over Financial Reporting
Other than the material weakness identified in the fourth quarter of 2020, and designing changes intended to remediate the material weakness, there were no other changes in our internal control over financial reporting that occurred during the period covered by this reportquarter ended September 30, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II—OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
In the normal course of business, we have become and might in the future become involved in legal actions relating to our business, including but not limited to commercial disputes, rent collection actions and other matters related to the ownership and operation of our properties and the properties that we manage for third parties. In management’s opinion, the resolution of any such pending legal actions is not expected to have a material adverse effect on our consolidated financial position or results of operations.
SeeOn November 1, 2020, we and certain of our wholly owned subsidiaries commenced voluntary cases under chapter 11 of title 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware under the caption In re Pennsylvania Real Estate Investment Trust, et al. and filed our prepackaged chapter 11 plan of reorganization with the Bankruptcy Court. On November 30, 2020, the Bankruptcy Court entered an order confirming the Plan. The Plan became effective and we subsequently emerged from bankruptcy on December 10, 2020. The final decree closing the bankruptcy case was entered by the Bankruptcy Court on March 11, 2021. Refer to Note 41 to our unaudited consolidated financial statements —Financial Restructuring for information related to the Chapter 11 Cases that were filed on November 1, 2020.a detailed description of these matters.
ITEM 1A. RISK FACTORS.
In addition to the other information set forth in this report, you should carefully consider the risks that could materially affect our business, financial condition or results of operations. The following is an update to the Company’s risk factors and should be read in conjunction with the risk factors previously disclosedoperations, which are discussed under the caption “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2019.
We are subject to the risks and uncertainties associated with Chapter 11 proceedings, which could have a material adverse effect on our business, financial condition, results of operations and liquidity.
On November 1, 2020, the Company and certain of the Company’s wholly owned direct and indirect subsidiaries (together, the “Debtors”) filed a voluntary Chapter 11 Cases petition in the United States Bankruptcy Court for the District of Delaware to implement a prepackaged financial restricting plan (the “Prepackaged Plan”). The Company Parties have filed a motion with the Bankruptcy Court seeking joint administration of the Chapter 11 Cases under the caption In re Pennsylvania Real Estate Investment Trust, et al. (Case No. 20-12737). As previously reported, on October 7, 2020, we entered into a Restructuring Support Agreement (the “RSA”) with certain of the lenders under our Credit Agreements that contemplates agreed-upon terms for a financial restructuring of the existing debt and certain other obligations of the Company Parties thereunder through a prepackaged plan of reorganization on the terms set forth in the term sheet attached to the RSA pursuant to the Chapter 11 Cases. Under the RSA, subject to certain terms and conditions, the consenting lenders have agreed, among other things, to (i) take all commercially reasonable actions necessary to facilitate the consummation of the Prepackaged Plan and refrain from taking any actions inconsistent therewith, and not fail or omit to take an action that is required by the RSA, applicable law, or the In-Court Definitive Documents (defined in the RSA); (ii) not object to, delay, impede, or take any other action that may reasonably be expected to interfere with the consummation of the Prepackaged Plan; (iii) negotiate in good faith the In-Court Definitive Documents and execute, deliver and perform thereunder to implement the Prepackaged Plan; (iv) timely vote and consent to accept the Prepackaged Plan; (v) support and take all reasonable actions necessary or appropriate to consummate the exit financing arrangements; (vi) timely vote against and not solicit any alternative restructuring; and (vii) except as permitted in the RSA, not transfer any ownership (including any beneficial ownership as defined in Rule 13d-3 under the Securities Exchange Act of 1934, as amended) held by such consenting lender.
The Company Parties will continue to operate their businesses as “debtors-in-possession” under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court. The Prepackaged Plan and requested first-day relief, which was subsequently granted, anticipate the continued payment of employee wages and benefits without interruption and that trade claimants and other unsecured creditors that continue to work with the Company Parties on existing terms will be paid in full and in the ordinary course of business.
The Chapter 11 Cases could have a material adverse effect on our business, financial condition, results of operations and liquidity. So long as the Chapter 11 Cases are ongoing, our management team will be required to spend a significant amount of time and effort dealing with the reorganization, which will pull resources away from our business operations. For the duration of the Chapter 11 Cases, our operations and ability to execute our business plans, as well as our continuation as a going concern, are subject to risks and uncertainties associated with bankruptcy. These risks include the following:
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Bankruptcy proceedings also might make it more difficult to retain management and other key personnel necessary to the success and growth of our business. In addition, the longer a proceeding related to a bankruptcy continues, the more likely it is that our tenants would lose confidence in our ability to reorganize our businesses successfully and may seek to establish alternative commercial relationships. It is not possible to predict the outcome of any bankruptcy proceeding, and in connection with the Chapter 11 Cases, we cannot accurately predict or quantify the ultimate impact that events that occur during our Chapter 11 Cases will have on our business, financial condition, results of operations or cash flows.
The bankruptcy process involves the actions and decisions of creditors, regulators and other third parties that may have an interest in the Chapter 11 Cases, and no assurances can be made regarding the actions of those third parties or our ability to obtain court approvals with respect to motions filed in the Chapter 11 Cases or obtain favorable court rulings in the Chapter 11 Cases. Even if the Prepackaged Plan is consummated, we will continue to face a number of risks, including our ability to reduce expenses, implement strategic initiatives and generally maintain favorable relationships and secure the confidence of our counterparties. Accordingly, we cannot guarantee that the proposed restructuring will achieve our stated goals nor can we give any assurance of our ability to continue as a going concern.
The RSA is subject to significant conditions and milestones that may be beyond our control, depend on the actions of third parties and may be difficult for us to satisfy. If the RSA is terminated, our ability to confirm and consummate the Prepackaged Plan could be materially and adversely affected.
The RSA sets forth certain conditions we must satisfy, including the timely satisfaction of milestones in the Chapter 11 Cases, such as confirmation of the Prepackaged Plan and effectiveness thereof and obtaining approval of debtor-in-possession financing. Our ability to timely complete such milestones is subject to risks and uncertainties that may be beyond our control. The RSA may be terminated upon the occurrence of certain events, including the failure to meet such milestones. Should a termination event occur, all obligations of the parties to the RSA will terminate. A termination of the RSA may result in the loss of support for the Prepackaged Plan, which could adversely affect our ability to confirm and consummate the Prepackaged Plan. If the Prepackaged Plan is not consummated, there can be no assurance that any new restructuring plan would be as favorable to holders of claims as the current Prepackaged Plan and our Chapter 11 Cases could become protracted, which could significantly and detrimentally impact our relationships with tenants and other stakeholders.
Our long-term liquidity requirements and the adequacy of our capital resources are difficult to predict at this time.
We face uncertainty regarding the adequacy of our liquidity and capital resources. In addition to the cash requirements necessary to fund ongoing operations, we have incurred significant professional fees and other costs in connection with preparation for the Chapter 11 Cases and expect that we will continue to incur significant professional fees and costs throughout the duration of the Chapter 11 Cases. We cannot assure you that cash flow from operations and the availability of financing will be sufficient to continue to fund our operations and allow us to satisfy our obligations related to the Chapter 11 Cases until we are able to emerge from the Chapter 11 Cases.
Our liquidity, including our ability to meet our ongoing operational obligations, is dependent upon, among other things: (i) our ability to comply with the terms and conditions of any cash collateral order that may be entered by the Bankruptcy Court in connection with the Chapter 11 Cases, (ii) our ability to maintain adequate cash on hand, (iii) our ability to generate cash flow from operations, (iv) our ability to develop, confirm and consummate the Prepackaged Plan or an alternative restructuring transaction, (v) the cost, duration and outcome of the Chapter 11 Cases; (vi) our execution of the sale of certain real estate assets, which sales would provide cash, and (vii) controlling costs. While certain of these factors are within management’s control to some extent, all of them involve performance by third parties and therefore cannot be considered probable of occurring.
As a result of the Chapter 11 Cases, our financial results may be volatile and may not reflect historical trends.
During the Chapter 11 Cases, we expect our financial results to continue to be volatile as restructuring activities and expenses and claims assessments significantly impact our condensed consolidated financial statements. As a result, our historical financial performance is likely not indicative of our financial performance after the date of the bankruptcy filing. In addition, if we emerge from Chapter 11, the amounts reported in subsequent condensed consolidated financial statements may materially change relative to historical consolidated financial statements, including as a result of revisions to our operating plans pursuant to the Prepackaged Plan. We also may be required to adopt fresh start accounting, in which case our assets and liabilities will be recorded at fair value as of the fresh start reporting date, which may differ materially from the recorded
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values of assets and liabilities on our consolidated balance sheets. Our financial results after the application of fresh start accounting also may be different from historical trends.
Our common shares could be delisted from the NYSE if we fail to meet applicable continued listing requirements, which could have materially adverse effects on our business.
On September 25, 2020, we received notice from the New York Stock Exchange (the “NYSE”) that we are no longer in compliance with the NYSE continued listing standard set forth in Section 802.01C of the NYSE’s Listed Company Manual, which requires listed companies to maintain an average closing price of at least $1.00 per share over a consecutive 30-day trading period.
Under NYSE rules, we have ten business days following receipt of the notice to respond to the NYSE and indicate its intent to cure this deficiency or be subject to suspension and delisting. We notified the NYSE, within the required ten business day period, that we intend to cure the deficiency. Under NYSE rules, we have six months from the date of the notice to regain compliance with the minimum share price requirement.
We intend to consider all available options to cure the deficiency and regain compliance. The notice does not affect our ongoing business operations or our reporting requirements with the SEC. Although at the time of this filing we do not expect the NYSE to do so, in accordance with Rule 802.01D of the NYSE’s Listed Company Manual, the NYSE may suspend and delist our common shares and/or preferred shares in connection with the filing of the Chapter 11 Cases discussed above.
The threat of delisting and/or a delisting of our common shares could have adverse effects by, among other things:
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The COVID-19 global pandemic and the public health and governmental actions in response have adversely affected, and will likely continue to adversely affect, our business, financial condition, liquidity and operating results. The extent and duration of such effects are uncertain, rapidly changing and difficult to predict. Additionally, the future outbreak of any other highly infectious or contagious diseases may materially and adversely affect our business, financial condition, liquidity and operating results.
The 2020 global outbreak of a novel coronavirus (COVID-19), which was declared a pandemic by the World Health Organization on March 11, 2020, has resulted in travel restrictions, business closures, property shutdowns, government-imposed stay-at-home orders and the implementation of “social distancing” and certain other measures to prevent the further spread of the virus, all of which have adversely impacted, and will likely continue to impact, our operations, business, financial condition, liquidity and operating results, as well as our tenants’ businesses. The continued spread of COVID-19 has also led to unprecedented global economic disruption and volatility in financial markets, a rise in unemployment levels in the U.S., decreases in consumer confidence levels and spending, and an overall worsening of U.S. economic conditions. We anticipate that our future business, financial condition, liquidity and results of operations, including our results for 2020 and potentially future periods, will be materially impacted by the COVID-19 pandemic. It remains highly uncertain how long the global pandemic, economic challenges and restrictions on day-to-day life will last based on the current virus spread rate in the United States, which has resulted in a number of jurisdictions that previously relaxed restrictions implementing new or renewed restrictions. Given the unprecedented and continually evolving developments, we cannot reasonably predict or estimate its ultimate impact on us or our tenants, or on our ability or the ability of our tenants to resume more normal operations. Additionally, other future global health crises could result in significant effects on regional and global economies and on our business, financial condition, liquidity and results of operations.
While we have taken several responsive steps (including staff reductions, reduction of capital expenditures and operating expenses, execution of modifications to our debt facilities and instruments, including mortgage loans secured by certain of our properties, and suspension of share dividends given the restrictions in our credit facilities, we anticipate that further actions will be necessary to address the impacts of the pandemic. The spread of COVID-19 and measures taken to reduce its spread subjects us to a variety of risks and could result in the following impacts, some of which have already occurred and could continue and increase the longer the crisis continues:
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Ultimately, the significance of COVID-19 or another pandemic in the future on our business remains highly uncertain and will depend on, among other things, the extent and duration of the pandemic, the severity of the disease and the number of people infected with the virus, the effects on the economy of the pandemic and of the measures taken by governmental authorities and other third parties restricting day-to-day life and business operations and the length of time that such measures remain in place or are renewed, and implementation of governmental programs to assist businesses and consumers impacted by the COVID-19 pandemic. While we have experienced and expect to continue to experience an adverse impact on our business, financial condition, liquidity and results of operations, we cannot estimate the extent to which COVID-19 will impact our future business, financial condition, liquidity or results of operations.
If we are unable to comply with the covenants in our credit agreements, we will be adversely affected.
Our future credit facilities, including any exit financing related to the Prepackaged Plan, will likely contain customary affirmative and negative covenants and require us to meet numerous financial tests, including tests relating to our leverage, unencumbered debt yield, interest coverage, fixed charge coverage, tangible net worth, corporate debt yield and facility debt yield. These covenants are expected to place limitations on our ability to make distributions to shareholders other than to preserve REIT status and could limit our ability to respond to changes and competition, reduce our flexibility in conducting our operations by limiting our ability to borrow money, sell or place liens on assets, manage our cash flows, repurchase securities, or make capital expenditures, and restrict our ability to pursue acquisitions, redevelopment and development projects. We expect the current conditions in the economy and the retail industry, particularly in light of the COVID-19 pandemic, the resulting unprecedented global economic disruption (including disruptions to our and our tenants’ businesses and operations) and ongoing social unrest, to continue to affect our operating results, even after emerging from bankruptcy.
Our inability to comply with the terms of our credit agreements, including any financial covenants contained therein, could result in a breach and a possible event of default, which could allow the lenders to discontinue lending or issuing letters of credit, terminate any commitments they have made to provide us with additional funds, and/or declare amounts outstanding to be immediately due and payable. If a default were to occur, we might have to refinance the debt through secured or unsecured debt financing or private or public offerings of debt or equity securities. If we are unable to do so, we might have to liquidate assets, potentially on unfavorable terms. No assurance can be provided that we would be able to liquidate assets in a timely fashion or in satisfaction of our obligations. Any of such consequences could negatively affect our financial position, results of operations, cash flow and ability to make capital expenditures and distributions to shareholders in the future. Further, a breach and a possible event of default under any exit financing could also prevent us from successfully implementing the Prepackaged Plan or emerging successfully from bankruptcy.
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We have determined that there is substantial doubt about our ability to continue as a going concern.
In evaluating whether there are conditions or events, considered in the aggregate, that raise substantial doubt about our ability to continue as a going concern within one year after the date that the financial statements are issued, our management considered our current financial condition and liquidity sources, including current funds available, forecasted future cash flows and our conditional and unconditional obligations due over the next twelve months. Management considered the following: (i) the various instruments of indebtedness, including mortgage loans; (ii) our expected ability to control operational costs, including the costs associated with the Chapter 11 Cases and implementing the Prepackaged Plan; (iii) recurring costs of operating our business; and (iv) our ability to generate cash flows, including through the sale of certain real estate assets. As a result of the considerations articulated below, absent approval of the Prepackaged Plan, management concluded there is substantial doubt about our ability to continue as a going concern.
Although we plan to control costs, sell certain real estate assets and work with our lenders to implement the Prepackaged Plan in accordance with the RSA, among other steps, there are inherent risks, unknown results and significant uncertainties associated with each of these matters and the direct correlation between these matters and our ability to satisfy financial obligations that may arise over the applicable twelve month period. Our ability to fund recurring costs of operations, particularly in light of the costs associated with our current bankruptcy proceedings and the current COVID-19 pandemic and resulting adverse impacts on our business, depends on, among other things: (i) our ability to comply with the terms and conditions of any cash collateral order that may be entered by the Bankruptcy Court in connection with the Chapter 11 Cases, (ii) our ability to maintain adequate cash on hand, (iii) our ability to generate cash flow from operations, (iv) our ability to develop, confirm and consummate the Prepackaged Plan or an alternative restructuring transaction, (v) the cost, duration and outcome of the Chapter 11 Cases; (vi) our execution of the sale of certain real estate assets in the ordinary course of business, which sales would provide cash, and (vii) controlling costs. While certain of these factors are within management’s control to some extent, all of them involve performance by third parties and therefore cannot be considered probable of occurring.
The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. The financial statements do not include any adjustments that might be necessary should we be unable to continue as a going concern. Management is taking steps to mitigate the associated risks, but we can provide no assurance that cash generated from our operations together with cash received in the future from our various sources of funding will be sufficient to enable us to continue as a going concern.
Social unrest and acts of vandalism or violence could adversely affect our business operations.
Our business may be adversely affected by social, political, and economic instability, unrest, or disruption, including protests, demonstrations, strikes, riots, civil disturbance, disobedience, insurrection and looting in geographic regions where our properties are located. Such events may result in property damage and destruction and in restrictions, curfews, or other governmental actions that could give rise to significant changes in economic conditions and cycles, which may adversely affect our financial condition and operations.
There have been demonstrations and protests, some of which involved violence, looting, arson and property destruction, in cities throughout the U.S. While the majority of protests have been peaceful, looting, vandalism and fires have taken place in certain places, which led to the imposition of mandatory curfews and, in some locations, deployment of the U.S. National Guard. Governmental actions taken to protect people and property, including curfews and restrictions on business operations, may disrupt operations, harm perceptions of personal well-being and increase the need for additional expenditures on security resources. The effect and duration of the demonstrations, protests or other factors is uncertain, and we cannot assure there will not be further political or in the future or that there will not be other events that could lead to further social, political and economic instability. If such events or disruptions persist for a prolonged period of time, our overall business and results of operations may be adversely affected.
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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
Issuer Purchases of Equity Securities
The following table shows the total number ofWe did not acquire any shares that we acquired in the three months ended September 30, 2020 and the average price paid per share (in thousands of shares).2021.
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Limitation onLimitations upon the Payment of Dividends
OurThe Credit Agreements provide generally that we may only make dividend payments in the minimum amount necessary to maintain our status as amended, restricta REIT. We must maintain our ability to declare and pay dividends on our common shares and preferred shares for the duration of the Suspension Period until October 31, 2020. See Note 4 to our unaudited consolidated financial statements forstatus as a description of our Credit Agreements and the referenced restrictions.
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Table of ContentsREIT at all times.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Defaults on Indebtedness
As discussed in Note 4 to our unaudited consolidated financial statements, we received Reservation Letters from the administrative agent under our Credit Agreements alleging certain events of default thereunder. We have responded to the administrative agent that we dispute the lenders’ characterization of the situation described in the Reservation Letters and that these events do not constitute an event of default under any of the Credit Agreements.
As discussed in Note 4 to our unaudited consolidated financial statements, the filing of the Chapter 11 Cases constitutes an event of default that accelerated our obligations under each of our Credit Agreements and may also constitute a cross-default under certain property-level debt facilities.
Preferred Dividend Arrearage
Dividends on the Series B, Series C and Series D preferred shares are cumulative and therefore will continue to accrue at an annual rate of $0.4609$1.8436 per share, $0.45$1.80 per share and $0.4297$1.7188 per share, respectively. As of September 30, 2020,the date of this report, the cumulative amount of unpaid dividends on theour issued and outstanding preferred shares totaled $6.9$34.2 million. This consisted of unpaid dividends per share on the Series B, Series C and Series D preferred shares of $2.30 per share, $2.25 per share and $2.15 per share, respectively.
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ITEM 6. EXHIBITS.
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32.2** | |
101.INS* | Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
101.SCH* | Inline XBRL Taxonomy Extension Schema Document. |
101.CAL* | Inline XBRL Taxonomy Extension Calculation Linkbase Document. |
101.DEF* | Inline XBRL Taxonomy Extension Definition Linkbase Document. |
101.LAB* | Inline XBRL Taxonomy Extension Label Linkbase Document. |
101.PRE* | Inline XBRL Taxonomy Extension Presentation Linkbase Document. |
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104* | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101.INS). |
* Filed herewith ** Furnished herewith + Management contract or compensatory plan or arrangement. 60 |
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SIGNATURE OF REGISTRANT
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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| PENNSYLVANIA REAL ESTATE INVESTMENT TRUST | ||
Date: | November |
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| By: | /s/ Joseph F. Coradino | |
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| Joseph F. Coradino | |
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| Chairman and Chief Executive Officer | |
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| By: | /s/ Mario C. Ventresca, Jr. | |
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| Mario C. Ventresca, Jr. | |
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| Executive Vice President and Chief Financial Officer | |
By: | /s/ Sathana Semonsky | |||
Sathana Semonsky | ||||
Vice President and Chief Accounting Officer |
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