UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form
For the quarterly period ended
or
For the transition period from to
Commission File Number:
(Exact name of Registrant as specified in its charter)
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(State or other jurisdiction of incorporation or organization) |
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(I.R.S. Employer Identification No.) |
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(Address of principal executive offices) |
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(Zip Code) |
Registrant’s telephone number, including area code (
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
Trading Symbol(s) |
Name of Exchange on which registered |
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.
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).
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 |
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Non-accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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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 ☐
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 4, 2022,
PENNSYLVANIA REAL ESTATE INVESTMENT TRUST
CONTENTS
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Page |
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PART I—FINANCIAL INFORMATION |
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Item 1. |
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1 |
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Consolidated Balance Sheets—September 30, 2022 and December 31, 2021 |
1 |
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Consolidated Statements of Operations—Three and Nine Months Ended September 30, 2022 and 2021 |
2 |
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3 |
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Consolidated Statements of Equity—Three and Nine Months Ended September 30, 2022 and 2021 |
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Consolidated Statements of Cash Flows—Nine Months Ended September 30, 2022 and 2021 |
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6 |
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Item 2. |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
22 |
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Item 3. |
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48 |
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Item 4. |
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50 |
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PART II—OTHER INFORMATION |
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Item 1. |
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51 |
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Item 1A. |
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51 |
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Item 2. |
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52 |
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Item 3. |
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52 |
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Item 4. |
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Not Applicable |
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Item 5. |
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Not Applicable |
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Item 6. |
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53 |
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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.
Item 1. FINANCIAL STATEMENTS
PENNSYLVANIA REAL ESTATE INVESTMENT TRUST
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands, except per share amounts) |
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September 30, 2022 |
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December 31, 2021 |
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ASSETS: |
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INVESTMENTS IN REAL ESTATE, at cost: |
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Operating properties |
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$ |
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$ |
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Construction in progress |
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Land held for development |
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Total investments in real estate |
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Accumulated depreciation |
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Net investments in real estate |
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INVESTMENTS IN PARTNERSHIPS, at equity: |
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OTHER ASSETS: |
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Cash and cash equivalents |
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Tenant and other receivables |
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Intangible assets (net of accumulated amortization of $ |
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Deferred costs and other assets, net |
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Assets held for sale |
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Total assets |
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$ |
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$ |
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LIABILITIES: |
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Mortgage loans payable, net |
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$ |
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$ |
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Term Loans, net |
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Revolving Facilities |
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Tenants’ deposits and deferred rent |
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Distributions in excess of partnership investments |
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Fair value of derivative instruments |
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— |
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Accrued expenses and other liabilities |
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Liabilities on assets held for sale |
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Total liabilities |
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AND CONTINGENCIES (Note 8) |
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EQUITY: |
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Series B Preferred Shares, $ |
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Series C Preferred Shares, $ |
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Series D Preferred Shares, $ |
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Shares of beneficial interest, $ |
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Capital contributed in excess of par |
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Accumulated other comprehensive loss |
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Distributions in excess of net income |
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Total equity (deficit) – Pennsylvania Real Estate Investment Trust |
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Noncontrolling interest |
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Total equity (deficit) |
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Total liabilities and equity |
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$ |
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$ |
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See accompanying notes to the unaudited consolidated financial statements.
1
PENNSYLVANIA REAL ESTATE INVESTMENT TRUST
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
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For the Three Months Ended |
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For the Nine Months Ended |
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(in thousands, except per share amounts) |
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2022 |
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2021 |
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2022 |
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2021 |
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REVENUE: |
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Real estate revenue: |
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Lease revenue |
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$ |
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$ |
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$ |
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$ |
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Expense reimbursements |
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Other real estate revenue |
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Total real estate revenue |
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Other income |
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Total revenue |
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EXPENSES: |
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Operating expenses: |
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Property operating expenses: |
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CAM and real estate taxes |
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( |
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( |
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Utilities |
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( |
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( |
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( |
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Other property operating expenses |
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Total property operating expenses |
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Depreciation and amortization |
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General and administrative expenses |
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Other expenses |
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( |
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Total operating expenses |
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( |
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( |
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( |
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Interest expense, net |
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( |
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( |
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( |
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( |
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Gain on debt extinguishment, net |
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— |
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— |
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— |
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Impairment of assets |
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( |
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( |
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( |
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Reorganization expenses |
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— |
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— |
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— |
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( |
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Total expenses |
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( |
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( |
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( |
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Equity in loss of partnerships |
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( |
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( |
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( |
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Gain (loss) on sales of interests in real estate |
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Gain (loss) on sale of equity method investment |
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— |
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— |
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Gain (loss) on sales of real estate by equity method investee |
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— |
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( |
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— |
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Gain on sales of non operating real estate |
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— |
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— |
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Gain on sale of preferred equity interest |
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— |
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— |
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— |
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Net loss |
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( |
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( |
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( |
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Less: net loss attributable to noncontrolling interest |
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Net loss attributable to PREIT |
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( |
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( |
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Less: preferred share dividends |
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( |
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( |
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( |
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Net loss attributable to PREIT common shareholders |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
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Basic and diluted loss per share: |
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$ |
( |
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$ |
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$ |
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$ |
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Weighted average shares outstanding—basic |
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Effect of common share equivalents(1) |
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Weighted average shares outstanding—diluted |
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(1)
See accompanying notes to the unaudited consolidated financial statements.
2
PENNSYLVANIA REAL ESTATE INVESTMENT TRUST
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(Unaudited)
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For the Three Months Ended |
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For the Nine Months Ended |
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(in thousands of dollars) |
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2022 |
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2021 |
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2022 |
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2021 |
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Comprehensive loss: |
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Net loss |
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$ |
( |
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$ |
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$ |
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$ |
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Unrealized gain on derivatives |
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Amortization of settled swaps |
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Total comprehensive loss |
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( |
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( |
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( |
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Less: comprehensive loss attributable to noncontrolling interest |
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Comprehensive loss attributable to PREIT |
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$ |
( |
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$ |
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$ |
( |
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$ |
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See accompanying notes to the unaudited consolidated financial statements.
3
PENNSYLVANIA REAL ESTATE INVESTMENT TRUST
CONSOLIDATED STATEMENTS OF EQUITY
Three and Nine Months Ended
September 30, 2022 and 2021
(Unaudited)
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PREIT Shareholders |
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ferred Shares $ |
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Shares of |
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Capital |
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Accumulated |
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Distributions |
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Non- |
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(in thousands of dollars, except per share amounts) |
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Total |
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Series |
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Series |
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Series |
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Interest, |
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in Excess of |
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Comprehensive |
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in Excess of |
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controlling |
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Balance January 1, 2022 |
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$ |
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$ |
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$ |
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$ |
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$ |
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$ |
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$ |
( |
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$ |
( |
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$ |
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Net loss |
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( |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
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( |
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Other comprehensive income |
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— |
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— |
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— |
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— |
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— |
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— |
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Shares issued under employee compensation plan, net of shares retired |
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— |
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— |
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— |
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— |
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— |
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— |
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Amortization of deferred compensation |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Balance March 31, 2022 |
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( |
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( |
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( |
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( |
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Net loss |
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( |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
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( |
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Other comprehensive income |
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— |
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— |
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— |
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— |
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— |
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— |
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Shares issued under employee compensation |
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( |
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— |
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— |
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— |
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( |
) |
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( |
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— |
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— |
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— |
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Amortization of deferred compensation |
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— |
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— |
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— |
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— |
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— |
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— |
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Balance June 30, 2022 |
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$ |
( |
) |
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$ |
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$ |
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$ |
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$ |
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$ |
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$ |
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$ |
( |
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$ |
( |
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Net Loss |
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( |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
) |
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( |
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Other comprehensive income |
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— |
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— |
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— |
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— |
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— |
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— |
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Proceeds from disgorgement of shareholder's short-swing profits |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Amortization of deferred compensation |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Balance September 30, 2022 |
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$ |
( |
) |
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$ |
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$ |
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$ |
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$ |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
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PREIT Shareholders |
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ferred Shares $ |
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Shares of |
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Capital |
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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 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
||||||
Net loss |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Other comprehensive loss |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|||
Shares issued under employee compensation |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Amortization of deferred compensation |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
||
Balance March 31, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
||||||
Net loss |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Other comprehensive income (loss) |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|||
Amortization of deferred compensation |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
||
Other changes in noncontrolling interest, net |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Balance June 30, 2021 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
||||||
Net loss |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Other comprehensive income |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|||
Shares issued under employee compensation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
||
Amortization of deferred compensation |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
||
Balance September 30, 2021 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
||||||
See accompanying notes to the unaudited consolidated financial statements.
4
PENNSYLVANIA REAL ESTATE INVESTMENT TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
Nine Months Ended September 30, |
|
|||||
(in thousands of dollars) |
|
2022 |
|
|
2021 |
|
||
Cash flows from operating activities: |
|
|
|
|
|
|
||
Net loss |
|
$ |
( |
) |
|
$ |
( |
) |
Adjustments to reconcile net loss to net cash provided by operating activities: |
|
|
|
|
|
|
||
Depreciation |
|
|
|
|
|
|
||
Amortization |
|
|
|
|
|
|
||
Straight-line rent adjustments |
|
|
|
|
|
|
||
Deferred compensation |
|
|
|
|
|
|
||
Gain on sale of preferred equity interest |
|
|
( |
) |
|
|
— |
|
Gain on debt extinguishment, net |
|
|
— |
|
|
|
( |
) |
Paid-in-kind interest |
|
|
|
|
|
|
||
Gain on hedge ineffectiveness |
|
|
— |
|
|
|
( |
) |
(Gain) loss on sales of interests in real estate, net |
|
|
( |
) |
|
|
|
|
Gain on sale of equity method investment |
|
|
( |
) |
|
|
— |
|
Gain on sales of real estate by equity method investee |
|
|
— |
|
|
|
( |
) |
Gain on sales of interests in non operating real estate |
|
|
( |
) |
|
|
— |
|
Equity in loss of partnerships |
|
|
|
|
|
|
||
Cash distributions from partnerships |
|
|
|
|
|
|
||
Impairment of real estate assets |
|
|
|
|
|
|
||
Change in assets and liabilities: |
|
|
|
|
|
|
||
Net change in other assets |
|
|
|
|
|
|
||
Net change in other liabilities |
|
|
( |
) |
|
|
|
|
Net cash provided by operating activities |
|
|
|
|
|
|
||
Cash flows from investing activities: |
|
|
|
|
|
|
||
Cash proceeds from sales of real estate |
|
|
|
|
|
|
||
Investments in real estate improvements |
|
|
( |
) |
|
|
( |
) |
Additions to construction in progress |
|
|
( |
) |
|
|
( |
) |
Investments in partnerships |
|
|
( |
) |
|
|
( |
) |
Capitalized leasing costs |
|
|
( |
) |
|
|
( |
) |
Proceeds from sale of preferred equity interest |
|
|
|
|
|
— |
|
|
Additions to leasehold improvements and corporate fixed assets |
|
|
( |
) |
|
|
( |
) |
Net cash provided by (used in) investing activities |
|
|
|
|
|
( |
) |
|
Cash flows from financing activities: |
|
|
|
|
|
|
||
Net repayments to the First Lien Revolving Facility |
|
|
( |
) |
|
|
— |
|
Net repayments to term loans |
|
|
( |
) |
|
|
( |
) |
Repayments of finance lease liabilities |
|
|
— |
|
|
|
( |
) |
Principal installments on mortgage loans |
|
|
( |
) |
|
|
( |
) |
Payment of deferred financing costs |
|
|
( |
) |
|
|
( |
) |
Repayments of mortgage loans |
|
|
— |
|
|
|
( |
) |
Proceeds from mortgage loans |
|
|
— |
|
|
|
|
|
Value of shares retired under equity incentive plans, net of shares issued |
|
|
( |
) |
|
|
( |
) |
Net cash used in financing activities |
|
|
( |
) |
|
|
( |
) |
Net change in cash, cash equivalents, and restricted cash |
|
|
( |
) |
|
|
( |
) |
Cash, cash equivalents, and restricted cash, beginning of period |
|
|
|
|
|
|
||
Cash, cash equivalents, and restricted cash, end of period |
|
$ |
|
|
$ |
|
||
See accompanying notes to the unaudited consolidated financial statements.
5
PENNSYLVANIA REAL ESTATE INVESTMENT TRUST
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2022
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, 2021. In our opinion, all adjustments, consisting only of normal recurring adjustments, necessary to present fairly our consolidated financial statements 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, 2022, our portfolio consists of a total of
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, 2022, we held a
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
We provide management, leasing and real estate development services through
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
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, destination dining and entertainment. In particular, current conditions in the economy have caused fluctuations in unemployment rates, and together with supply chain challenges, the current inflationary environment, have impacted consumer confidence and spending. The economic factors have had corresponding effects on tenant business performance, prospects, solvency and leasing decisions. 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, the expansion of outlet centers, and declining mall traffic, among other factors. In recent years, there has been an increased level of tenant bankruptcies and store closings by tenants who have been significantly
6
impacted by these factors. We anticipate that our future business, financial condition, liquidity and results of operations, including in the remainder of 2022 and potentially in future periods, will continue to be materially impacted by these conditions. All of these factors have been exacerbated by the ongoing impact of the COVID-19 pandemic, the ongoing impact of which remains highly uncertain, and more recently by inflationary pressures and substantial increases in interest rates.
Going Concern Considerations
Under the accounting guidance related to the presentation 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, considered in the aggregate, that raise 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. The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization 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.
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 Fashion District Philadelphia’s Amended and Restated Term Loan Agreement (“FDP Loan Agreement”), which matures in January 2023 and includes a quarterly covenant provision as an event or condition that raises substantial doubt about our ability to continue as a going concern.
The FDP Loan Agreement has a balance of $
However, our ability to satisfy obligations under the FDP Loan Agreement depends primarily on management’s ability to obtain relief from the joint venture’s lender in regard to the Company’s guarantee of
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).
7
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.” During the three and nine months ended September 30, 2022, certain of our properties had triggering events due to various indicators of impairment, which led to impairment reviews and assessment of the undiscounted future cash flows. These properties passed our undiscounted future cash flow assessment except for Cumberland Mall and Plymouth Meeting Mall, which are shopping malls located in Vineland, New Jersey, and Plymouth Meeting, Pennsylvania, respectively. As a result of reduced holding period assumptions for each property, we recorded impairment losses on Cumberland Mall, which is classified as held for sale as of September 30, 2022, and on Plymouth Meeting Mall. 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.
Assets Classified as Held for Sale
The determination to classify an asset as held for sale requires significant estimates by us about the property and the expected market for the property, which are based on factors including recent sales of comparable properties, recent expressions of interest in the property, financial metrics of the property and the physical condition of the property. We must also determine if it will be possible under those market conditions to sell the property for an acceptable price within one year. When assets are identified by our management as held for sale, we discontinue depreciating the assets and estimate the sales price, net of selling costs, of such assets. We generally consider operating properties to be held for sale when they meet criteria such as whether the sale transaction has been approved by the appropriate level of management and there are no known material contingencies relating to the sale such that the sale is probable and is expected to qualify for recognition as a completed sale within one year. If the expected net sales price of the asset that has been identified as held for sale is less than the net book value of the asset, the asset is written down to fair value less the cost to sell. Assets and liabilities related to assets classified as held for sale are presented separately in the consolidated balance sheets. If we determine that a property no longer meets the held-for-sale criteria, we reclassify the
8
property’s assets and liabilities to their original locations on the consolidated balance sheet and record depreciation and amortization expense for the period that the property was in held-for-sale status.
As of September 30, 2022, we determined that
Reverse Share Split
New Accounting Developments
In October 2021, the FASB issued ASU 2021-08, Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (Topic 805), which provides amendments to address diversity and inconsistency related to the recognition and measurement of contract assets and liabilities acquired in a business combination. The amendments require an acquirer to recognize and measure contract assets and liabilities acquired in a business combination in accordance with Topic 606, Revenue from Contracts with Customers. The standard is effective for public companies beginning December 15, 2022. The Company will evaluate and implement if applicable.
2. REAL ESTATE ACTIVITIES
Investments in real estate as of September 30, 2022 and December 31, 2021 were comprised of the following:
(in thousands of dollars) |
|
September 30, 2022 |
|
|
December 31, 2021 |
|
||
Buildings, improvements and construction in progress |
|
$ |
|
|
$ |
|
||
Land, including land held for development |
|
|
|
|
|
|
||
Total investments in real estate |
|
|
|
|
|
|
||
Accumulated depreciation |
|
|
( |
) |
|
|
( |
) |
Net investments in real estate |
|
$ |
|
|
$ |
|
||
Impairment of Assets
In March 2022, we executed a purchase and sale agreement for Exton Square Mall for a total sale price of $
In September 2022, we made the determination to reduce the holding period for Plymouth Meeting Mall in Plymouth Meeting, Pennsylvania, as a result of our expectation to sell the property. This was a triggering event that led us to conduct an impairment analysis, which resulted in an impairment loss of $
In September 2022, we executed a purchase and sale agreement for Cumberland Mall in Vineland, New Jersey. This was identified as a triggering event as a result of our determination to reduce the holding period of the property. As of September 30, 2022, we classified the property as an asset held for sale and recorded an impairment loss of $
During the three months ended September 30, 2021, we recorded an impairment loss of $
9
Disposition
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. In May 2022, we conveyed the property as a result of a foreclosure sale. As such, in May 2022, the $
Other Property Disposition
In February 2022, we completed the redemption of preferred equity issued as part of a previous sale of our New Garden land parcel. In connection with this settlement, we received approximately $
In June 2022, we sold a parcel of land adjacent to the Moorestown Mall in Moorestown, New Jersey for $
In June 2022, we sold an outparcel at the Francis Scott Key Mall in Frederick, Maryland for $
In August 2022, we sold
In September 2022, we sold
In September 2022, we sold an outparcel at Moorestown Mall in Moorestown, New Jersey for $
10
3. INVESTMENTS IN PARTNERSHIPS
The following table presents summarized financial information of the equity method investments in our unconsolidated partnerships as of September 30, 2022 and December 31, 2021:
_____________________
(in thousands of dollars) |
|
September 30, 2022 |
|
|
December 31, 2021 |
|
||
ASSETS: |
|
|
|
|
|
|
||
Investments in real estate, at cost: |
|
|
|
|
|
|
||
Operating properties |
|
$ |
|
|
$ |
|
||
Construction in progress |
|
|
|
|
|
|
||
Total investments in real estate |
|
|
|
|
|
|
||
Accumulated depreciation |
|
|
( |
) |
|
|
( |
) |
Net investments in real estate |
|
|
|
|
|
|
||
Cash and cash equivalents |
|
|
|
|
|
|
||
Deferred costs and other assets, net |
|
|
|
|
|
|
||
Total assets |
|
|
|
|
|
|
||
LIABILITIES AND PARTNERS’ INVESTMENT: |
|
|
|
|
|
|
||
Mortgage loans payable, net |
|
|
|
|
|
|
||
FDP Term Loan, net |
|
|
|
|
|
|
||
Partnership Loan |
|
|
|
|
|
|
||
Other liabilities |
|
|
|
|
|
|
||
Total liabilities |
|
|
|
|
|
|
||
Net investment |
|
|
( |
) |
|
|
( |
) |
Partners’ share |
|
|
( |
) |
|
|
( |
) |
PREIT’s share |
|
|
( |
) |
|
|
( |
) |
Excess investment (1) |
|
|
|
|
|
|
||
Net investments and advances |
|
$ |
( |
) |
|
$ |
( |
) |
Investment in partnerships, at equity |
|
$ |
|
|
$ |
|
||
Distributions in excess of partnership investments |
|
|
( |
) |
|
|
( |
) |
Net investments and advances |
|
$ |
( |
) |
|
$ |
( |
) |
(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 loss of partnerships.”
We record distributions from our equity investments using the nature of the distribution approach.
11
The following table summarizes our share of equity in loss of partnerships for the three and nine months ended September 30, 2022 and 2021:
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
(in thousands of dollars) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Real estate revenue |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Property operating and other expenses |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Interest expense (1) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Depreciation and amortization |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Total expenses |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Net loss |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Less: Partners’ share |
|
|
|
|
|
|
|
|
|
|
|
|
||||
PREIT’s share |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Amortization of excess investment |
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
( |
) |
Equity in loss of partnerships |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
(1) Net of capitalized interest expense of $
Fashion District Philadelphia
FDP Loan Agreement
PM Gallery LP, a Delaware limited partnership and joint venture entity owned indirectly by us and The Macerich Company (“Macerich”), previously entered into a $
The FDP Loan Agreement provides for (i) a maturity date of
Joint Venture.
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, 2021, Macerich is responsible for the entity’s operations and, subject to limited exceptions, controls major decisions. The Company considered the changes to the governing structure of PM Gallery LP and determined the investment qualifies as a variable interest entity and will continue to be accounted for under the equity method of accounting. Our maximum exposure to losses is limited to the extent of our investment, which is a 50% ownership.
Mortgage Loan Activity
Pavilion at Market East
12
In May 2021, the Company’s unconsolidated subsidiary completed a refinance of its mortgage loan securing its property at Pavilion at Market East. The $
In October 2022, the Company's unconsolidated subsidiary completed a refinance of its mortgage loan securing a new mortgage for its property at Pavilion at Market East. The $
Dispositions
In June 2022, we sold our
4. FINANCING ACTIVITY
Credit Agreements
On December 10, 2020 we entered into
As of September 30, 2022, we had borrowed $
Wilmington Savings Fund Society, FSB is 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 letter of credit issuer under the First Lien Revolving Facility, accordingly, the Company cannot currently access the letters of credit sub-facility.
Interest expense and deferred financing fee amortization related to the Credit Agreements for the three and nine months ended September 30, 2022 and 2021 were as follows:
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
(in thousands of dollars) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Revolving Facilities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest expense (1) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Deferred financing amortization |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Term Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest expense (2) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Deferred financing amortization |
|
|
|
|
|
|
|
|
|
|
|
|
||||
13
Our obligations under the Credit Agreements are guaranteed by certain of our subsidiaries. Our obligations under the Credit Agreements and the guaranties are secured by mortgages and deeds of trust on a portfolio of
In September 2022, we provided notice of our intention to extend the maturity date under the Credit Agreements through
First Lien Credit Agreement
Letters of credit and the proceeds of revolving loans may be used (i) to refinance indebtedness under the Bridge Credit Agreement (which agreement was canceled 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 First 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.”
14
Second Lien Credit Agreement
The proceeds of loans under the Second Lien Credit Agreement were used to refinance existing indebtedness.
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 $
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 Credit Agreements also limits our ability, subject to certain exceptions, to make certain restricted payments (including payments of dividends and voluntary prepayments of certain indebtedness which includes, with respect to the First Lien Credit Agreement, voluntary prepayments under the Second Lien Credit Agreement), 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 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 terms of the sale agreement for such property or, in the case of Borrowing Base Properties, payment of certain release prices.
15
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 rent under leases where the leased premises is at least
As of September 30, 2022, we were in compliance with all financial covenants under the Credit Agreements.
Consolidated Mortgage Loans
The estimated fair values of our consolidated mortgage loans based on year-end interest rates and market conditions at September 30, 2022 and December 31, 2021 were as follows:
|
|
September 30, 2022 |
|
|
December 31, 2021 |
|
||||||||||
(in millions of dollars) |
|
Carrying Value |
|
|
Fair Value |
|
|
Carrying Value |
|
|
Fair Value |
|
||||
Mortgage loans(1) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
(1) The carrying value of mortgage loans excludes unamortized debt issuance costs of $
The consolidated mortgage loans contain various customary default provisions. As of September 30, 2022, we were not in default on any of the consolidated mortgage loans, except for our mortgage loan secured by Cumberland Mall in Vineland, New Jersey.
The following table represents mortgage payments which will come due during the following periods:
(in thousands of dollars) |
|
Mortgage |
|
|
October 1 to December 31, 2022 (1) |
|
$ |
|
|
2023 |
|
|
|
|
2024 |
|
|
|
|
2025 |
|
|
|
|
2026 |
|
|
- |
|
Thereafter |
|
|
- |
|
|
|
$ |
|
|
16
(1) Includes Cherry Hill Mall mortgage, for which subsequent to the end of the quarter ended September 30, 2022, the maturity date was extended through
Mortgage Loan Activity
Cherry Hill Mall Mortgage
On August 31, 2022, certain of our consolidated subsidiaries entered into an amendment and extension to our mortgage loan secured by the property at Cherry Hill Mall in Cherry Hill, New Jersey, which had a maturity date of
Cumberland Mall Mortgage
Our mortgage loan secured by the property at Cumberland Mall in Vineland, New Jersey had an outstanding balance of $
Woodland Amendment
On December 10, 2021, certain of our consolidated subsidiaries entered into an amendment to our mortgage loan secured by the property at Woodland Mall in Grand Rapids, Michigan, which provides for an extension of the maturity date until December 10, 2022. As of September 30, 2022, the mortgage loan has an outstanding balance of $
5. CASH FLOW INFORMATION
We consider all highly liquid short-term investments with a maturity of three months or less at purchase or acquisition to be cash equivalents.
At September 30, 2022 and 2021, cash and cash equivalents and restricted cash totaled $
included tenant security deposits of $
Cash paid for interest was $
In our statement of cash flows, we report cash flows on our revolving facilities on a net basis. Aggregate repayments on our First Lien Revolving Facility and Term Loan were $
Accrued construction costs decreased by $
The following table provides a summary of cash, cash equivalents, and restricted cash reported within the statement of cash flows as of September 30, 2022 and 2021.
|
|
September 30, |
|
|||||
(in thousands of dollars) |
|
2022 |
|
|
2021 |
|
||
Cash and cash equivalents |
|
$ |
|
|
$ |
|
||
Restricted cash included in other assets |
|
|
|
|
|
|
||
Total cash, cash equivalents, and restricted cash shown in the statement of cash flows |
|
$ |
|
|
$ |
|
||
Our restricted cash consists of cash held in escrow by banks for real estate taxes and other purposes.
6. 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.
17
On August 24, 2022, we entered into
As of September 30, 2022, we had nine 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 $
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 fair value of derivatives were recorded directly in earnings as interest expense in the consolidated statement of operations. During the nine months ended September 30, 2022, we had
Interest Rate Swaps
As of September 30, 2022, we had interest rate swap agreements designated in qualifying hedging relationships outstanding with a weighted average base interest rate of
The following table summarizes the terms and estimated fair values of our interest rate swap derivative instruments as of September 30, 2022 and December 31, 2021 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.
Maturity Date |
|
Aggregate Notional |
|
|
Aggregate Fair Value at |
|
|
Aggregate Fair Value at |
|
|
Weighted |
|
||||
Derivatives in Cash Flow Hedging Relationships |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest Rate Swaps |
|
|
|
|
|
|
|
|
|
|
|
|
||||
2023 |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
|
% |
|||
2024 |
|
|
|
|
|
|
|
|
- |
|
|
|
% |
|||
Total |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
|
% |
|||
The tables below present the effect of derivative financial instruments on accumulated other comprehensive income (loss) and on our consolidated statements of operations for the three and nine months ended September 30, 2022 and 2021:
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||||||||||||||||||
|
|
Amount of Gain or |
|
|
Amount of Gain or (Loss) Reclassified |
|
|
Amount of Gain or |
|
|
Amount of Gain or (Loss) Reclassified |
|
||||||||||||||||||||
(in millions of dollars) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||||||
Derivatives in Cash Flow Hedging Relationships |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Interest rate products |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
||||||
18
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
(in millions of dollars) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Total interest expense presented in the consolidated statements of operations in which the effects of cash flow hedges are recorded |
|
$ |
( |
) |
|
$ |
( |
) |
|
|
( |
) |
|
$ |
( |
) |
Amount of gain reclassified from accumulated other comprehensive income into interest expense |
|
$ |
|
|
$ |
|
|
|
|
|
$ |
|
||||
As we did not have any derivatives which were not designated in hedging relationships, our non-designated swaps had
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, 2022, 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, 2022, the Company did
7. 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 to
Our leases do not provide a readily determinable implicit interest rate; therefore, we estimate our incremental borrowing rate to calculate the present value of remaining lease payments. In determining our incremental borrowing rate, we considered the lease term, market interest rates and estimates regarding our implied credit rating using market data with adjustments to determine an appropriate incremental borrowing rate.
19
The following table presents additional information pertaining to the Company’s leases:
|
|
Three Months Ended September 30, |
|
|||||||||||||||||||||||||||||
|
|
2022 |
|
|
2021 |
|
||||||||||||||||||||||||||
(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 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
Interest on lease liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Operating lease costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Variable lease costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Total lease costs |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
|
Nine Months Ended September 30, |
|
|||||||||||||||||||||||||||||
|
|
2022 |
|
|
2021 |
|
||||||||||||||||||||||||||
(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 |
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
||||
Interest on lease liabilities |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||||
Operating lease costs |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
||||||
Variable lease costs |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
||||||
Total lease costs |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
Other information related to leases as of and for the nine months ended September 30, 2022 and 2021 are as follows:
(in thousands of dollars) |
|
2022 |
|
|
2021 |
|
||
Cash paid for the amounts included in the measurement of lease liabilities |
|
|
|
|
|
|
||
Operating cash flows used for finance leases |
|
$ |
|
|
$ |
|
||
Operating cash flows used for operating leases |
|
$ |
|
|
$ |
|
||
Financing cash flows used for finance leases |
|
$ |
|
|
$ |
|
||
Weighted average remaining lease term-finance leases (months) |
|
|
|
|
|
|
||
Weighted average remaining lease term-operating leases (months) |
|
|
|
|
|
|
||
Weighted average discount rate-finance leases |
|
|
% |
|
|
% |
||
Weighted average discount rate-operating leases |
|
|
% |
|
|
% |
||
Future payments against lease liabilities, which are recorded in Accrued expenses and other liabilities, as of September 30, 2022 are as follows:
(in thousands of dollars) |
|
|
|
|
|
Total |
|
|||||
October 1 to December 31, 2022 |
|
$ |
|
|
$ |
|
|
$ |
|
|||
2023 |
|
|
|
|
|
|
|
|
|
|||
2024 |
|
|
|
|
|
|
|
|
|
|||
2025 |
|
|
|
|
|
|
|
|
|
|||
2026 |
|
|
|
|
|
|
|
|
|
|||
Thereafter |
|
|
|
|
|
|
|
|
|
|||
Total undiscounted lease payments |
|
|
|
|
|
|
|
|
|
|||
Less imputed interest |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Total lease liabilities |
|
$ |
|
|
$ |
|
|
$ |
|
|||
20
As Lessor
As of September 30, 2022, 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. 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. Except for utility reimbursements, the fixed and variable lease payments are included with lease revenue in the consolidated statements of operations. Utility reimbursements are included within expense reimbursements as a separate line item in the consolidated statement of operations as their pattern of transfer is not aligned with the other payments.
(in thousands of dollars) |
|
Lease Payment |
|
|
October 1 to December 31, 2022 |
|
$ |
|
|
2023 |
|
|
|
|
2024 |
|
|
|
|
2025 |
|
|
|
|
2026 |
|
|
|
|
Thereafter |
|
|
|
|
|
|
$ |
|
|
8. COMMITMENTS AND CONTINGENCIES
Contractual Obligations
As of September 30, 2022, we had contractual and other commitments related to our capital improvement projects and development projects of $
Preferred Dividend Arrearages
We have aggregate authorized preferred shares of
21
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, 2021.
OVERVIEW
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 shopping malls located in the eastern half of the United States, primarily in the Mid-Atlantic region.
We owned interests in 24 retail properties as of September 30, 2022, of which 23 are operating properties and one is a development property. The 23 operating properties include 20 shopping malls and three other retail properties, have a total of 19.3 million square feet and are located in eight states. We and partnerships in which we hold an interest owned 14.8 million square feet at these properties (excluding space owned by anchors or third parties). In October 2022, we sold Cumberland Mall, a shopping mall located in Vineland, New Jersey.
As of September 30, 2022, there are 17 operating retail properties in our portfolio that we consolidate for financial reporting purposes. These consolidated properties have a total of 14.7 million square feet, of which we own 11.5 million square feet. The six operating retail properties that are owned by unconsolidated partnerships with third parties have a total of 4.6 million square feet of which 3.3 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. Valley View Mall was previously designated as a non-core property as discussed further in Note 2 to our consolidated financial statements, a foreclosure sale judgment with respect to Valley View Mall was ordered by the court. We conveyed the property pursuant to foreclosure proceedings for that were completed in May 2022. “Core Malls” consists of core proprieties other than power centers.
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.
Our primary business is owning, operating and redeveloping 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 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 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.
Net loss for the three months ended September 30, 2022, was $71.3 million compared to net loss of $38.4 million for the three months ended September 30, 2021. The $ 32.9 million increase in net loss was primarily due to: (a) an increase in impairment of assets of $42.1 million; (b) an increase in interest expense of $4.1 million; partially offset by, (c) an increase in real estate revenue of $1.1 million; (d) an increase in gain on sales of interest in real estate of $7.7 million; (e) a decrease in general and administrative expenses of $3.5 million: and, (f) an increase in gain on sales of non-operating real estate $1.8 million.
Net loss for the nine months ended September 30, 2022, was $115.3 million compared to net loss of $107.8 million for the nine months ended September 30, 2021. The $ 7.5 million increase in net loss was primarily due to: (a) an increase in the impairment of assets of $40.7 million; (b) an increase of $5.3 million in interest expense; offset by, (c) an increase in real estate revenue of $4.2 million resulting from the recovering economic conditions following the impact of COVID-19 on our tenants; (d) an increase in gain on sales of interest in real estate of $10.4 million; (e) an increase on gain on sales of equity method investment of $9.0 million; (f) an increase in gain on sales of non-operating real estate of $10.5 million; and, (g) an increase due to gain on sale of preferred equity interest of $3.7 million.
22
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.
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, destination dining and entertainment. In particular, current conditions in the economy have caused fluctuations in unemployment rates, and together with supply chain challenges, the current inflationary environment, have impacted consumer confidence and spending. The economic factors have had corresponding effects on tenant business performance, prospects, solvency and leasing decisions. 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, the expansion of outlet centers, and declining mall traffic, among other factors. 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. We anticipate that our future business, financial condition, liquidity and results of operations, including for the reminder of 2022 and potentially in future periods, will continue to be materially impacted by these conditions. All of these factors have been exacerbated by the ongoing impact of the COVID-19 pandemic, the ongoing impact of which remains highly uncertain, and more recently by inflationary pressures and substantial increase in interest rates.
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 |
|
||||||||||||||||||||||
Year |
|
Number of |
|
|
Number of |
|
|
GLA(2) |
|
|
PREIT’s |
|
|
Number of |
|
|
GLA(2) |
|
|
PREIT’s |
|
|||||||
2022 (through September 30, 2022) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Consolidated properties |
|
|
2 |
|
|
|
5 |
|
|
|
210,235 |
|
|
$ |
4,990 |
|
|
|
1 |
|
|
|
5,100 |
|
|
$ |
202 |
|
Unconsolidated properties |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Total |
|
|
2 |
|
|
|
5 |
|
|
|
210,235 |
|
|
$ |
4,990 |
|
|
|
1 |
|
|
|
5,100 |
|
|
$ |
202 |
|
2021 (Full Year) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Consolidated properties |
|
|
5 |
|
|
|
10 |
|
|
|
331,314 |
|
|
$ |
1,589 |
|
|
|
5 |
|
|
|
18,344 |
|
|
$ |
380 |
|
Unconsolidated properties |
|
|
1 |
|
|
|
1 |
|
|
|
4,046 |
|
|
|
57 |
|
|
|
1 |
|
|
|
4,046 |
|
|
|
57 |
|
Total |
|
|
5 |
|
|
|
11 |
|
|
|
335,360 |
|
|
$ |
1,646 |
|
|
|
6 |
|
|
|
22,390 |
|
|
$ |
437 |
|
(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, 2022.
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 2021, we opened Power Warehouse and during the first quarter of 2022, we opened HomeGoods at Cumberland Mall in Vineland, New Jersey. Construction was completed in the first quarter of 2020 giving way to the opening of Burlington in place of a former Sears at Dartmouth Mall in Dartmouth, Massachusetts. Aldi also opened in the space adjacent to Burlington in September 2021. We expect to continue to move forward with several outparcels at Dartmouth Mall resulting from the Sears recapture and to work with large format prospects for the additional space adjacent to Burlington.
In January 2020, the Lord & Taylor store at Moorestown Mall in Moorestown, New Jersey closed and we executed a lease with Turn 7, which opened in the fourth quarter of 2021. 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 lease at the Jacksonville Mall location. In July 2021, the former Sears site at Moorestown Mall was sold to Cooper University Health Care. In May 2020, J.C. Penney filed for bankruptcy and announced the closure of its stores at The Mall at Prince George's in Hyattsville, Maryland, and Magnolia Mall in Florence, South Carolina. The Magnolia Mall location has been leased to Tilt Studio, an entertainment concept that opened in October 2021.
23
In response to anchor store closings and other trends in the retail space, we have been changing the mix of tenants at our properties. In general, our malls include national and regional department stores, large format retailers and other anchors, mixed with destination dining and entertainment experiences, however, 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. Approximately 29% 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. 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 the extension of the 2022 maturity date, as well as 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.
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 $41.2 million as of September 30, 2022.
As of September 30, 2022, we had contractual and other commitments related to our capital improvement projects and development projects at our consolidated and unconsolidated properties of $5.2 million, including $1.2 million of commitments related to the redevelopment of Fashion District Philadelphia, in the form of 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.
In January 2018, the Company and Macerich entered into a $250.0 million term loan (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. 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. 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 pay down the existing loan, reducing the outstanding principal under the FDP Loan Agreement 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 us and Macerich. 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, 2021, Macerich is responsible for the entity’s operations and, subject to limited exceptions, controls major decisions. The Company 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 Loan Agreement provides for (i) a maturity date of January 22, 2023, with the potential 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 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. In August 2022, the joint venture paid down the FDP Loan Agreement balance by $83.1 million in order to comply with the financial covenants. As of December 31, 2022, the required debt yield covenant threshold under the FDP Loan Agreement is 12%. If the joint venture fails to meet the debt yield covenant as of any quarter end measurement date and does not pay down the term loan to achieve compliance, the term loan could become due and payable at that time.
We also own an interest in a development property, but we do not expect to make any significant investment at this property in the short term.
24
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 policies have not changed materially during 2022 and 2021, 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 and Estimates” in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2021.
Asset Impairment
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.". A property to be held and used is considered impaired only if management’s estimate of the aggregate future cash flows, less estimated capital expenditures, to be generated by the property, undiscounted and without interest charges, are less than the carrying value of the property. This estimate takes into consideration factors such as expected future operating income, trends and 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 anticipated action to be taken with respect to the property could impact the determination of whether an impairment exists 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 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-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 reduction to income.
During the three and nine months ended September 30, 2022, as a result of reduced holding period assumptions we recorded impairment losses of $37.5 million and $4.8 million in connection with Plymouth Meeting Mall and Cumberland Mall, respectively. During the three months ended September 30, 2021, we recorded an impairment loss of $0.3 million in connection with the purchase and sale agreement of Monroe Marketplace, in which there was an excess of carrying value over the sale price. 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. Impairment losses for the three and nine months ended September 30, 2022 and 2021 are included in the consolidated statement of operations.
Revenue and Receivables
We derive 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 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
25
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.
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.
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.
Utility reimbursement revenue is presented separate from rental revenue based on actual usage as the pattern of transfer is not aligned with the use of the property.
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 "Other real estate revenue" in the consolidated statements of operations 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.
26
RESULTS OF OPERATIONS
Overview
Net loss for the three months ended September 30, 2022, was $71.3 million compared to net loss of $38.4 million for the three months ended September 30, 2021. The $ 32.9 million increase in net loss was primarily due to: (a) an increase in impairment of assets of $42.1 million; (b) an increase in interest expense of $4.1 million; partially offset by, (c) an increase in real estate revenue of $1.1 million; (d) an increase in gain on sales of interest in real estate of $7.7 million; (e) a decrease in general and administrative expenses of $3.5 million: and, (f) an increase in gain on sales of non-operating real estate $1.8 million.
Net loss for the nine months ended September 30, 2022, was $115.3 million compared to net loss of $107.8 million for the nine months ended September 30, 2021. The $7.5 million increase in net loss was primarily due to: (a) an increase in the impairment of assets of $40.7 million; (b) an increase of $5.3 million in interest expense; partially offset by, (c) an increase in real estate revenue of $4.2 million resulting from the recovering economic conditions following the impact of COVID-19 on our tenants; (d) an increase in gain on sales of interest in real estate of $10.4 million; (e) an increase on gain on sales of equity method investment of $9.0 million; (f) an increase in gain on sales of non-operating real estate of $10.5 million; and, (g) an increase due to gain on sale of preferred equity interest of $3.7 million.
Occupancy
The table below sets forth certain occupancy statistics for our properties as of September 30, 2022 and 2021:
|
|
Occupancy(1) at September 30, |
|
|||||||||||||||||||||
|
|
Consolidated |
|
|
Unconsolidated |
|
|
Combined(2) |
|
|||||||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||||
Retail portfolio weighted average (3): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Total excluding anchors |
|
|
91.3 |
% |
|
|
88.3 |
% |
|
|
88.6 |
% |
|
|
83.0 |
% |
|
|
90.6 |
% |
|
|
86.7 |
% |
Total including anchors |
|
|
92.8 |
% |
|
|
89.6 |
% |
|
|
91.0 |
% |
|
|
86.2 |
% |
|
|
92.4 |
% |
|
|
88.8 |
% |
Core Malls weighted average: (4) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Total excluding anchors |
|
|
93.6 |
% |
|
|
90.4 |
% |
|
|
81.5 |
% |
|
|
78.9 |
% |
|
|
91.4 |
% |
|
|
88.3 |
% |
Total including anchors |
|
|
95.9 |
% |
|
|
90.5 |
% |
|
|
86.5 |
% |
|
|
84.6 |
% |
|
|
94.4 |
% |
|
|
89.6 |
% |
(1) Occupancy for all periods presented includes all tenants irrespective of the term of their agreement.
(2) Combined occupancy is calculated by using occupied gross leasable area (“GLA”) for consolidated and unconsolidated properties and dividing by total GLA for consolidated and unconsolidated properties.
(3) Retail portfolio includes all retail properties including Fashion District Philadelphia.
(4) Core Malls excludes Exton Square Mall and power centers.
27
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, 2022:
|
|
|
|
Number |
|
|
GLA |
|
|
Term |
|
|
Initial Rent |
|
|
Previous |
|
|
Initial Gross Rent |
|
|
Average Rent |
|
|
Annualized |
|
||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
% |
|
|
% |
|
|
|
|
|||||||||
Non Anchor |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
New Leases |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Under 10k square feet ("sf") |
|
|
|
|
31 |
|
|
|
95,022 |
|
|
|
6.3 |
|
|
$ |
42.99 |
|
|
N/A |
|
|
N/A |
|
|
N/A |
|
|
N/A |
|
|
$ |
7.11 |
|
||||
Over 10k sf |
|
|
|
|
2 |
|
|
|
33,657 |
|
|
|
10.7 |
|
|
|
13.96 |
|
|
N/A |
|
|
N/A |
|
|
N/A |
|
|
N/A |
|
|
|
2.96 |
|
||||
Total New Leases |
|
|
|
|
33 |
|
|
|
128,679 |
|
|
|
7.4 |
|
|
$ |
35.40 |
|
|
N/A |
|
|
N/A |
|
|
N/A |
|
|
N/A |
|
|
$ |
5.55 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Renewal Leases |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Under 10k sf |
|
|
|
|
31 |
|
|
|
66,913 |
|
|
|
3.1 |
|
|
$ |
51.62 |
|
|
$ |
49.98 |
|
|
$ |
1.64 |
|
|
|
3.3 |
% |
|
|
6.8 |
% |
|
$ |
- |
|
Over 10k sf |
|
|
|
|
5 |
|
|
|
95,277 |
|
|
|
4.4 |
|
|
|
24.59 |
|
|
|
22.92 |
|
|
|
1.67 |
|
|
|
7.3 |
% |
|
|
11.3 |
% |
|
|
- |
|
Total Fixed Rent |
|
|
|
|
36 |
|
|
|
162,190 |
|
|
|
3.9 |
|
|
$ |
35.75 |
|
|
$ |
34.09 |
|
|
$ |
1.66 |
|
|
|
4.9 |
% |
|
|
8.7 |
% |
|
$ |
- |
|
Total Percentage in Lieu |
|
|
|
|
20 |
|
|
|
84,339 |
|
|
|
1.9 |
|
|
|
31.47 |
|
|
|
40.54 |
|
|
|
(9.07 |
) |
|
|
(22.4 |
%) |
|
N/A |
|
|
|
- |
|
|
Total Renewal Leases |
|
|
|
|
56 |
|
|
|
246,529 |
|
|
|
3.2 |
|
|
$ |
34.28 |
|
|
$ |
36.29 |
|
|
$ |
(2.01 |
) |
|
|
(5.5 |
%) |
|
N/A |
|
|
$ |
- |
|
|
Total Non Anchor (4) |
|
|
|
|
89 |
|
|
|
375,208 |
|
|
|
4.7 |
|
|
$ |
34.66 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Anchor |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
New Leases |
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
N/A |
|
|
N/A |
|
|
$ |
- |
|
||
Renewal Leases |
|
|
|
|
1 |
|
|
|
99,029 |
|
|
|
5.0 |
|
|
|
1.20 |
|
|
|
3.96 |
|
|
|
(2.76 |
) |
|
|
(69.7 |
%) |
|
N/A |
|
|
|
- |
|
|
Total |
|
|
|
|
1 |
|
|
|
99,029 |
|
|
|
5.0 |
|
|
$ |
1.20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
(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.
(3) These leasing costs are presented as annualized amounts per square foot and are spread uniformly over the initial lease term.
(4) Includes 8 leases and 36,076 square feet of GLA with respect to our unconsolidated partnerships. We own a 40% 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.
28
The table below sets forth summary leasing activity information with respect to our consolidated and unconsolidated properties for the nine months ended September 30, 2022:
|
|
|
|
Number |
|
|
GLA |
|
|
Term |
|
|
Initial Rent |
|
|
Previous |
|
|
Initial Gross Rent |
|
|
Average Rent |
|
|
Annualized |
|
||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
% |
|
|
% |
|
|
|
|
|||||||||
Non Anchor |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
New Leases |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Under 10k square feet ("sf") |
|
|
|
|
115 |
|
|
|
302,981 |
|
|
|
5.6 |
|
|
$ |
37.24 |
|
|
N/A |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
$ |
6.29 |
|
|
Over 10k sf |
|
|
|
|
6 |
|
|
|
108,353 |
|
|
|
11.2 |
|
|
|
16.04 |
|
|
N/A |
|
|
N/A |
|
|
N/A |
|
|
N/A |
|
|
|
6.56 |
|
||||
Total New Leases |
|
|
|
|
121 |
|
|
|
411,334 |
|
|
|
7.0 |
|
|
$ |
31.66 |
|
|
N/A |
|
|
N/A |
|
|
N/A |
|
|
N/A |
|
|
$ |
6.40 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Renewal Leases |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Under 10k sf |
|
|
|
|
94 |
|
|
|
218,234 |
|
|
|
3.6 |
|
|
$ |
58.40 |
|
|
$ |
58.23 |
|
|
$ |
0.17 |
|
|
|
0.3 |
% |
|
|
5.2 |
% |
|
$ |
0.69 |
|
Over 10k sf |
|
|
|
|
11 |
|
|
|
252,443 |
|
|
|
3.6 |
|
|
|
20.38 |
|
|
|
20.25 |
|
|
|
0.13 |
|
|
|
0.6 |
% |
|
|
2.0 |
% |
|
|
1.10 |
|
Total Fixed Rent |
|
|
|
|
105 |
|
|
|
470,677 |
|
|
|
3.6 |
|
|
$ |
38.01 |
|
|
$ |
37.86 |
|
|
$ |
0.15 |
|
|
|
0.4 |
% |
|
|
4.2 |
% |
|
$ |
0.91 |
|
Total Percentage in Lieu |
|
|
|
|
55 |
|
|
|
179,999 |
|
|
|
2.2 |
|
|
|
31.73 |
|
|
|
36.10 |
|
|
|
(4.37 |
) |
|
|
(12.1 |
%) |
|
|
|
|
|
0.45 |
|
|
Total Renewal Leases (4) |
|
|
|
|
160 |
|
|
|
650,676 |
|
|
|
3.2 |
|
|
$ |
36.27 |
|
|
$ |
37.37 |
|
|
$ |
(1.10 |
) |
|
|
(2.9 |
%) |
|
|
|
|
$ |
0.82 |
|
|
Total Non Anchor |
|
|
|
|
281 |
|
|
|
1,062,010 |
|
|
|
4.7 |
|
|
$ |
34.49 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Anchor |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
New Leases |
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
$ |
- |
|
|
N/A |
|
|
N/A |
|
|
N/A |
|
|
N/A |
|
|
$ |
- |
|
||||
Renewal Leases |
|
|
|
|
3 |
|
|
|
546,929 |
|
|
|
7.3 |
|
|
|
4.36 |
|
|
|
4.86 |
|
|
|
(0.50 |
) |
|
|
(10.3 |
%) |
|
N/A |
|
|
|
- |
|
|
Total |
|
|
|
|
3 |
|
|
|
546,929 |
|
|
|
7.3 |
|
|
$ |
4.36 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
(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.
(3) These leasing costs are presented as annualized amounts per square foot and are spread uniformly over the initial lease term.
(4) Includes 20 leases and 69,411 square feet of GLA with respect to our unconsolidated partnerships. During the nine months ended September 30, 2022, we owned 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.
29
The following table sets forth our results of operations for the three and nine months ended September 30, 2022 and 2021:
|
|
Three Months Ended |
|
|
% Change |
|
Nine Months Ended |
|
|
% Change |
||||||||||||||||
(in thousands of dollars) |
|
2022 |
|
|
2021 |
|
|
|
|
2022 |
|
|
2021 |
|
|
|
||||||||||
Real estate revenue |
|
$ |
72,746 |
|
|
$ |
71,593 |
|
|
|
1.6 |
|
% |
|
$ |
214,998 |
|
|
$ |
210,827 |
|
|
|
2.0 |
|
% |
Property operating expenses |
|
|
(33,190 |
) |
|
|
(32,129 |
) |
|
|
3.3 |
|
% |
|
|
(98,565 |
) |
|
|
(96,052 |
) |
|
|
2.6 |
|
% |
Other income |
|
|
67 |
|
|
|
143 |
|
|
|
(53.1 |
) |
% |
|
|
377 |
|
|
|
430 |
|
|
|
(12.3 |
) |
% |
Depreciation and amortization |
|
|
(28,032 |
) |
|
|
(29,142 |
) |
|
|
(3.8 |
) |
% |
|
|
(85,524 |
) |
|
|
(88,667 |
) |
|
|
(3.5 |
) |
% |
General and administrative expenses |
|
|
(10,965 |
) |
|
|
(14,453 |
) |
|
|
(24.1 |
) |
% |
|
|
(32,192 |
) |
|
|
(39,819 |
) |
|
|
(19.2 |
) |
% |
Other expenses |
|
|
(65 |
) |
|
|
(66 |
) |
|
|
(1.5 |
) |
% |
|
|
(143 |
) |
|
|
185 |
|
|
|
(177.3 |
) |
% |
Interest expense, net |
|
|
(36,481 |
) |
|
|
(32,426 |
) |
|
|
12.5 |
|
% |
|
|
(100,473 |
) |
|
|
(95,135 |
) |
|
|
5.6 |
|
% |
Reorganization expenses |
|
|
— |
|
|
|
— |
|
|
|
0.0 |
|
% |
|
|
— |
|
|
|
(267 |
) |
|
|
(100.0 |
) |
% |
Gain on debt extinguishment, net |
|
|
— |
|
|
|
— |
|
|
|
0.0 |
|
% |
|
|
— |
|
|
|
4,587 |
|
|
|
(100.0 |
) |
% |
Impairment of assets |
|
|
(42,271 |
) |
|
|
(262 |
) |
|
|
16,034.0 |
|
% |
|
|
(42,271 |
) |
|
|
(1,564 |
) |
|
|
2,602.7 |
|
% |
Equity in loss of partnerships |
|
|
(2,356 |
) |
|
|
(1,429 |
) |
|
|
64.9 |
|
% |
|
|
(3,939 |
) |
|
|
(2,429 |
) |
|
|
62.2 |
|
% |
Gain (loss) on sales of interests in real estate |
|
|
7,509 |
|
|
|
(217 |
) |
|
|
(3,560.4 |
) |
% |
|
|
9,210 |
|
|
|
(1,191 |
) |
|
|
(873.3 |
) |
% |
Gain (loss) on sale of equity method investment |
|
|
(77 |
) |
|
|
— |
|
|
|
100.0 |
|
% |
|
|
8,976 |
|
|
|
— |
|
|
|
100.0 |
|
% |
Gain (loss) on sales of real estate by equity method investee |
|
|
— |
|
|
|
(10 |
) |
|
|
(100.0 |
) |
% |
|
|
— |
|
|
|
1,337 |
|
|
|
(100.0 |
) |
% |
Gain on sales of non operating real estate |
|
|
1,772 |
|
|
|
— |
|
|
|
0.0 |
|
% |
|
|
10,527 |
|
|
|
— |
|
|
|
0.0 |
|
% |
Gain on sale of preferred equity interest |
|
|
— |
|
|
|
— |
|
|
|
100.0 |
|
% |
|
|
3,688 |
|
|
|
— |
|
|
|
100.0 |
|
% |
Net loss |
|
$ |
(71,343 |
) |
|
$ |
(38,398 |
) |
|
|
85.8 |
|
% |
|
$ |
(115,331 |
) |
|
$ |
(107,758 |
) |
|
|
7.0 |
|
% |
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 (loss) income of partnerships.”
Real Estate Revenue
We include all rental income earned pursuant to tenant leases under the “Lease revenue” line item in the consolidated statements of operations. Utility reimbursements are presented separately in “Expense reimbursements” as the pattern of transfer is not aligned with the use of the property. 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 the tenant’s operating performance. For any tenant receivable balance deemed to be uncollectible, we record an offset for credit losses directly to Lease revenue in the consolidated statements 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, 2022 and 2021:
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
(in thousands of dollars) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Contractual lease payments: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Base rent |
|
$ |
48,557 |
|
|
$ |
47,998 |
|
|
$ |
144,663 |
|
|
$ |
143,529 |
|
CAM reimbursement |
|
|
8,556 |
|
|
|
8,485 |
|
|
|
25,339 |
|
|
|
25,146 |
|
Real estate tax reimbursement |
|
|
7,010 |
|
|
|
6,941 |
|
|
|
21,331 |
|
|
|
20,562 |
|
Percentage rent |
|
|
1,527 |
|
|
|
1,376 |
|
|
|
2,112 |
|
|
|
1,581 |
|
Lease termination revenue |
|
|
50 |
|
|
|
829 |
|
|
|
1,589 |
|
|
|
1,487 |
|
|
|
|
65,700 |
|
|
|
65,629 |
|
|
|
195,034 |
|
|
|
192,305 |
|
Less: credit losses |
|
|
96 |
|
|
|
(86 |
) |
|
|
854 |
|
|
|
1,258 |
|
Lease revenue |
|
|
65,796 |
|
|
|
65,543 |
|
|
|
195,888 |
|
|
|
193,563 |
|
Expense reimbursements |
|
|
4,864 |
|
|
|
4,650 |
|
|
|
13,223 |
|
|
|
12,436 |
|
Other real estate revenue |
|
|
2,086 |
|
|
|
1,400 |
|
|
|
5,887 |
|
|
|
4,828 |
|
Total real estate revenue |
|
$ |
72,746 |
|
|
$ |
71,593 |
|
|
|
214,998 |
|
|
$ |
210,827 |
|
Real Estate Revenue
Real estate revenue increased by $1.2 million, or 2%, in the three months ended September 30, 2022 compared to the three months ended September 30, 2021, primarily due to:
30
Real estate revenue increased by $4.2 million, or 2%, in the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021, primarily due to:
Property Operating Expenses
Property operating expenses increased by $1.1 million, or 3%, in the three months ended September 30, 2022 compared to the three months ended September 30, 2021, primarily due to:
31
Property operating expenses increased by $2.5 million, or 3%, in the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021, primarily due to:
Depreciation and Amortization
Depreciation and amortization expense decreased by $1.1 million, or 4%, in the three months ended September 30, 2022 compared to the three months ended September 30, 2021, primarily due to:
Depreciation and amortization expense decreased by $3.1 million, or 4%, in the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021, primarily due to:
General and Administrative Expenses
General and administrative expenses decreased by $3.5 million, or 24.1%, in the three months ended September 30, 2022 compared to the three months ended September 30, 2021 primarily due to lower incentive compensation expenses in 2022 partially offset by higher professional fees in 2022.
General and administrative expenses decreased by $7.6 million, or 19.2%, in the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021 primarily due to the same factors driving the variance for the three months ended September 30 comparison.
Interest Expense
Interest expense increased by $4.1 million, or 12.5%, in the three months ended September 30, 2022 compared to the three months ended September 30, 2021. This increase was primarily due to higher weighted average interest rates and higher weighted average debt balances. Our weighted average effective borrowing rate was 8.14% for the three months ended September 30, 2022 compared to 7.00% for the three months ended September 30, 2021. Our weighted average debt balance was $1,795.9 million for the three months ended September 30, 2022, compared to $1,854.3 million for the three months ended September 30, 2021.
Interest expense increased by $5.3 million, or 5.6%, in the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021. This increase was primarily due to higher weighted average interest rates. Our weighted average effective borrowing rate was 7.30% for the nine months ended September 30, 2022 compared to 6.85% for the nine months ended September 30, 2021. Our weighted average debt balance was $1.837.5 million for the nine months ended September 30, 2022, compared to $1,855.4 million for the nine months ended September 30, 2021.
Reorganization Expenses
For the three and nine months ended September 30, 2022, we have not incurred any reorganization expenses.
32
For the nine months ended September 30, 2021, we incurred costs and fees of $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 consolidated statement of operations.
Gain on Debt Extinguishment
For the three and nine months ended September 30, 2022, we did not record any gain on debt extinguishment.
On June 10, 2021, 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 during the nine months ended September 30, 2021.
Impairment of Assets
During the third quarter of 2022, we entered into a purchase and sale agreement for Cumberland Mall in September 2022 that resulted in a reduced holding period for the property. In September 2022, we also made the determination to reduce the holding period for Plymouth Meeting Mall as a result of our expectation to sell the property. These events triggered an indication of potential impairment. An impairment review and assessment of undiscounted cash flows resulted in impairment losses of $4.8 million and $37.4 million being recorded for Cumberland Mall and Plymouth Meeting Mall, respectively.
During the second quarter of 2021, we entered into a purchase and sale agreement to sell Valley View Center. In connection with this transaction, we recorded an impairment loss of $1.3 million due to excess carrying value over the sale price. In August 2021, we closed on the sale of Valley View Center for $3.5 million with net proceeds of $3.2 million. During the three months ended September 30, 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.
Equity in Loss of Partnerships
Equity in loss of partnerships was a loss of $2.4 million in the three months ended September 30, 2022 compared to a loss of $1.4 million in the prior year period, reflecting an increase of $1.0 million, or 64.9%. The increase in loss was primarily due to higher interest expense and the sale of Gloucester Premium Outlets in the prior quarter offset by higher real estate revenue across the remainder of our partnership properties in 2022 due to the economic rebound following COVID-19 impact.
Equity in loss of partnerships was a loss of $3.9 million in the nine months ended September 30, 2022 compared to a loss of $2.4 million in the prior year period, reflecting an increase of $1.5 million, or 62.2% due to a lease termination in 2021 at Fashion District Philadelphia and the same factors driving the variance for the three months ended September 30 comparison.
Gain (Loss) on Sales of Real Estate
During the quarter ended September 30, 2022, we closed on the sale of five outparcels for $11.8 million and recorded a gain on sale of $7.4 million in connection with the sales. In June 2022, we closed on the sale of an outparcel at Francis Scott Key Mall for $2.4 million and recorded a gain on sales of real estate of $1.7 million.
In May 2021, we closed on the sale of a parcel of property at Moorestown Mall for $10.1 million. In connection with the sale, we paid a $9.0 million lease termination fee for a portion of the property that was under a lease agreement along with closing costs that resulted in net proceeds of $0.8 million. We recorded a loss on sale of real estate of $1.0 million in connection with the sale. In August 2021, we closed on the sale of Valley View Center for $3.5 million, and recorded a loss on sale of real estate of approximately $0.2 million in connection with the transaction. For the nine months ended September 30, 2021, we recorded a loss on sales of real estate of $1.2 million in connection with the sale.
Gain on Sale of Equity Method Investment
During the nine months ended September 30, 2022, there was a $9.0 million net gain on sale of equity method investment. In June 2022, we closed on the sale of our 25% interest in Gloucester Premium Outlets for $35.4 million for which we recorded a gain on sale of equity method investment of $9.1 million and a subsequent working capital adjustment loss of $0.1 million was recorded in the third quarter of 2022.
There was no gain on sale of equity method investment for the three and nine months ended September 30, 2021.
Gain on Sales of Interests in Non Operating Real Estate
During the three months ended September 30, 2022, we sold an outparcel at the Moorestown Mall for $3.4 million and recorded a gain on sale of $1.8 million.
33
During the nine months ended September 30, 2022, there was an $10.6 million gain on sales of interests in non-operating real estate. In June 2022, we sold a parcel of land adjacent to Moorestown Mall for $11.8 million for residential development purposes. The gain resulting from the sale was $8.8 million.
There was no gain on sale of interest in non operating real estate for the three and nine months ended September 30, 2021.
Gain on Sale of Preferred Equity Interest
During the three months ended September 30, 2022 there was no gain on sale of preferred equity interest. During the nine months ended September 30, 2022, there was a $3.7 million gain on sale of preferred equity interest in a property that we received in exchange for the sale of a property we previously owned.
There was no gain on sale of preferred equity interest for the three and nine months ended September 30, 2021.
NON-GAAP SUPPLEMENTAL FINANCIAL MEASURES
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:
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 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.
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 40% 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
34
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 noncontrolling interest in each of our unconsolidated partnerships, and account for such partnerships using the equity method of accounting, because:
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 note 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 does not represent cash generated from operating activities in accordance with GAAP and should 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 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. We believe that net loss is the most directly comparable GAAP measure to NOI. NOI excludes other income, depreciation and amortization, general and administrative expenses, other expenses (which includes provision for employee separation expense and project costs), interest expense, reorganization expenses, impairment of assets, equity in loss/income of partnerships, gain on extinguishment of debt, gain/loss on sales of real estate, gain on sale of activity method investee and gain/loss on sale of preferred equity interest.
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. Non Same Store NOI is calculated using the retail properties excluded from the calculation of Same Store NOI.
35
The table below reconciles net loss to NOI of our consolidated properties for the three and nine months ended September 30, 2022 and 2021:
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
(in thousands of dollars) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Net loss |
|
$ |
(71,343 |
) |
|
$ |
(38,398 |
) |
|
$ |
(115,331 |
) |
|
$ |
(107,758 |
) |
Other income |
|
|
(67 |
) |
|
|
(143 |
) |
|
|
(377 |
) |
|
|
(430 |
) |
Depreciation and amortization |
|
|
28,032 |
|
|
|
29,142 |
|
|
|
85,524 |
|
|
|
88,667 |
|
General and administrative expenses |
|
|
10,965 |
|
|
|
14,453 |
|
|
|
32,192 |
|
|
|
39,819 |
|
Other expenses |
|
|
65 |
|
|
|
66 |
|
|
|
143 |
|
|
|
(186 |
) |
Interest expense, net |
|
|
36,481 |
|
|
|
32,426 |
|
|
|
100,473 |
|
|
|
95,135 |
|
Reorganization expenses |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
267 |
|
Impairment of assets |
|
|
42,271 |
|
|
|
262 |
|
|
|
42,271 |
|
|
|
1,564 |
|
Equity in loss (income) of partnerships |
|
|
2,356 |
|
|
|
1,429 |
|
|
|
3,939 |
|
|
|
2,429 |
|
Gain on extinguishment of debt |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(4,587 |
) |
(Gain) loss on sales of interests in real estate |
|
|
(7,509 |
) |
|
|
217 |
|
|
|
(9,210 |
) |
|
|
1,191 |
|
Gain on sale of equity method investment |
|
|
77 |
|
|
|
— |
|
|
|
(8,976 |
) |
|
|
— |
|
Gain on sales of real estate by equity method investee |
|
|
— |
|
|
|
10 |
|
|
|
— |
|
|
|
(1,337 |
) |
Gain on sales of non-operating real estate |
|
|
(1,772 |
) |
|
|
— |
|
|
|
(10,527 |
) |
|
|
— |
|
Gain on sale of preferred equity interest |
|
|
— |
|
|
|
— |
|
|
|
(3,688 |
) |
|
|
— |
|
NOI from consolidated properties |
|
$ |
39,556 |
|
|
$ |
39,464 |
|
|
$ |
116,433 |
|
|
$ |
114,774 |
|
The table below reconciles equity in (loss) income of partnerships to NOI of our share of unconsolidated properties for the three and nine months ended September 30, 2022 and 2021:
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
(in thousands of dollars) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Equity in (loss) income of partnerships |
|
$ |
(2,356 |
) |
|
$ |
(1,429 |
) |
|
$ |
(3,939 |
) |
|
$ |
(2,429 |
) |
Other income |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
Depreciation and amortization |
|
|
2,678 |
|
|
|
3,095 |
|
|
|
8,673 |
|
|
|
9,257 |
|
Impairment of assets |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
265 |
|
Interest and other expenses |
|
|
6,363 |
|
|
|
5,568 |
|
|
|
18,215 |
|
|
|
16,384 |
|
NOI from equity method investments at ownership share |
|
$ |
6,685 |
|
|
$ |
7,234 |
|
|
$ |
22,949 |
|
|
$ |
23,477 |
|
The table below presents total NOI and total NOI excluding lease termination revenue for the three months ended September 30, 2022 and 2021:
|
|
Same Store |
|
|
Non Same Store |
|
|
Total (non-GAAP) |
|
|||||||||||||||
(in thousands of dollars) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||||
NOI from consolidated properties |
|
$ |
39,536 |
|
|
$ |
38,966 |
|
|
$ |
20 |
|
|
$ |
498 |
|
|
$ |
39,556 |
|
|
$ |
39,464 |
|
NOI from equity method investments at ownership share |
|
|
6,688 |
|
|
|
6,480 |
|
|
|
(3 |
) |
|
|
754 |
|
|
|
6,685 |
|
|
|
7,234 |
|
Total NOI |
|
|
46,224 |
|
|
|
45,446 |
|
|
|
17 |
|
|
|
1,252 |
|
|
|
46,241 |
|
|
|
46,698 |
|
Less: lease termination revenue |
|
|
50 |
|
|
|
733 |
|
|
|
— |
|
|
|
146 |
|
|
|
50 |
|
|
|
879 |
|
Total NOI excluding lease termination revenue |
|
$ |
46,174 |
|
|
$ |
44,713 |
|
|
$ |
17 |
|
|
$ |
1,106 |
|
|
$ |
46,191 |
|
|
$ |
45,819 |
|
Total NOI decreased by $0.5 million in the three months ended September 30, 2022 compared to the three months ended September 30, 2021 due to (a) a $0.8 million increase in Same Store NOI and (b) a decrease of $1.2 million in Non Same Store NOI. The increase in Same Store NOI and decrease in Non Same Store NOI is primarily due the reasons described in “— Real Estate Revenue” and “— Property Operating Expenses.”
36
The table below presents total NOI and total NOI excluding lease termination revenue for the nine months ended September 30, 2022 and 2021:
|
|
Same Store |
|
|
Non Same Store |
|
|
Total (non-GAAP) |
|
|||||||||||||||
(in thousands of dollars) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||||
NOI from consolidated properties |
|
$ |
117,126 |
|
|
$ |
114,289 |
|
|
$ |
(693 |
) |
|
$ |
485 |
|
|
$ |
116,433 |
|
|
$ |
114,774 |
|
NOI from equity method investments at ownership share |
|
|
21,790 |
|
|
|
21,499 |
|
|
|
1,159 |
|
|
|
1,977 |
|
|
|
22,949 |
|
|
|
23,476 |
|
Total NOI |
|
|
138,916 |
|
|
|
135,788 |
|
|
|
466 |
|
|
|
2,462 |
|
|
|
139,382 |
|
|
|
138,250 |
|
Less: lease termination revenue |
|
|
2,395 |
|
|
|
3,903 |
|
|
|
49 |
|
|
|
146 |
|
|
|
2,444 |
|
|
|
4,049 |
|
Total NOI excluding lease termination revenue |
|
$ |
136,521 |
|
|
$ |
131,885 |
|
|
$ |
417 |
|
|
$ |
2,316 |
|
|
$ |
136,938 |
|
|
$ |
134,201 |
|
Total NOI increased by $1.1 million in the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021 due to (a) a $3.1 million increase in Same Store NOI and (b) and a $2.0 million decrease in Non Same Store NOI. The increase in Same Store NOI and decrease in Non Same Store NOI is primarily due the reasons described in “— Real Estate Revenue” and “— Property Operating Expenses.”
Funds From Operations (“FFO”)
The National Association of Real Estate Investment Trusts (“NAREIT”) defines 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 of real estate, (ii) gains and losses on 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.
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”) in measuring our performance against our peers and have used it 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 loss 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 loss and net cash used 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 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, nor is it indicative of funds available for our cash needs, including our ability to make cash distributions. We believe that net loss is the most directly comparable GAAP measurement to FFO.
When applicable, we also present FFO, as adjusted, and FFO per diluted share and OP Unit, as adjusted, which are non-GAAP measures, for the three and nine months ended September 30, 2022 and 2021, 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, insurance recoveries or losses, net, gain/loss on hedge ineffectiveness, gain on sale of preferred equity interest and reorganization expenses which had 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.
37
The following table presents a reconciliation of net loss 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, for the three and nine months ended September 30, 2022 and 2021:
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
(in thousands, except per share amounts) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Net loss |
|
$ |
(71,343 |
) |
|
$ |
(38,398 |
) |
|
$ |
(115,331 |
) |
|
$ |
(107,758 |
) |
Depreciation and amortization on real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Consolidated properties |
|
|
27,752 |
|
|
|
28,812 |
|
|
|
84,628 |
|
|
|
87,653 |
|
PREIT’s share of equity method investments |
|
|
2,678 |
|
|
|
3,095 |
|
|
|
8,673 |
|
|
|
9,257 |
|
(Gain) loss on sales of interests in real estate |
|
|
(7,509 |
) |
|
|
217 |
|
|
|
(9,210 |
) |
|
|
1,191 |
|
Gain on sale of equity method investment |
|
|
77 |
|
|
|
— |
|
|
|
(8,976 |
) |
|
|
— |
|
Gain on sales of real estate by equity method investee |
|
|
— |
|
|
|
10 |
|
|
|
— |
|
|
|
(1,337 |
) |
Impairment of Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Consolidated properties |
|
|
42,271 |
|
|
|
262 |
|
|
|
42,271 |
|
|
|
1,564 |
|
PREIT’s share of equity method investments |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
265 |
|
Funds from operations attributable to common shareholders and OP Unit holders |
|
|
(6,074 |
) |
|
|
(6,002 |
) |
|
|
2,055 |
|
|
|
(9,165 |
) |
Provision for employee separation expense |
|
|
(5 |
) |
|
|
39 |
|
|
|
(6 |
) |
|
|
279 |
|
Gain on hedge ineffectiveness |
|
|
— |
|
|
|
(532 |
) |
|
|
— |
|
|
|
(2,329 |
) |
Gain on debt extinguishment |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(4,587 |
) |
Insurance recoveries, net |
|
|
2 |
|
|
|
— |
|
|
|
2 |
|
|
|
(670 |
) |
Reorganization expenses |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
267 |
|
Gain on sale of preferred equity interest |
|
|
— |
|
|
|
— |
|
|
|
(3,688 |
) |
|
|
— |
|
Funds from operations, as adjusted, attributable to common shareholders and OP Unit holders |
|
$ |
(6,077 |
) |
|
$ |
(6,495 |
) |
|
$ |
(1,637 |
) |
|
$ |
(16,205 |
) |
Funds from operations attributable to common shareholders and OP Unit holders per diluted share and OP Unit (1) |
|
$ |
(1.13 |
) |
|
$ |
(1.10 |
) |
|
$ |
0.38 |
|
|
$ |
(1.70 |
) |
Funds from operations, as adjusted, attributable to common shareholders and OP Unit holders per diluted share and OP Unit (1) |
|
$ |
(1.13 |
) |
|
$ |
(1.20 |
) |
|
$ |
(0.30 |
) |
|
$ |
(3.00 |
) |
Weighted average number of shares outstanding |
|
|
5,317 |
|
|
|
5,279 |
|
|
|
5,313 |
|
|
|
5,222 |
|
Weighted average effect of full conversion of OP Units |
|
|
69 |
|
|
|
82 |
|
|
|
69 |
|
|
|
115 |
|
Effect of common share equivalents |
|
|
— |
|
|
|
72 |
|
|
|
— |
|
|
|
60 |
|
Total weighted average shares outstanding, including OP Units |
|
|
5,386 |
|
|
|
5,433 |
|
|
|
5,382 |
|
|
|
5,397 |
|
(1) Does not include the impact of $6.8 million and $20.5 million of accrued, undeclared and unpaid preferred share dividends for the three and nine months ended September 30, 2022 and 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 $6.1 million for the three months ended September 30, 2022, an increase of $0.1 million, or 1.2%, compared to a loss of $6.0 million for the three months ended September 30, 2021.
FFO attributable to common shareholders and OP Unit holders was $2.1 million for the nine months ended September 30, 2022, a change of $11.2 million, or 122.4%, compared to a loss of $9.2 million for the nine months ended September 30, 2021. This change was primarily due to:
FFO attributable to common shareholders and OP Unit holders per diluted share and OP Unit was $(1.13) and $(1.10) for the three months ended September 30, 2022 and 2021, respectively.
FFO attributable to common shareholders and OP Unit holders per diluted share and OP Unit was $0.38 and $(1.70) for the nine months ended September 30, 2022 and 2021, respectively.
38
FFO, as adjusted, attributable to common shareholders and OP Unit holders per diluted share and OP Unit was $(1.13) and $(1.20) for the three months ended September 30, 2022 and 2021, respectively.
FFO, as adjusted, attributable to common shareholders and OP Unit holders per diluted share and OP Unit was $(0.30) and $(3.00) for the nine months ended September 30, 2022 and 2021, respectively.
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, 2021 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, except for the Fashion District Philadelphia debt that is discussed below, including operating expenses, recurring capital expenditures, tenant improvements and leasing commissions, generally through our available working capital and our First Lien Revolving Facility, assuming extension of the 2022 maturity date and otherwise subject to the terms and conditions of our First Lien Credit Agreement. See “Credit Agreements—Similar terms of the Credit Agreements” below for covenant information. We expect to spend approximately $5.2 million related to our capital improvements and development projects in 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 Internal Revenue Code of 1986, 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. Other than as may be required to maintain our status as a REIT, we do not anticipate that we will pay any cash dividends to holders of our 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 revolving facility of $103.9 million as of September 30, 2022. We have been focused on improving operational efficiency and driving stable and increasing cash flows from operations while advancing our portfolio, including by undertaking, with the assistance of outside advisors, a thorough review of our business and capital structure and evaluating a wide range of opportunities to further strengthen our balance sheet and financial flexibility. 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. In 2022, we executed agreements of sale a number of properties including Cumberland Mall, various outparcels across multiple properties and a former Sears TBA location. The proceeds from the anticipated property sales pursuant to these mall and retail space sale agreements, along with previously executed sale agreements that have not yet closed are expected to provide approximately $130.0 million in gross proceeds which will primarily be used to repay amounts outstanding under our Credit Agreements. We are also in various stages of negotiations for the sale of land parcels for multifamily residential development, the sale of operating retail and outparcel assets and the sale of land parcels for hotel development. Each of these transactions is subject to numerous closing conditions, including the completion of due diligence and securing of entitlements, which in most cases requires zoning variances and similar approvals. We have entered into certain purchase and sales agreements that were subsequently terminated, including an agreement for sale of Exton Square Mall, and closing of the transactions cannot be assured. Additionally, the timing of the transaction completion cannot be estimated with certainty, in particular not all transactions are expected to close in 2022, and many of them are expected to extend into 2023 and 2024.
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:
39
In addition, we are continuing to monitor the COVID-19 pandemic and the related 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.
The pandemic’s effect had a significant impact on our operations, financial condition, liquidity and results of operations in 2020, 2021, and the first three quarters of 2022 and its impact is expected to continue through future periods. 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 continued outbreaks with the emergence of new variants, 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 had impacted our liquidity position and may continue to do so. The extent and duration of such effects are uncertain, continuously 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.
We expect to meet certain of our longer-term requirements, such as obligations to fund redevelopment and development projects, certain capital requirements, 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.
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”) has identified the Secured Overnight Financing Rate (“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. The FCA no longer publishes one-week and two-month U.S. dollar LIBOR rates and plans to cease publishing all other LIBOR tenors (overnight, one-month, three-month, six-month and 12-month) on June 30, 2023. It is not presently known whether SOFR or any other alternative reference rates will attain broad market acceptance as replacements of LIBOR. There remains uncertainty as to how the financial services industry will address the discontinuance of LIBOR in financial instruments that are indexed to LIBOR. Further, various financial instruments indexed to LIBOR could experience different outcomes based on their contractual terms, ability to amend those terms, market or product type, legal or regulatory jurisdiction, and other factors. Alternative reference rates that replace LIBOR may not yield the same or similar economic results over the lives of the financial instruments, which could adversely affect the value of and return on these instruments.
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. When LIBOR is phased out and changes implemented, interest rates on our current or future indebtedness may be adversely affected.
While we expect LIBOR to be available in substantially its current form until the end of 2022, 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 two secured credit agreements (collectively, as amended, the “Credit Agreements”): (a) the First Lien Credit Agreement, which, as described in more detail below, includes (i) the $130.0 million First Lien Revolving Facility, and (ii) the $384.5 million First Lien Term Loan Facility, and (b) the Second Lien Credit Agreement, which, as described in more detail below, includes the $535.2 million Second Lien Term Loan Facility. The First Lien Term Loan Facility and the Second Lien Term Loan Facility are collectively referred to as the “Term Loans.” The Credit Agreements refinanced our previously existing credit agreements in effect prior to the effective date, including our secured term loan under the Credit Agreement dated as of August 11, 2020 (as amended, the “Bridge Credit Agreement”), our Seven-Year Term Loan
40
Agreement entered into on January 8, 2014 (as amended, the “7-Year Term Loan”), and our 2018 Amended and Restated Credit Agreement entered into on May 24, 2018 (as amended, the “2018 Credit Agreement”).
As of September 30, 2022, we had borrowed $973.3 million under the Term Loans and $26.1 million under the First Lien Revolving Facility. The carrying value of the Term Loans on our consolidated balance sheet as of September 30, 2022 is net of $1.2 million of unamortized debt issuance costs. The maximum amount that was available to be borrowed by us under the First Lien Revolving Facility as of September 30, 2022 was $103.9 million.
Our obligations under the Credit Agreements are guaranteed by certain of our subsidiaries. Our obligations under the Credit Agreements and the guaranties are secured by mortgages and deeds of trust on a portfolio of 10 of our subsidiaries’ properties, including nine malls and one additional parcel. 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. In September 2022, we provided notice of our intention to extend the maturity date under the Credit Agreements through December 2023. We believe that we have demonstrated compliance with the criteria above for extension, subject to recalculation of certain debt yield covenants and payment of certain extension fees.
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 canceled 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. 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
41
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.
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.
Wilmington Savings Fund Society, FSB is 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 letter of credit issuer under the First Lien Revolving Facility, accordingly, we cannot currently access the letters of credit sub-facility.
See our Annual Report on Form 10-K for the year ended December 31, 2021 for additional information on the Credit Agreements.
FDP Loan Agreement
As described in note 4 of our consolidated financial statements, PM Gallery LP, a Delaware 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 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) to pay 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, 2021, Macerich is responsible for the entity’s operations and, subject to limited exceptions, controls major decisions.
The FDP Loan Agreement provides for (i) a maturity date of January 22, 2023, with the potential 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 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. The partnership paid down the FDP Loan Agreement balance by $83.1 million in August 2022. As noted above, PREIT Associates L.P. has severally guaranteed its 50% share of the FDP Term Loan (see Note 3 to our consolidated financial statements), which had $111.5 million outstanding as of September 30, 2022 (our share of which is $55.8 million). The joint venture also has the outstanding Partnership Loan of $119.1 million outstanding as of September 30, 2022 (our share of which is $59.5 million) and the majority of the proceeds were used to pay down the FDP Term Loan in December 2020 and the remainder was used to fund ongoing capital expenditures at the property as well as accrued interest. We monitor the joint venture's cash flow and its ability to meet its debt service requirements and to comply with the financial covenants under the FDP Loan Agreement. If the joint venture were unable to satisfy its obligations under the FDP Term Loan, and we were required to satisfy the payment obligations under the guarantee, we anticipate that we would not be able to satisfy such obligation and that these events would have a material impact on our liquidity and available capital resources. There are also circumstances in which a default of the FDP Term Loan could give rise to an event of default under our Credit Agreements. See Going Concern Considerations section in Note 1 of our audited consolidated financial statements for further information.
42
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 or Series C Preferred Shares at $25.00 per share plus any accrued and unpaid dividends. We may redeem any or all 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 D Preferred Shares for cash within 120 days after the first date on which 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 mandatory redemption and will 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 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, 2022, the cumulative amount of unpaid dividends on our issued and outstanding preferred shares totaled $61.6 million. This consisted of unpaid dividends per share on the Series B, Series C and Series D preferred shares of $4.15 per share, $4.05 per share and $3.87 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
On December 10, 2021, we entered into an amendment to our mortgage loan secured by the property at Woodland Mall in Grand Rapids, Michigan, which provided for an extension of the maturity date until December 10, 2022 and had an outstanding balance of $110.7 million as of September 30, 2022. We capitalized $0.3 million of lender fees as additional debt issuance costs in connection with the amendment.
During the year ended 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, 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 ranged from August 2020 through February 2021 depending on the terms of the specific agreements. As of September 30, 2022, we had repaid all principal and interest deferrals.
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 $27.2 million. In the third quarter of 2020, the operations of the property were transferred to a receiver and foreclosure was filed. In May 2022, the foreclosure proceedings were completed and both the mortgage balance and contract asset related to this mortgage loan were written off. As such, no mortgage balance or contract asset in relation to Valley View Mall remains on our consolidated balance sheet as of September 30, 2022.
In the third quarter of 2022, we defaulted on the mortgage loan secured by Cumberland Mall due to a missed balloon payment of $38.2 million on August 1, 2022. In October 2022, we sold Cumberland Mall and the mortgage loan was paid off in full using net proceeds from the sale.
On August 31, 2022, certain of our consolidated subsidiaries entered into an amendment and extension to our mortgage loan secured by the property at Cherry Hill Mall, which had a maturity date of September 1, 2022. The maturity date was extended by one month and subsequently for an additional month through November 1, 2022. As of September 30, 2022, the mortgage loan outstanding balance was $246.5 million. On October 31, 2022, certain of our consolidated subsidiaries entered into a second amendment and extension agreement to extend the maturity date for three months through February 1, 2023 with one option to extend by an additional three month period through May 1, 2023. See Part II, Item 1.A, Risk Factors “Secured indebtedness exposes us to the possibility of foreclosure, which could result in the loss of our investment in certain of our subsidiaries or in a property or group of properties or other assets subject to the indebtedness.”
Mortgage Loans
Our mortgage loans, which are secured by eight of our consolidated properties, are due in installments over various terms extending to the year 2025. Seven of these mortgage loans bear interest at fixed interest rates that range from 3.88% to 7.19% and had a weighted average interest rate of 4.48% at September 30, 2022. Three of our mortgage loans bears interest at a variable rates, a portion of which has been swapped to fixed rates, and has a weighted average interest rate of 6.67% at September 30, 2022. The weighted average interest rate of all consolidated mortgage loans was 4.84% at September 30, 2022. Mortgage loans for properties owned by unconsolidated partnerships are accounted for in “Investments in partnerships, at equity” and “Distributions in excess of partnership investments,” and are not included in the table below.
43
The following table outlines the timing of principal payments and balloon payments pursuant to the terms of our mortgage loans on our consolidated properties as of September 30, 2022:
(in thousands of dollars) |
|
Total |
|
|
Remainder of |
|
|
2023-2024 |
|
|
2025-2026 |
|
|
Thereafter |
|
|||||
Principal payments |
|
$ |
19,316 |
|
|
$ |
1,918 |
|
|
$ |
12,992 |
|
|
$ |
4,406 |
|
|
$ |
— |
|
Balloon payments |
|
|
743,033 |
|
|
|
357,165 |
|
(1) |
|
174,523 |
|
|
|
211,345 |
|
|
|
— |
|
Total |
|
|
762,349 |
|
|
$ |
359,083 |
|
|
$ |
187,515 |
|
|
$ |
215,751 |
|
|
$ |
— |
|
Less: unamortized debt issuance costs |
|
|
1,119 |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Carrying value of mortgage notes payable |
|
$ |
761,230 |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
(1) Includes Cherry Hill Mall mortgage for which, subsequent to the end of the quarter ended September 30, 2022, the maturity was extended through February 1, 2023.
Contractual Obligations
The following table presents our aggregate contractual obligations as of September 30, 2022 for the periods presented:
(in thousands of dollars) |
|
Total |
|
|
Remainder of |
|
|
2023-2024 |
|
|
2025-2026 |
|
|
Thereafter |
|
|||||
Mortgage loans |
|
$ |
762,349 |
|
|
$ |
359,083 |
|
(1) |
$ |
187,515 |
|
|
$ |
215,751 |
|
|
$ |
— |
|
Term Loans |
|
|
973,388 |
|
|
|
973,388 |
|
(2) |
|
|
|
|
— |
|
|
|
— |
|
|
First Lien Revolving Facility |
|
|
26,078 |
|
|
|
26,078 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Interest on indebtedness (3) |
|
|
57,466 |
|
|
|
21,565 |
|
|
|
29,520 |
|
|
|
6,381 |
|
|
|
— |
|
Operating leases |
|
|
8,834 |
|
|
|
249 |
|
|
|
1,859 |
|
|
|
1,688 |
|
|
|
5,038 |
|
Ground leases |
|
|
50,352 |
|
|
|
396 |
|
|
|
3,168 |
|
|
|
3,168 |
|
|
|
43,620 |
|
Finance leases |
|
|
5,184 |
|
|
|
247 |
|
|
|
1,935 |
|
|
|
1,855 |
|
|
|
1,147 |
|
Development and redevelopment commitments (4) |
|
|
5,226 |
|
|
|
4,631 |
|
|
|
595 |
|
|
|
— |
|
|
|
— |
|
Total |
|
$ |
1,888,877 |
|
|
$ |
1,385,637 |
|
|
$ |
224,592 |
|
|
$ |
228,843 |
|
|
$ |
49,805 |
|
(1) Includes Cherry Hill Mall mortgage for which, subsequent to the end of the quarter ended September 30, 2022, the maturity was extended through February 1, 2023.
(2) Includes our First Lien Term Loan of $345.1 million and the anticipated maturity date balance of our Second Lien Term Loan Facility of $628.2 million, which includes estimated capitalized PIK interest based on current interest rates. In September 2022, we provided notice of our intention to extend the maturity date under the Credit Agreements through December 2023.
(3) Includes interest payments expected to be made on consolidated debt, including those in connection with interest rate swap agreements.
(4) The timing of the payments of these amounts is uncertain. We expect that a significant majority of such payments (of which we include 100% of our obligations related to Fashion District Philadelphia, which opened in September 2019) will be made prior to December 31, 2022, but cannot provide any assurance that changed circumstances at these projects will not delay the settlement of these obligations.
Interest Rate Derivative Agreements
As of September 30, 2022, we had interest rate swap agreements designated in qualifying hedging relationships outstanding with a weighted average base interest rate of 2.92% on a notional amount of $400.0 million, maturing in May 2023 or May 2024. 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 de-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 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 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 December 10, 2020, the changes in fair value of the derivatives were recorded to accumulated other comprehensive (loss) income in the consolidated balance sheets.
44
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.
On August 24, 2022, we entered into two interest rate swap agreements with a weighted average interest swap rate of 3.59% on a notional amount of $100.0 million maturing on May 24, 2024. We entered into these interest rate swap agreements to hedge the interest payments associated with our variable interest rate mortgage loans. We have assessed the effectiveness of these interest rate swap agreements as hedges at inception and will do so on a quarterly basis.
As of September 30, 2022, we had 9 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 $3.5 million will be reclassified as a decrease 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, 2022 we had no non-designated swaps mature. As of September 30, 2022, we had no derivatives which were non-designated.
CASH FLOWS
Net cash provided by operating activities totaled $38.4 million for the nine months ended September 30, 2022 compared to net cash provided by operating activities of $38.2 million for the nine months ended September 30, 2021. This decrease in cash provided by operating activities was due to changes in working capital between periods primarily as a result of strong collections of outstanding accounts receivable in the first half of the prior year, which are included in change in other assets in our statement of cash flows.
Cash flows provided by investing activities were $26.6 million for the nine months ended September 30, 2022 compared to cash flows used in investing activities of $15.2 million for the nine months ended September 30, 2021. Cash flows provided by investing activities for the nine months ended September 30, 2022 included $28.1 million in proceeds from sales of real estate and equity method investment, and $2.4 million of proceeds from sale of preferred equity interest partially offset by $2.9 million of additions to construction in progress and $11.5 million of investments in real estate improvements.
Cash flows used in investing activities for the nine months ended September 30, 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 financing activities were $88.7 million for the nine months ended September 30, 2022 compared to cash flows used in financing activities of $88.7 million for the nine months ended September 30, 2021. Cash flows used in financing activities for the nine months ended September 30, 2022 included $24.8 million of principal payments on mortgage loans, along with $0.4 million of deferred financing costs paid for our Woodland Mall mortgage extension. Aggregate repayments on our First Lien Revolving Facility and Term Loans were $39.7 million and $11.5 million, respectively, during the nine months ended September 30, 2022. Additionally, the value of shares retired under the equity incentive plan, net of shares issued, was $0.8 million.
Cash flows used in financing activities for the nine months ended September 30, 2021 included a $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 refinancing of the Francis Scott Key and Viewmont Malls mortgages. We also had $0.6 million of shares retired under our equity compensation plan, net of shares issued.
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 $10.0 million per occurrence and up to $10.0 million in the aggregate over our two year policy term. See our Annual Report on Form 10-K for the year ended December 31, 2021, in the section entitled “Item 1A. Risk Factors— Risks
45
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 store and other tenants. 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 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 largely constrained labor market, which could impact their operations and operation 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, 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.
If we seek to make acquisitions, competitors (such as institutional investors, other REITs and other owner-operators of retail properties) 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. 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. 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. 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, 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 ongoing COVID-19 pandemic.
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.
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. Customers might spend less at our retailers, which might decrease our rent based on a percentage of sales, due to 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
46
This Quarterly Report on Form 10-Q for the quarter ended September 30, 2022, 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:
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, 2021 in the section entitled “Item 1A. Risk Factors” and any subsequent reports we file with the SEC. We do not intend to update or revise any forward-looking statements to reflect new information, future events or otherwise.
47
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, 2022, our consolidated debt portfolio consisted of $761.2 million of fixed and variable rate mortgage loans (net of debt issuance costs and excluding Cumberland Mall mortgage which was classified as held for sale as of September 30, 2022), $26.1 million outstanding under our First Lien Revolver, which bore interest at a rate of 6.1%, $345.1 million borrowed under our First Lien Term Loan Facility, which bore interest at a rate of 8.42%, and $628.2 million borrowed under our Second Lien Term Loan Facility, which bore interest at a rate of 10.8%.
Our mortgage loans, which are secured by eight of our consolidated properties, are due in installments over various terms extending to October 2025. Seven of our mortgage loans bear interest at fixed interest rates that range from 3.88% to 7.19%, and had a weighted average interest rate of 4.48% at September 30, 2022. Three of our mortgage loans bears interest at a variable rates, a portion of which has been swapped to fixed rates, and had a weighted average interest rate of 6.67% at September 30, 2022. The weighted average interest rate of all consolidated mortgage loans was 4.84% at September 30, 2022. 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:
|
|
Fixed Rate Debt |
|
|
Variable Rate Debt |
|
||||||||||
(in thousands of dollars) |
|
Principal |
|
|
Weighted |
|
|
Principal |
|
|
Weighted |
|
||||
2022 |
|
$ |
586,602 |
|
(3)/ (4) |
|
5.26 |
% |
|
$ |
810,116 |
|
(2) |
|
10.42 |
% |
2023 |
|
|
59,886 |
|
|
|
3.99 |
% |
|
|
— |
|
|
|
0.00 |
% |
2024 |
|
|
106,189 |
|
|
|
6.83 |
% |
|
|
21,440 |
|
|
|
1.19 |
% |
2025 |
|
|
215,751 |
|
|
|
4.02 |
% |
|
|
— |
|
|
|
0.00 |
% |
2026 and thereafter |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
(1) Based on the weighted average interest rates in effect as of September 30, 2022 and does not include the effect of our interest rate swap derivative instruments as described below.
(2) Includes term loan debt of $673.3 million under our First Lien Term Loan Facility and Second Lien Term Loan Facility with a weighted average interest rate of 10.59% as of September 30, 2022.
(3) Includes Cumberland Mall mortgage of $38.2 million which was classified as held for sale as of September 30, 2022.
(4) Includes Cherry Hill Mall mortgage of $246.5 million for which, subsequent to the end of the quarter ended September 30, 2022, the maturity was extended through February 1, 2023.
As of September 30, 2022, we had $831.6 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 loss 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, 2022, we had interest rate swap agreements outstanding with a weighted average base interest rate of 2.92% on a notional amount of $400.0 million, maturing in May 2023 or May 2024. 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 2020.
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 the 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 the 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, 2022 levels, with all other variables held constant.
48
A 100 basis point increase in market interest rates would have resulted in a decrease in our net financial instrument position of $2.9 million at September 30, 2022. A 100 basis point decrease in market interest rates would have resulted in an increase in our net financial instrument position of $7.0 million at September 30, 2022. Based on the variable rate debt included in our debt portfolio at September 30, 2022, a 100 basis point increase in interest rates would have resulted in an additional $8.3 million in interest expense annually. A 100 basis point decrease would have reduced interest incurred by $8.3 million annually.
Because the information presented above includes only those exposures that existed as of September 30, 2022, 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.
49
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:
• information that we are required to disclose in our reports under the Securities Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms; and
• material information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to management, including our principal executive and principal financial officers, as appropriate, to allow timely decisions regarding required disclosure.
Management, under the supervision of our Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO") evaluated 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 CEO and CFO concluded that as of September 30, 2022, our disclosure controls and procedures were not effective due to the material weaknesses in our internal control over financial reporting.
The ineffectiveness of our internal control over financial reporting was due to material weaknesses in our internal control over 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, 2021.
Management’s Remediation Efforts
Management of the Company and the Board of Trustees are committed to maintaining a strong internal control environment and to making further progress in its remediation efforts during 2022. During 2021 and 2022, we commenced efforts at the remediation of a material weakness identified as of December 31, 2020. Our remediation activities that commenced in 2021 and 2022 resulted in attracting and retaining sufficient personnel with requisite financial expertise and appropriately considering risks of fraud, including the possibility of management override of controls and proper segregation of duties, and our remediation activities are ongoing. The Company's 2021 and 2022 remediation measures included the following:
Management believes that it is making progress with the ongoing remediation efforts that include completion and implementation of design to enhance precision of management review controls and ensure reliability of information used in the controls will reduce the risk that a material misstatement to the consolidated financial statements would not be prevented or detected on a timely basis. We will monitor and evaluate the remediation steps to ensure our internal control over financial reporting is effective to address control deficiencies or as we determine it necessary to modify the remediation plan described above. We will continue to report regularly to our Audit Committee on the progress of our remediation plan.
Changes in Internal Control over Financial Reporting
Other than our actions to remediate the material weaknesses relating to our internal controls over financial reporting as described above, there were no changes in our internal control over financial reporting during the quarter ended September 30, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
50
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.
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 disclosed under the caption “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2021.
Our common shares and preferred shares could be promptly suspended and delisted from the NYSE if we were to fail to meet certain of the NYSE's continued listing standards, which could have a material adverse effect on our business.
Our common shares and preferred shares are listed on the NYSE and, as such, are subject to the exchange’s listing standards, In June 2022, the Company effected a one-for-fifteen reverse share split of its common shares, primarily to bring the Company into compliance with the minimum bid price requirement for maintaining its listing on the NYSE, and on July 1, 2022, the Company received notice from the NYSE that it had regained compliance with the minimum bid price requirement. Notwithstanding the reverse share split, there is no assurance that the Company’s securities will remain in compliance with the NYSE’s listing standards or that its securities will remain listed on the NYSE. In particular, in light of the Company’s reduced number of common shares outstanding and trading price, there is a risk that our average global market capitalization over a consecutive 30 trading-day period could fall below $15.0 million, in which case we would no longer be in compliance with the NYSE’s minimum average global market capitalization continued listing standards set forth in Section 802.01B of the NYSE’s Listed Company Manual. If our average global market capitalization over a consecutive 30 trading-day period drops below $15.0 million, the NYSE will promptly initiate delisting proceedings with respect to our common shares and preferred shares without providing us with an opportunity to cure such non-compliance. The delisting of our common shares and preferred shares could have a material adverse effect on our business, by, among other things:
Secured indebtedness exposes us to the possibility of foreclosure, which could result in the loss of our investment in certain of our subsidiaries or in a property or group of properties or other assets subject to indebtedness.
We have granted our lenders security interests in a portfolio of our assets, including equity interests in certain of our subsidiaries and in certain of our real property. Incurring secured indebtedness, including mortgage indebtedness, increases our risk of asset and property losses because defaults on indebtedness secured by our assets, including equity interests in certain of our subsidiaries and in certain of our real property, may
result in foreclosure actions initiated by lenders and ultimately our loss of the property or other assets securing any loans for which we are in default.
Any foreclosure on a mortgaged property or group of properties could have a material adverse effect on the overall value of our portfolio of properties and more generally on our business. For tax purposes, a foreclosure of any of our properties would be treated as a sale of the property for a purchase price equal to the outstanding balance of the indebtedness secured by the mortgage. If the outstanding balance of the indebtedness secured by the mortgage exceeds our tax basis in the property, we would recognize taxable income on foreclosure, but would not receive any cash proceeds, which could materially and adversely affect us. As a result, our substantial secured indebtedness could have a material adverse effect on our business. For example, we have recently been able to extend the maturity of our subsidiaries’ mortgage loan secured by Cherry Hill Mall, but no assurance can be provided that we would be able to do so in the future at its extended maturity date or for other properties when their mortgage loans mature, in which case our subsidiaries may be unable to meet their payment obligations when due and the lenders may seek to exercise remedies, including foreclosing on the applicable property.
51
We might not be able to refinance our existing obligations or obtain the capital required to finance our activities.
The REIT provisions of the Internal Revenue Code of 1986, as amended, generally require the distribution to shareholders of 90% of a REIT’s net taxable income, excluding net capital gains, which generally leaves insufficient funds to finance major initiatives internally. Due to these requirements, and subject to the terms of the Credit Agreements, we generally fund certain capital requirements, such as the capital for renovations, expansions, redevelopments, other non-recurring capital improvements, scheduled debt maturities, and acquisitions of properties or other assets, through secured and unsecured indebtedness and, when available and market conditions are favorable, the issuance of additional equity securities.
As of September 30, 2022, our mortgage loans are secured by eight of our consolidated properties and are due in installments over various terms extending to the year 2025. Also, we estimate that we will need $5.2 million of additional capital to complete our current redevelopment projects, including the completion of redevelopment at FDP, which opened on September 19, 2019. Our ability to finance growth from financing sources depends, in part, on our creditworthiness, the availability of credit to us from financing sources, or the market for our debt, equity or equity-related securities when we need capital, and on conditions in the capital markets generally. See “Part I, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources” for information about our available sources of funds. There can be no assurances that we will continue to be able to obtain the financing we need for future growth or to meet our debt service as obligations mature, or that the financing will be available to us on acceptable terms, or at all. A lack of acceptable financing could delay or hinder our growth initiatives, or prevent us from implementing our initiatives on satisfactory terms.
If our mortgage loans and other debts cannot be repaid in full, refinanced or extended at maturity on acceptable terms, or at all, a lender could foreclose upon the mortgaged property and receive an assignment of rent and leases or pursue other remedies, or we might be forced to dispose of one or more of our properties on unfavorable terms. For example, we have recently been able to extend the maturity of our subsidiaries’ mortgage loan secured by Cherry Hill Mall, but no assurance can be provided that we would be able to do so in the future at its extended maturity date or for other properties when their mortgage loans mature, in which case our subsidiaries may be unable to meet their payment obligations when due and the lenders may seek to exercise remedies, including foreclosing on the applicable property. In certain circumstances, any of these events or combination of events, could have a material adverse effect on our business.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
Issuer Purchases of Equity Securities
We did not acquire any shares in the three and nine months ended September 30, 2022.
Limitations upon the Payment of Dividends
The Credit Agreements provide generally that we may only make dividend payments in the minimum amount necessary to maintain our status as a REIT. We must maintain our status as a REIT at all times.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
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 per share, $0.45 per share and $0.4297 per share, respectively. As of November 8, 2022, the cumulative amount of unpaid dividends on our issued and outstanding preferred shares totaled $61.6 million. This consisted of unpaid dividends per share on the Series B, Series C and Series D preferred shares of $4.15 per share, $4.05 per share and $3.87 per share, respectively.
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ITEM 6. EXHIBITS.
3.1 |
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3.3 |
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3.5 |
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3.6 |
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3.7 |
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3.8 |
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3.9 |
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10.1* |
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10.2* |
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31.1* |
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31.2* |
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32.1** |
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32.2** |
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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. |
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101.SCH* |
Inline XBRL Taxonomy Extension Schema Document. |
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101.CAL* |
Inline XBRL Taxonomy Extension Calculation Linkbase Document. |
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101.DEF* |
Inline XBRL Taxonomy Extension Definition Linkbase Document. |
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101.LAB* |
Inline XBRL Taxonomy Extension Label Linkbase Document. |
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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.
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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 |
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Date: |
November 8, 2022 |
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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November 8, 2022 |
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/s/ Mario C. Ventresca, Jr. |
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Mario C. Ventresca, Jr. |
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Executive Vice President and Chief Financial Officer |
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November 8, 2022 |
By: |
/s/ Sathana Semonsky |
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Sathana Semonsky |
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Vice President and Chief Accounting Officer |
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EXHIBIT 10.1
LOAN EXTENSION AND MODIFICATION AGREEMENT
THIS LOAN EXTENSION AND MODIFICATION AGREEMENT (this “Agreement”), dated as of August 31, 2022, is made by and among PR CHERRY HILL STW LLC, a Delaware limited liability company (“PR Cherry Hill”), and CHERRY HILL CENTER, LLC, a Maryland limited liability company (“Cherry Hill Center”; PR Cherry Hill and Cherry Hill Center are referred to herein individually and collectively, as the context may require, as “Borrower”), PREIT ASSOCIATES, L.P., a Delaware limited partnership (“Guarantor”), NEW YORK LIFE INSURANCE COMPANY, a New York mutual insurance company (“Co-Lender A-1”), and TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA, a New York corporation (“Co-Lender A-2”; Co-Lender A-1 and Co-Lender A-2, together with their successors and assigns, are referred to herein individually as “Co-Lender” and collectively as “Lender”).
RECITALS:
WHEREAS, on August 15, 2012, Lender made a loan (the “Loan”) to Borrower in the original principal amount of Three Hundred Million Dollars ($300,000,000.00);
WHEREAS, the Loan is evidenced by that certain Promissory Note A-1 dated August 15, 2012, made by Borrower and payable to Co-Lender A-1, in the original principal amount of One Hundred Fifty Million Dollars ($150,000,000.00) (“Note A-1”) and that certain Promissory Note A-2 dated August 15, 2012, made by Borrower and payable to Co-Lender A-2, in the original principal amount of One Hundred Fifty Million Dollars ($150,000,000.00) (“Note A-2”; Note A-1 and Note A-2 are referred to herein individually as a “Note” and collectively as the “Notes”);
WHEREAS, Borrower’s obligations under the Notes are secured by, among other things, that certain Mortgage, Assignment of Leases and Rents, Security Agreement and Fixture Filing made on August 9, 2012 and effective as of August 15, 2012, from Borrower to Lender, recorded on August 24, 2012 in Book 09648, at Page 0640 in the Public Records of Camden County, New Jersey (the “Security Instrument”), covering certain real property and improvements thereon, more particularly described therein (the “Property”). Capitalized terms used but not otherwise defined in this Agreement shall have the meanings given to them in the Notes or the Security Instrument, as applicable;
WHEREAS, in connection with the Loan, (i) Guarantor executed and delivered to Lender that certain Guaranty dated as of August 15, 2012 (the “Guaranty”); and (ii) Borrower and Guarantor executed and delivered to Lender that certain Environmental Indemnity Agreement dated as of August 15, 2012 (the “Environmental Indemnity”);
WHEREAS, the stated Maturity Date of the Notes is September 1, 2022;
WHEREAS, Borrower has requested that Lender extend the Maturity Date of the Notes;
WHEREAS, Lender has agreed to extend the Maturity Date of the Notes to October 1, 2022, subject to the terms and conditions of this Agreement;
WHEREAS, in connection with this Agreement, Borrower is executing and delivering to Lender that certain Modification and Extension of Mortgage of even date herewith (the “Modification”).
NOW, THEREFORE, as an inducement to Lender to extend the Maturity Date of the Notes, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
TERMS:
“Maker shall have one (1) option to extend the Maturity Date (the “Extension Option”), on the same terms as set forth in this Note, for an additional period of thirty two (32) days to end on November 1, 2022 (the “Extension Term”), provided that all of the following conditions are satisfied for the Extension Term: (i) Maker requests the extension in writing (the “Extension Request”) not less than fifteen (15) days prior to the Maturity Date, (ii) upon the closing of the Extension Option, no Event of Default has occurred and is continuing under any of the Loan Instruments, (iii) concurrently with the closing of the Extension Option, Maker pays to Holder an extension fee equal to ten basis points (0.10%) of the outstanding principal balance of this Note, (iv) concurrently with the closing of the Extension Option, Maker pays to Holder Five Hundred Thousand and 00/100 Dollars ($500,000.00) of the outstanding principal balance of this Note, (v) on or prior to September 23, 2022, the Cash Management Agreement (as hereinafter defined) and the Clearing Account Agreement (as hereinafter defined) shall have been fully-executed and delivered to Holder, and all Rent and other income from the Property are being deposited in the Clearing Account or Cash Management Account, as applicable in accordance with Section 3 hereof, and (vi) concurrently with the closing of the Extension Option, Maker delivers satisfactory evidence to Holder, in Holder’s commercially reasonable discretion, of Maker’s continuation of the refinance process with Jones Lang LaSalle. The closing of the Extension Option shall occur at least one (1) business day before the Maturity Date. If the closing of the Extension Option does not occur by such date, the Loan will mature on the Maturity Date and Maker shall have no further option to extend. Time is of the essence with respect to each of the time periods set forth in this paragraph.”
Notwithstanding anything to the contrary contained in this Agreement, if an Event of Default has occurred and is continuing under any of the Loan Instruments, Lender shall have the right to apply the funds in the Cash Management Account to the expenses of the Property or to the Obligations under the Loan Instruments (including, but not limited to, the repayment of the Loan), in such order and priority as Lender may determine in its sole discretion.
[NO FURTHER TEXT ON THIS PAGE]
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their duly authorized representatives, all as of the day and year first above written.
BORROWER:
PR CHERRY HILL STW LLC,
a Delaware limited liability company
By: PREIT Associates, L.P.,
a Delaware limited partnership,
its sole member
By: Pennsylvania Real Estate Investment
Trust, its sole general partner
By: _/s/ Andrew Ioannou_________________
Name: Andrew Ioannou
Title: Executive Vice President
CHERRY HILL CENTER, LLC,
a Maryland limited liability company
By: Cherry Hill Center Manager, LLC,
a Delaware limited liability company,
its managing member
By: PREIT Associates, L.P.,
a Delaware limited partnership,
its sole member
By: Pennsylvania Real Estate Investment
Trust, its sole general partner
By: _/s/ Andrew Ioannou___________
Name: Andrew Ioannou
Title: Executive Vice President
GUARANTOR:
PREIT ASSOCIATES, L.P.,
a Delaware limited partnership
By: Pennsylvania Real Estate Investment Trust,
its sole general partner
By: _/s/ Andrew Ioannou_______________________
Name: Andrew Ioannou
Title: Executive Vice President
LENDER:
NEW YORK LIFE INSURANCE COMPANY,
a New York mutual insurance company
By: _/s/ Paula H. Warren_________________________
Name: Paula Warren
Title: Corporate Vice President
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA,
a New York corporation
By: Nuveen Alternatives Advisors LLC,
a Delaware limited liability company,
its investment manager
By: _/s/ Talia Feuerstein________________________
Name: Talia Feuerstein
Title: Authorized Signer
EXHIBIT 10.2
SECOND LOAN EXTENSION AND MODIFICATION AGREEMENT
THIS SECOND LOAN EXTENSION AND MODIFICATION AGREEMENT (this “Agreement”), dated as of October 31, 2022, is made by and among PR CHERRY HILL STW LLC, a Delaware limited liability company (“PR Cherry Hill”), and CHERRY HILL CENTER, LLC, a Maryland limited liability company (“Cherry Hill Center”; PR Cherry Hill and Cherry Hill Center are referred to herein individually and collectively, as the context may require, as “Borrower”), PREIT ASSOCIATES, L.P., a Delaware limited partnership (“Guarantor”), NEW YORK LIFE INSURANCE COMPANY, a New York mutual insurance company (“Co-Lender A-1”), and TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA, a New York corporation (“Co-Lender A-2”; Co-Lender A-1 and Co-Lender A-2, together with their successors and assigns, are referred to herein individually as “Co-Lender” and collectively as “Lender”).
RECITALS:
WHEREAS, on August 15, 2012, Lender made a loan (the “Loan”) to Borrower in the original principal amount of Three Hundred Million Dollars ($300,000,000.00);
WHEREAS, the Loan is evidenced by that certain Promissory Note A-1 dated August 15, 2012, made by Borrower and payable to Co-Lender A-1, in the original principal amount of One Hundred Fifty Million Dollars ($150,000,000.00) (“Note A-1”) and that certain Promissory Note A-2 dated August 15, 2012, made by Borrower and payable to Co-Lender A-2, in the original principal amount of One Hundred Fifty Million Dollars ($150,000,000.00) (“Note A-2”; Note A-1 and Note A-2 are referred to herein individually as a “Note” and collectively as the “Notes”);
WHEREAS, Borrower’s obligations under the Notes are secured by, among other things, that certain Mortgage, Assignment of Leases and Rents, Security Agreement and Fixture Filing made on August 9, 2012 and effective as of August 15, 2012, from Borrower to Lender, recorded on August 24, 2012 in Book 09648, at Page 0640 in the Public Records of Camden County, New Jersey, as amended by that certain Modification and Extension of Mortgage dated as of August 31, 2022 and recorded on October 5, 2022 in Book 12202, at Page 789 in the Public Records of Camden County, New Jersey (as so amended, the “Security Instrument”), covering certain real property and improvements thereon, more particularly described therein (the “Property”). Capitalized terms used but not otherwise defined in this Agreement shall have the meanings given to them in the Notes or the Security Instrument, as applicable;
WHEREAS, in connection with the Loan, (i) Guarantor executed and delivered to Lender that certain Guaranty dated as of August 15, 2012 (the “Guaranty”); and (ii) Borrower and Guarantor executed and delivered to Lender that certain Environmental Indemnity Agreement dated as of August 15, 2012 (the “Environmental Indemnity”);
WHEREAS, the stated Maturity Date of the Notes was previously extended to November 1, 2022 pursuant to that certain Loan Extension and Modification Agreement dated as of August 31, 2022 by and among Borrower, Guarantor and Lender (the “First Modification”);
WHEREAS, Borrower has requested that Lender further extend the Maturity Date of the Notes; and
WHEREAS, Lender has agreed to further extend the Maturity Date of the Notes to February 1, 2023 and to provide Borrower with an additional extension option to May 1, 2023, in each case, subject to the terms and conditions of this Agreement.
NOW, THEREFORE, as an inducement to Lender to extend the Maturity Date of the Notes, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
TERMS:
“Maker shall have one (1) option to extend the Maturity Date (the “Extension Option”), on the same terms as set forth in this Note, for an additional period of three (3) months to end on May 1, 2023 (the “Extension Term”), provided that all of the following conditions are satisfied for the Extension Term: (i) Maker requests the extension in writing not less than fifteen (15) days prior to the Maturity Date, (ii) upon the closing of the Extension Option, no Event of Default has occurred and is continuing under any of the Loan Instruments, (iii) concurrently with the closing of the Extension Option, Maker pays to Holder an extension fee of One Million Two Hundred Fifty Thousand and 00/100 Dollars ($1,250,000.00) (i.e. Two Million Five Hundred Thousand and 00/100 Dollars ($2,500,000.00) in the aggregate with respect to both Notes), which amount shall not be funded with Excess Cash (as hereinafter defined), (iv) on the monthly payment dates occurring in February 2023, March 2023 and April 2023, Maker pays to Holder Five Hundred Thousand and 00/100 Dollars ($500,000.00) of the outstanding principal balance of this Note (i.e. One Million and 00/100 ($1,000,000.00) in the aggregate with respect to both Notes), which amount shall not be funded with Excess Cash, (v) if the aggregate amount of Excess Cash collected during the period from November 1, 2022 through February 1, 2022 is less than Three Million and 00/100 Dollars ($3,000,000.00), concurrently with the closing of the Extension Option, Maker pays to Holder an amount of principal equal to fifty percent (50%) of the shortfall (i.e. one hundred percent (100%) of such shortfall in the aggregate with respect to both Notes), which amount shall not be funded with Excess Cash, (vi) the maturity date of the Credit Agreements (as hereinafter defined) shall have been extended to December 2023, and (vii) concurrently with the closing of the Extension Option, Maker delivers satisfactory evidence to Holder, in Holder’s commercially reasonable discretion, of Maker’s continuation of the refinance process with Jones Lang LaSalle. The closing of the Extension Option shall occur at least one (1)
business day before the Maturity Date. If the closing of the Extension Option does not occur by such date, the Loan will mature on the Maturity Date and Maker shall have no further option to extend. Time is of the essence with respect to each of the time periods set forth in this paragraph.
As used herein, (i) the term “Credit Agreements” shall mean the two secured credit agreements entered into by Pennsylvania Real Estate Investment Trust (“PREIT”) defined as the “Credit Agreements” in the last quarterly report of PREIT pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, which Credit Agreements are currently scheduled to mature in December 2022, (ii) the term “Excess Cash” shall mean the amounts available to be applied to the outstanding principal balance of the Loan after application pursuant to Section 3(a)(i) through (iii) of the First Modification and Section 3.1(b)(i) through (iii) of the Cash Management Agreement, and (iii) the term “Cash Management Agreement” shall mean that certain Cash Management and Pledge Agreement dated as of September 23, 2022 by and among Maker, Holder and Co-Lender.”
[NO FURTHER TEXT ON THIS PAGE]
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their duly authorized representatives, all as of the day and year first above written.
BORROWER:
PR CHERRY HILL STW LLC,
a Delaware limited liability company
By: PREIT Associates, L.P.,
a Delaware limited partnership,
its sole member
By: Pennsylvania Real Estate Investment
Trust, its sole general partner
By: _/s/ Andrew Ioannou_________________
Name: Andrew M. Ioannou
Title: Executive Vice President
Finance and Acquisitions
CHERRY HILL CENTER, LLC,
a Maryland limited liability company
By: Cherry Hill Center Manager, LLC,
a Delaware limited liability company,
its managing member
By: PREIT Associates, L.P.,
a Delaware limited partnership,
its sole member
By: Pennsylvania Real Estate Investment
Trust, its sole general partner
By: _/s/ Andrew Ioannou___________
Name: Andrew M. Ioannou
Title: Executive Vice President
Finance and Acquisitions
GUARANTOR:
PREIT ASSOCIATES, L.P.,
a Delaware limited partnership
By: Pennsylvania Real Estate Investment Trust,
its sole general partner
By: _/s/ Andrew Ioannou____________________
Name: Andrew M. Ioannou
Title: Executive Vice President
Finance and Acquisitions
LENDER:
NEW YORK LIFE INSURANCE COMPANY,
a New York mutual insurance company
By: _/s/ Paula Warren_________________________
Name: Paula Warren
Title: Corporate Vice President
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA,
a New York corporation
By: Nuveen Alternatives Advisors LLC,
a Delaware limited liability company,
its investment manager
By: _/s/ Talia Feuerstein_________________________
Name: Talia Feuerstein
Title: Authorized Signer
Exhibit 31.1
CERTIFICATION
I, Joseph F. Coradino, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Pennsylvania Real Estate Investment Trust;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of trustees (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: November 8, 2022
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/s/ Joseph F. Coradino |
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Name: |
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Joseph F. Coradino |
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Title: |
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Chairman and Chief Executive Officer |
Exhibit 31.2
CERTIFICATION
I, Mario C. Ventresca, Jr., certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Pennsylvania Real Estate Investment Trust;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of trustees (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: November 8, 2022
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/s/ Mario C. Ventresca, Jr. |
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Name: |
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Mario C. Ventresca, Jr. |
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Title: |
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Executive Vice President and Chief Financial Officer |
Exhibit 32.1
Certification of Chief Executive Officer
Pursuant to Section 906 of Sarbanes-Oxley Act of 2002
I, Joseph F. Coradino, the Chief Executive Officer of Pennsylvania Real Estate Investment Trust (the “Company”), hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
(1) the Form 10-Q of the Company for the quarter ended September 30, 2022 as filed with the Securities and Exchange Commission on the date hereof (the “Form 10-Q”), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and
(2) the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: November 8, 2022
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/s/ Joseph F. Coradino |
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Name: |
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Joseph F. Coradino |
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Title: |
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Chairman and Chief Executive Officer |
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Exhibit 32.2
Certification of Chief Financial Officer
Pursuant to Section 906 of Sarbanes-Oxley Act of 2002
I, Mario C. Ventresca, Jr., the Executive Vice President and Chief Financial Officer of Pennsylvania Real Estate Investment Trust (the “Company”), hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
(1) the Form 10-Q of the Company for the quarter ended September 30, 2022 as filed with the Securities and Exchange Commission on the date hereof (the “Form 10-Q”), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and
(2) the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: November 8, 2022
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/s/ Mario C. Ventresca, Jr. |
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Name: |
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Mario C. Ventresca, Jr. |
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Title: |
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Executive Vice President and Chief Financial Officer |
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CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) - USD ($) shares in Thousands, $ in Thousands |
3 Months Ended | 9 Months Ended | ||||
|---|---|---|---|---|---|---|
Sep. 30, 2022 |
Sep. 30, 2021 |
Sep. 30, 2022 |
Sep. 30, 2021 |
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| Real estate revenue: | ||||||
| Lease revenue | $ 65,796 | $ 65,543 | $ 195,888 | $ 193,563 | ||
| Expense reimbursements | 4,864 | 4,650 | 13,223 | 12,436 | ||
| Other real estate revenue | 2,086 | 1,400 | 5,887 | 4,828 | ||
| Total real estate revenue | 72,746 | 71,593 | 214,998 | 210,827 | ||
| Other income | 67 | 143 | 377 | 430 | ||
| Total revenue | 72,813 | 71,736 | 215,375 | 211,257 | ||
| Property operating expenses: | ||||||
| CAM and real estate taxes | (26,564) | (26,408) | (80,511) | (79,899) | ||
| Utilities | (4,380) | (3,749) | (11,469) | (9,573) | ||
| Other property operating expenses | (2,246) | (1,972) | (6,585) | (6,580) | ||
| Total property operating expenses | (33,190) | (32,129) | (98,565) | (96,052) | ||
| Depreciation and amortization | (28,032) | (29,142) | (85,524) | (88,667) | ||
| General and administrative expenses | (10,965) | (14,453) | (32,192) | (39,819) | ||
| Other expenses | (65) | (66) | (143) | (185) | ||
| Total operating expenses | (72,252) | (75,790) | (216,424) | (224,353) | ||
| Interest expense, net | (36,481) | (32,426) | (100,473) | (95,135) | ||
| Gain on debt extinguishment, net | 4,587 | |||||
| Impairment of assets | (42,271) | (262) | (42,271) | (1,564) | ||
| Reorganization expenses | (267) | |||||
| Total expenses | (151,004) | (108,478) | (359,168) | (316,732) | ||
| Equity in loss of partnerships | (2,356) | 1,429 | (3,939) | (2,429) | ||
| Gain (loss) on sales of interests in real estate | 7,509 | (217) | 9,210 | (1,191) | ||
| Gain (loss) on sale of equity method investment | 77 | 8,976 | ||||
| Gain (loss) on sales of real estate by equity method investee | 10 | 1,337 | ||||
| Gain on sales of non-operating real estate | 1,772 | 10,527 | ||||
| Gain on sale of preferred equity interest | 3,688 | |||||
| Net loss | (71,343) | (38,398) | (115,331) | (107,758) | ||
| Less: net loss attributable to noncontrolling interest | 989 | 669 | 1,718 | 2,686 | ||
| Net loss attributable to PREIT | (70,354) | (37,729) | (113,613) | (105,072) | ||
| Less: preferred share dividends | (6,843) | (6,843) | (20,531) | (20,531) | ||
| Net loss attributable to PREIT common shareholders | $ (77,197) | $ (44,572) | $ (134,144) | $ (125,603) | ||
| Basic loss per share: | $ (14.52) | $ (8.44) | $ (25.25) | $ (24.05) | ||
| Diluted loss per share: | $ (14.52) | $ (8.44) | $ (25.25) | $ (24.05) | ||
| Weighted average shares outstanding-basic (in shares) | 5,317 | 5,279 | 5,313 | 5,222 | ||
| Effect of common share equivalents (in shares) | [1] | 0 | 0 | 0 | 0 | |
| Weighted average shares outstanding-diluted (in shares) | 5,317 | 5,279 | 5,313 | 5,222 | ||
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CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (Unaudited) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2022 |
Sep. 30, 2021 |
Sep. 30, 2022 |
Sep. 30, 2021 |
|
| Comprehensive loss: | ||||
| Net loss | $ (71,343) | $ (38,398) | $ (115,331) | $ (107,758) |
| Unrealized gain on derivatives | 2,855 | 2,634 | 12,274 | 7,903 |
| Amortization of settled swaps | 2 | 4 | 7 | 9 |
| Total comprehensive loss | (68,486) | (35,760) | (103,050) | (99,846) |
| Less: comprehensive loss attributable to noncontrolling interest | 954 | 630 | 1,564 | 2,518 |
| Comprehensive loss attributable to PREIT | $ (67,532) | $ (35,130) | $ (101,486) | $ (97,328) |
CONSOLIDATED STATEMENTS OF EQUITY (Unaudited) (Parenthetical) - $ / shares |
Sep. 30, 2022 |
Jun. 30, 2022 |
Mar. 31, 2022 |
Dec. 31, 2021 |
Sep. 30, 2021 |
Jun. 30, 2021 |
Mar. 31, 2021 |
|---|---|---|---|---|---|---|---|
| Common stock, par value (in dollars per share) | $ 1.00 | $ 1.00 | $ 1.00 | $ 1.00 | $ 1.00 | $ 1.00 | $ 1.00 |
| Series B Preferred Stock | |||||||
| Preferred shares, par value (in dollars per share) | 0.01 | 0.01 | 0.01 | 0.01 | 0.01 | 0.01 | 0.01 |
| Series C Preferred Stock | |||||||
| Preferred shares, par value (in dollars per share) | 0.01 | 0.01 | 0.01 | 0.01 | 0.01 | 0.01 | 0.01 |
| Series D Preferred Stock | |||||||
| Preferred shares, par value (in dollars per share) | $ 0.01 | $ 0.01 | $ 0.01 | $ 0.01 | $ 0.01 | $ 0.01 | $ 0.01 |
Basis of Presentation |
9 Months Ended |
|---|---|
Sep. 30, 2022 | |
| Accounting Policies [Abstract] | |
| Basis of Presentation | 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, 2021. In our opinion, all adjustments, consisting only of normal recurring adjustments, necessary to present fairly our consolidated financial statements 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, 2022, our portfolio consists of a total of 24 properties operating in eight states, including 20 shopping malls, three other retail properties and one development property. The property in our portfolio that is classified as under development does not currently have any activity occurring. In October 2022, we sold Cumberland Mall, a shopping mall, located in Vineland, New Jersey. 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, 2022, we held a 98.7% controlling interest in the Operating Partnership 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 fifteen-for-one basis (as a result of our recent reverse share split (described below)), in some cases beginning one year following the respective issue date 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, 2022, the total amount that would have been distributed would have been $0.2 million based on the number of outstanding OP Units held by limited partners of 1,030,510, which would have been convertible into 68,700.73 common shares as of September 30, 2022. 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 two 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 one 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.
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, destination dining and entertainment. In particular, current conditions in the economy have caused fluctuations in unemployment rates, and together with supply chain challenges, the current inflationary environment, have impacted consumer confidence and spending. The economic factors have had corresponding effects on tenant business performance, prospects, solvency and leasing decisions. 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, the expansion of outlet centers, and declining mall traffic, among other factors. 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. We anticipate that our future business, financial condition, liquidity and results of operations, including in the remainder of 2022 and potentially in future periods, will continue to be materially impacted by these conditions. All of these factors have been exacerbated by the ongoing impact of the COVID-19 pandemic, the ongoing impact of which remains highly uncertain, and more recently by inflationary pressures and substantial increases in interest rates.
Going Concern Considerations Under the accounting guidance related to the presentation 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, considered in the aggregate, that raise 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. The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization 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. 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 Fashion District Philadelphia’s Amended and Restated Term Loan Agreement (“FDP Loan Agreement”), which matures in January 2023 and includes a quarterly covenant provision as an event or condition that raises substantial doubt about our ability to continue as a going concern. The FDP Loan Agreement has a balance of $111.5 million as of September 30, 2022, and matures in , with an option to extend the maturity date to January 2024. This agreement also contains a 10% quarterly debt yield covenant which began on December 31, 2021. As of December 31, 2021, the FDP joint venture entity borrower, PM Gallery L.P., did not meet the minimum 10% debt yield covenant, which triggered the lender to sweep cash from the property. This is not an event of default. As of June 30, 2022 and September 30, 2022, the required debt yield covenant threshold is 9%, subsequent to which the joint venture would be required to pay down the term loan to achieve a 9% debt yield. As of June 30, 2022, PM Gallery L.P. did not meet the debt covenant, and a payment of $83.1 million was made under the FDP Loan Agreement in August 2022 such that it was in compliance with the debt yield covenant as of September 30, 2022. As of December 31, 2022, the required debt yield covenant threshold is 12%. If the joint venture fails to meet the debt yield covenant as of any quarter end measurement date and does not pay down the term loan to achieve compliance, the term loan could become due and payable at that time. The Company guarantees 50% of the joint venture’s obligations under the FDP Loan Agreement and management projects that the Company would not be able to satisfy its obligations if the FDP term loan would become due and payable within one year of the date of issuance of these financial statements. The Company plans to work with its joint venture partner to satisfy any obligations coming due under the FDP Loan Agreement should it become due and payable as a result of the joint venture not meeting the debt yield covenant. However, our ability to satisfy obligations under the FDP Loan Agreement depends primarily on management’s ability to obtain relief from the joint venture’s lender in regard to the Company’s guarantee of 50% of the outstanding debt balance. Obtaining relief from the FDP Loan Agreement lender involves performance by third parties and therefore cannot be considered probable of occurring. Therefore, due to the inherent risks, unknown results and significant uncertainties associated with this matter and the direct correlation to our ability to satisfy our financial obligations that may arise over the applicable twelve month period, 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.
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.” During the three and nine months ended September 30, 2022, certain of our properties had triggering events due to various indicators of impairment, which led to impairment reviews and assessment of the undiscounted future cash flows. These properties passed our undiscounted future cash flow assessment except for Cumberland Mall and Plymouth Meeting Mall, which are shopping malls located in Vineland, New Jersey, and Plymouth Meeting, Pennsylvania, respectively. As a result of reduced holding period assumptions for each property, we recorded impairment losses on Cumberland Mall, which is classified as held for sale as of September 30, 2022, and on Plymouth Meeting Mall. 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. Assets Classified as Held for Sale The determination to classify an asset as held for sale requires significant estimates by us about the property and the expected market for the property, which are based on factors including recent sales of comparable properties, recent expressions of interest in the property, financial metrics of the property and the physical condition of the property. We must also determine if it will be possible under those market conditions to sell the property for an acceptable price within one year. When assets are identified by our management as held for sale, we discontinue depreciating the assets and estimate the sales price, net of selling costs, of such assets. We generally consider operating properties to be held for sale when they meet criteria such as whether the sale transaction has been approved by the appropriate level of management and there are no known material contingencies relating to the sale such that the sale is probable and is expected to qualify for recognition as a completed sale within one year. If the expected net sales price of the asset that has been identified as held for sale is less than the net book value of the asset, the asset is written down to fair value less the cost to sell. Assets and liabilities related to assets classified as held for sale are presented separately in the consolidated balance sheets. If we determine that a property no longer meets the held-for-sale criteria, we reclassify the property’s assets and liabilities to their original locations on the consolidated balance sheet and record depreciation and amortization expense for the period that the property was in held-for-sale status. As of September 30, 2022, we determined that two of our hotel land parcels, one of our multifamily land parcels, one vacant anchor box space, and two retail properties met the criteria to be classified as held for sale. As of December 31, 2021, two of our hotel land parcels, two of our multifamily land parcels and vacant anchor box space met the criteria to be classified as held for sale. Reverse Share Split On June 16, 2022, the Company effected a one-for-fifteen reverse share split of its common shares. Upon the effectiveness of the reverse share split, every 15 issued and outstanding common shares were combined into one issued and outstanding common share, with no change in par value per share, and the authorized number of common shares was proportionally reduced. Shareholders entitled to fractional shares as a result of the reverse share split were entitled to receive a cash payment in lieu of receiving fractional shares. All common share and per share data in the consolidated financial statements and notes to the consolidated financial statements have been retrospectively revised to reflect the reverse share split. Common shares underlying outstanding options, RSUs, PSUs and restricted shares were proportionately reduced and the respective exercise prices, if applicable, were proportionately increased. Additionally, the conversion rate of OP Units into common shares was automatically proportionally adjusted from one-for-one to fifteen-for-one. Total cash payment in lieu of fractional shares paid to entitled shareholders was less than $4 thousand. The reverse share split was primarily intended to bring the Company into compliance with the minimum bid price requirement for maintaining its listing on the New York Stock Exchange (the “NYSE”), and on July 1, 2022, the Company received notice from the NYSE that it had regained compliance with the minimum bid price requirement. The Company's common shares continues to trade under the symbol “PEI” and began trading on a split-adjusted basis on June 16, 2022. Notwithstanding the reverse share split, there is no assurance that the Company's securities will remain in compliance with the NYSE's listing standards or that its securities will remain listed on the NYSE. New Accounting Developments In October 2021, the FASB issued ASU 2021-08, Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (Topic 805), which provides amendments to address diversity and inconsistency related to the recognition and measurement of contract assets and liabilities acquired in a business combination. The amendments require an acquirer to recognize and measure contract assets and liabilities acquired in a business combination in accordance with Topic 606, Revenue from Contracts with Customers. The standard is effective for public companies beginning December 15, 2022. The Company will evaluate and implement if applicable. |
Real Estate Activities |
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Sep. 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Real Estate [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Real Estate Activities | 2. REAL ESTATE ACTIVITIES Investments in real estate as of September 30, 2022 and December 31, 2021 were comprised of the following:
Impairment of Assets In March 2022, we executed a purchase and sale agreement for Exton Square Mall for a total sale price of $28.8 million. The agreement was subsequently terminated. Exton Square Mall was classified as held for sale as of September 30, 2022. In September 2022, we made the determination to reduce the holding period for Plymouth Meeting Mall in Plymouth Meeting, Pennsylvania, as a result of our expectation to sell the property. This was a triggering event that led us to conduct an impairment analysis, which resulted in an impairment loss of $37.4 million during the third quarter ended September 30, 2022. In September 2022, we executed a purchase and sale agreement for Cumberland Mall in Vineland, New Jersey. This was identified as a triggering event as a result of our determination to reduce the holding period of the property. As of September 30, 2022, we classified the property as an asset held for sale and recorded an impairment loss of $4.8 million during the third quarter ended September 30, 2022. In October 2022, we sold Cumberland Mall for $44.6 million, the proceeds of which were used to pay down debt as disclosed in Note 4. During the three months ended September 30, 2021, we recorded an impairment loss of $0.3 million in connection with the purchase and sale agreement of Monroe Marketplace, in which there was an excess of carrying value over the sale price. 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. Disposition 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. In May 2022, we conveyed the property as a result of a foreclosure sale. As such, in May 2022, the $27.2 million mortgage liability and corresponding contract asset in relation to the Valley View Mall property were written off. Other Property Disposition In February 2022, we completed the redemption of preferred equity issued as part of a previous sale of our New Garden land parcel. In connection with this settlement, we received approximately $2.5 million, which funds were used to pay down our First Lien Revolving Facility and First Lien Term Loan. In connection with this transaction, we recorded a gain on sale of preferred equity of $3.7 million in the nine months ended September 30, 2022. In June 2022, we sold a parcel of land adjacent to the Moorestown Mall in Moorestown, New Jersey for $11.8 million. We used net proceeds of $11.7 million from the sale to pay down our First Lien Revolving Facility and First Lien Term Loan. In connection with the sale, we recorded a gain of $8.8 million, which is included in gain on sales of non operating real estate in the consolidated statement of operations. In June 2022, we sold an outparcel at the Francis Scott Key Mall in Frederick, Maryland for $2.4 million. We recorded a gain of $1.7 million in connection with the sale, which is included in gain on sale of interests in real estate in the consolidated statement of operations. We used net proceeds of $2.4 million from the sale to pay down its property mortgage. In August 2022, we sold two outparcels at The Mall at Prince George's in Hyattsville, Maryland for $2.4 million and Magnolia Mall in Florence, South Carolina for $0.9 million. We used net proceeds of approximately $3.2 million to pay down our First Lien Term Loan in August 2022. We recorded a total gain of $2.8 million in connection with the sales, which are included in gain on sale of interests in real estate in the consolidated statement of operations. In September 2022, we sold three outparcels at The Mall at Prince George's in Hyattsville, Maryland for $8.5 million. We used net proceeds of $8.2 million from the sale to pay down our First Lien Term Loan. We recorded a gain of $4.6 million in connection with the sale, which is included in gain on sale of interests in real estate in the consolidated statement of operations. In September 2022, we sold an outparcel at Moorestown Mall in Moorestown, New Jersey for $3.4 million. We used net proceeds of $3.1 million from the sale to pay down our First Lien Term Loan. We recorded a gain of $1.8 million in connection with the sale, which is included in gain on sales of non operating real estate in the consolidated statement of operations. |
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Investments in Partnerships |
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| Equity Method Investments and Joint Ventures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Investments in Partnerships | 3. INVESTMENTS IN PARTNERSHIPS The following table presents summarized financial information of the equity method investments in our unconsolidated partnerships as of September 30, 2022 and December 31, 2021:
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(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 loss of partnerships.”
We record distributions from our equity investments using the nature of the distribution approach.
The following table summarizes our share of equity in loss of partnerships for the three and nine months ended September 30, 2022 and 2021:
(1) Net of capitalized interest expense of $8 and $92 for the three months ended September 30, 2022 and 2021, respectively, and $8 and $338 for the nine months ended September 30, 2022 and 2021, respectively. Fashion District Philadelphia FDP Loan Agreement PM Gallery LP, a Delaware 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. 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. 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 pay down the existing loan, reducing the outstanding principal under the FDP Loan Agreement 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 maturity date of January 22, 2023, with the potential 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 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. In August 2022, the joint venture paid down the FDP Loan Agreement balance by $83.1 million in order to comply with the financial covenants. We anticipate that the joint venture will not meet certain financial covenants applicable under the FDP Loan Agreement in the fourth quarter of 2022. See Going Concern Considerations section in Note 1.
Joint Venture. 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, 2021, Macerich is responsible for the entity’s operations and, subject to limited exceptions, controls major decisions. The Company considered the changes to the governing structure of PM Gallery LP and determined the investment qualifies as a variable interest entity and will continue to be accounted for under the equity method of accounting. Our maximum exposure to losses is limited to the extent of our investment, which is a 50% ownership. Mortgage Loan Activity Pavilion at Market East In May 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 had a 2-year term, maturing in . The loan had 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%. In October 2022, the Company's unconsolidated subsidiary completed a refinance of its mortgage loan securing a new mortgage for its property at Pavilion at Market East. The $8.75 million mortgage has a 3-year term, maturing in , with two one-year extension options. The loan has a fixed interest rate of 5.5%. Dispositions In June 2022, we sold our 25% interest in the Gloucester Premium Outlets located in Blackwood, New Jersey for total consideration of $35.4 million, subject to customary working capital adjustments, consisting of $14.1 million in cash and $21.4 million in debt assumption. We recorded a gain of $9.1 million in connection with the sale and used net proceeds of $14.0 million from the sale to pay down our First Lien Revolving Facility and First Lien Term Loan. Subsequent to the closing of the transaction, the working capital adjustment was finalized and the gain on sale of equity method investment was reduced by $0.1 million and net cash of $0.1 million was remitted by the Company. |
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| Financing Activity | 4. FINANCING ACTIVITY Credit Agreements On December 10, 2020 we entered into two secured credit agreements (collectively, as amended, the “Credit Agreements”): (a) 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”), and (b) a Second Lien Credit Agreement (the “Second Lien Credit Agreement”), as amended February 8, 2021 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”). The Credit Agreements mature in December 2022. The First Lien Term Loan Facility and the Second Lien Term Loan Facility are collectively referred to as the “Term Loans.” As of September 30, 2022, we had borrowed $345.1 million under the First Lien Term Loan, $628.2 million under the Second Lien Term Loan and $26.1 million under the First Lien Revolving Facility. The carrying value of the Term Loans on our consolidated balance sheet as of September 30, 2022 is net of $1.2 million of unamortized debt issuance costs. The maximum amount that was available to us under the First Lien Revolving Facility as of September 30, 2022 was $103.9 million. In October 2022, we paid down the First Lien Term Loan by $11.4 million and the First Lien Revolving Facility by $2.9 million primarily using proceeds from the sale of Cumberland Mall. Wilmington Savings Fund Society, FSB is 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 letter of credit issuer under the First Lien Revolving Facility, accordingly, the Company cannot currently access the letters of credit sub-facility.
Interest expense and deferred financing fee amortization related to the Credit Agreements for the three and nine months ended September 30, 2022 and 2021 were as follows:
(1) All of the expense applied to the First Lien Revolving Facility. (2) All of the expense applied to the Term Loans, of which $16.0 million and $42.0 million, for the three and nine months ended September 30, 2022 and $12.3 million and $35.7 million for the three and nine months ended September 30, 2021, respectively, was for the Second Lien Term Loan Facility and was not paid in cash, but capitalized to the principal balance of the loan. Our obligations under the Credit Agreements are guaranteed by certain of our subsidiaries. Our obligations under the Credit Agreements and the guaranties are secured by mortgages and deeds of trust on a portfolio of 10 of our subsidiaries’ properties, including nine malls and one additional parcel. 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 Credit Agreements each provide for a two-year maturity of December 2022 (the “Maturity Date”), subject to a 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 loans under the Credit Agreements are repayable in full on the Maturity Date, subject to 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. In September 2022, we provided notice of our intention to extend the maturity date under the Credit Agreements through December 2023. We believe that we have demonstrated compliance with the criteria above for extension, subject to recalculation of certain debt yield covenants and payment of certain extension fees. First Lien Credit Agreement 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 are required to 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 canceled 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 First 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 obligations under the First Lien Credit Agreement and any other 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. The proceeds of loans under the Second Lien Credit Agreement were used to refinance existing indebtedness. 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: • maintain liquidity of at least $25.0 million, to be comprised of unrestricted cash held in certain deposit accounts subject to control agreements, up to $5.0 million held in a certain other deposit account excluded from the collateral, the unused revolving loan commitments under the First Lien Credit Agreement (to the extent available to be drawn), and amounts on deposit in a designated collateral proceeds account and amounts on deposit in a cash collateral account; • maintain a minimum senior debt yield of 11.35% from and after June 30, 2021; • maintain a minimum corporate debt yield of (a) 6.50% from June 30, 2021 through and including September 30, 2021 and (b) 7.25% from and after October 1, 2021; • provide to the administrative agent, among other things, PREIT and its subsidiaries’ quarterly and annual financial statements, annual budget, reports on projected sources and uses of cash, and an updated annual business plan, as well as quarterly and annual operating statements, rent rolls, and certain other collections and tenant reports and information as the administrative agent may reasonably request with respect to each Borrowing Base Property; • maintain PREIT’s status as a REIT; • use commercially reasonable efforts to obtain subordination, non-disturbance and attornment agreements from each tenant under certain Major Leases as well as ground lease estoppel certificates from each ground lessor of a Borrowing Base Property; • comply with the requirements of the various security documents and, at the administrative agent’s request, promptly notify the administrative agent of any acquisition of any owned real property that is not subject to a mortgage and grant liens on such real property to secure our obligations under the applicable Credit Agreement; • not amend any existing sale agreements with respect to Borrowing Base Properties to result in a reduction of cash consideration by 20% or more; and • not retain more than $6.5 million of cash in property-level accounts held by our subsidiaries that are owners of real property (subject to certain exceptions). Each of the Credit Agreements also limits our ability, subject to certain exceptions, to make certain restricted payments (including payments of dividends and voluntary prepayments of certain indebtedness which includes, with respect to the First Lien Credit Agreement, voluntary prepayments under the Second Lien Credit Agreement), 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 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 terms 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 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 termination or modification of a lease (or the release or discharge of a tenant) are subject to restrictions on use, and such 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, 2022, we were in compliance with all financial covenants under the Credit Agreements. Consolidated Mortgage Loans The estimated fair values of our consolidated mortgage loans based on year-end interest rates and market conditions at September 30, 2022 and December 31, 2021 were as follows:
(1) The carrying value of mortgage loans excludes unamortized debt issuance costs of $1.1 million and $1.2 million as of September 30, 2022 and December 31, 2021, respectively. The consolidated mortgage loans contain various customary default provisions. As of September 30, 2022, we were not in default on any of the consolidated mortgage loans, except for our mortgage loan secured by Cumberland Mall in Vineland, New Jersey. The following table represents mortgage payments which will come due during the following periods:
(1) Includes Cherry Hill Mall mortgage, for which subsequent to the end of the quarter ended September 30, 2022, the maturity date was extended through February 1, 2023. Mortgage Loan Activity Cherry Hill Mall Mortgage On August 31, 2022, certain of our consolidated subsidiaries entered into an amendment and extension to our mortgage loan secured by the property at Cherry Hill Mall in Cherry Hill, New Jersey, which had a maturity date of September 1, 2022. The maturity date was extended by one month and subsequently for an additional month through November 1, 2022. As of September 30, 2022, the mortgage loan outstanding balance was $246.5 million. On October 31, 2022, certain of our consolidated subsidiaries entered into a second amendment and extension agreement to extend the maturity date for three months through February 1, 2023 with one option to extend by an additional three month period through May 1, 2023. Cumberland Mall Mortgage Our mortgage loan secured by the property at Cumberland Mall in Vineland, New Jersey had an outstanding balance of $38.2 million as of September 30, 2022. The mortgage loan matured on August 1, 2022. Such balance was not repaid on or prior to the maturity date and was in default. On October 31, 2022, we closed on the sale of the property, and paid off the mortgage balance of $39.1 million using proceeds from the sale. Woodland Amendment On December 10, 2021, certain of our consolidated subsidiaries entered into an amendment to our mortgage loan secured by the property at Woodland Mall in Grand Rapids, Michigan, which provides for an extension of the maturity date until December 10, 2022. As of September 30, 2022, the mortgage loan has an outstanding balance of $110.7 million. |
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Cash Flow Information |
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| Cash Flow Information | 5. CASH FLOW INFORMATION We consider all highly liquid short-term investments with a maturity of three months or less at purchase or acquisition to be cash equivalents. At September 30, 2022 and 2021, cash and cash equivalents and restricted cash totaled $34.4 million and $40.9 million, respectively, and included tenant security deposits of $1.8 million and $1.4 million, respectively. Cash paid for interest was $49.6 million and $53.1 million for the nine months ended September 30, 2022 and 2021, respectively, net of amounts capitalized of $0.1 million and $0.2 million, respectively. In our statement of cash flows, we report cash flows on our revolving facilities on a net basis. Aggregate repayments on our First Lien Revolving Facility and Term Loan were $28.5 million and $34.3 million, respectively, for the nine months ended September 30, 2022. Aggregate repayments on our First Lien Term Loan were $4.0 million for the nine months ended September 30, 2021. Accrued construction costs decreased by $2.6 million and $1.1 million for the nine months ended September 30, 2022 and 2021, respectively, representing non-cash changes in investment in real estate and construction in progress. The following table provides a summary of cash, cash equivalents, and restricted cash reported within the statement of cash flows as of September 30, 2022 and 2021.
Our restricted cash consists of cash held in escrow by banks for real estate taxes and other purposes. |
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| Derivative Instruments and Hedging Activities Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Derivatives | 6. 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 August 24, 2022, we entered into two interest rate swap agreements with a weighted average interest swap rate of 3.59% on a notional amount of $100.0 million maturing on May 24, 2024. We entered into these interest rate swap agreements to hedge the interest payments associated with our variable interest rate mortgage loans. We have assessed the effectiveness of these interest rate swap agreements as hedges at inception and will do so on a quarterly basis. As of September 30, 2022, we had nine 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 $3.5 million will be reclassified as a decrease to interest expense. 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. 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 fair value of derivatives were recorded directly in earnings as interest expense in the consolidated statement of operations. During the nine months ended September 30, 2022, we had no non-designated swaps mature. As of September 30, 2022, we had no derivatives which were not designated in hedging relationships. Interest Rate Swaps As of September 30, 2022, we had interest rate swap agreements designated in qualifying hedging relationships outstanding with a weighted average base interest rate of 2.92% on a notional amount of $400.0 million, maturing in either May 2023 or May 2024. 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.
The following table summarizes the terms and estimated fair values of our interest rate swap derivative instruments as of September 30, 2022 and December 31, 2021 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.
(1) As of September 30, 2022 and December 31, 2021, derivative valuations in their entirety were classified in Level 2 of the fair value hierarchy and we did not have any significant recurring fair value measurements related to derivative instruments using significant unobservable inputs (Level 3).
The tables below present the effect of derivative financial instruments on accumulated other comprehensive income (loss) and on our consolidated statements of operations for the three and nine months ended September 30, 2022 and 2021:
As we did not have any derivatives which were not designated in hedging relationships, our non-designated swaps had no impact on the financial statements for the three and nine months ended September 30, 2022. 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, 2022, 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, 2022, the Company did not have any derivatives in a net liability position. |
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Leases |
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| Leases [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Leases | 7. 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 to 40 years, with certain agreements containing extension options for up to an additional 60 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. Our leases do not provide a readily determinable implicit interest rate; therefore, we estimate our incremental borrowing rate to calculate the present value of remaining lease payments. In determining our incremental borrowing rate, we considered the lease term, market interest rates and estimates regarding our implied credit rating using market data with adjustments to determine an appropriate incremental borrowing rate. The following table presents additional information pertaining to the Company’s leases:
Other information related to leases as of and for the nine months ended September 30, 2022 and 2021 are as follows:
Future payments against lease liabilities, which are recorded in Accrued expenses and other liabilities, as of September 30, 2022 are as follows:
As Lessor As of September 30, 2022, 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. 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. Except for utility reimbursements, the fixed and variable lease payments are included with lease revenue in the consolidated statements of operations. Utility reimbursements are included within expense reimbursements as a separate line item in the consolidated statement of operations as their pattern of transfer is not aligned with the other payments.
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Commitments and Contingencies |
9 Months Ended |
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Sep. 30, 2022 | |
| Commitments and Contingencies Disclosure [Abstract] | |
| Commitments and Contingencies | 8. COMMITMENTS AND CONTINGENCIES Contractual Obligations As of September 30, 2022, we had contractual and other commitments related to our capital improvement projects and development projects of $5.2 million, including $1.2 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 We have aggregate authorized preferred shares of 25.0 million, where each series of authorized preferred shares is equal to the number of preferred shares outstanding of that series. 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, 2022, the cumulative amount of unpaid dividends on our issued and outstanding preferred shares totaled $61.6 million. This consisted of unpaid dividends per share on the Series B, Series C and Series D preferred shares of $4.15 per share, $4.05 per share and $3.87 per share, respectively. On August 2, 2022, our preferred shareholders elected two independent trustees to our Board of Trustees in accordance with the provisions of the designating amendments of the Company's Amended and Restated Trust Agreement. |
Basis of Presentation (Policies) |
9 Months Ended |
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Sep. 30, 2022 | |
| Accounting Policies [Abstract] | |
| Nature of Operations | 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, 2021. In our opinion, all adjustments, consisting only of normal recurring adjustments, necessary to present fairly our consolidated financial statements 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, 2022, our portfolio consists of a total of 24 properties operating in eight states, including 20 shopping malls, three other retail properties and one development property. The property in our portfolio that is classified as under development does not currently have any activity occurring. In October 2022, we sold Cumberland Mall, a shopping mall, located in Vineland, New Jersey. 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, 2022, we held a 98.7% controlling interest in the Operating Partnership 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 fifteen-for-one basis (as a result of our recent reverse share split (described below)), in some cases beginning one year following the respective issue date 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, 2022, the total amount that would have been distributed would have been $0.2 million based on the number of outstanding OP Units held by limited partners of 1,030,510, which would have been convertible into 68,700.73 common shares as of September 30, 2022. 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 two 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 one 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. |
| Current Economic and Industry Conditions, and Impact of COVID-19 | 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, destination dining and entertainment. In particular, current conditions in the economy have caused fluctuations in unemployment rates, and together with supply chain challenges, the current inflationary environment, have impacted consumer confidence and spending. The economic factors have had corresponding effects on tenant business performance, prospects, solvency and leasing decisions. 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, the expansion of outlet centers, and declining mall traffic, among other factors. 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. We anticipate that our future business, financial condition, liquidity and results of operations, including in the remainder of 2022 and potentially in future periods, will continue to be materially impacted by these conditions. All of these factors have been exacerbated by the ongoing impact of the COVID-19 pandemic, the ongoing impact of which remains highly uncertain, and more recently by inflationary pressures and substantial increases in interest rates. |
| Going Concern Considerations | Going Concern Considerations Under the accounting guidance related to the presentation 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, considered in the aggregate, that raise 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. The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization 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. 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 Fashion District Philadelphia’s Amended and Restated Term Loan Agreement (“FDP Loan Agreement”), which matures in January 2023 and includes a quarterly covenant provision as an event or condition that raises substantial doubt about our ability to continue as a going concern. The FDP Loan Agreement has a balance of $111.5 million as of September 30, 2022, and matures in , with an option to extend the maturity date to January 2024. This agreement also contains a 10% quarterly debt yield covenant which began on December 31, 2021. As of December 31, 2021, the FDP joint venture entity borrower, PM Gallery L.P., did not meet the minimum 10% debt yield covenant, which triggered the lender to sweep cash from the property. This is not an event of default. As of June 30, 2022 and September 30, 2022, the required debt yield covenant threshold is 9%, subsequent to which the joint venture would be required to pay down the term loan to achieve a 9% debt yield. As of June 30, 2022, PM Gallery L.P. did not meet the debt covenant, and a payment of $83.1 million was made under the FDP Loan Agreement in August 2022 such that it was in compliance with the debt yield covenant as of September 30, 2022. As of December 31, 2022, the required debt yield covenant threshold is 12%. If the joint venture fails to meet the debt yield covenant as of any quarter end measurement date and does not pay down the term loan to achieve compliance, the term loan could become due and payable at that time. The Company guarantees 50% of the joint venture’s obligations under the FDP Loan Agreement and management projects that the Company would not be able to satisfy its obligations if the FDP term loan would become due and payable within one year of the date of issuance of these financial statements. The Company plans to work with its joint venture partner to satisfy any obligations coming due under the FDP Loan Agreement should it become due and payable as a result of the joint venture not meeting the debt yield covenant. However, our ability to satisfy obligations under the FDP Loan Agreement depends primarily on management’s ability to obtain relief from the joint venture’s lender in regard to the Company’s guarantee of 50% of the outstanding debt balance. Obtaining relief from the FDP Loan Agreement lender involves performance by third parties and therefore cannot be considered probable of occurring. Therefore, due to the inherent risks, unknown results and significant uncertainties associated with this matter and the direct correlation to our ability to satisfy our financial obligations that may arise over the applicable twelve month period, 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. |
| Fair Value | 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 | 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.” During the three and nine months ended September 30, 2022, certain of our properties had triggering events due to various indicators of impairment, which led to impairment reviews and assessment of the undiscounted future cash flows. These properties passed our undiscounted future cash flow assessment except for Cumberland Mall and Plymouth Meeting Mall, which are shopping malls located in Vineland, New Jersey, and Plymouth Meeting, Pennsylvania, respectively. As a result of reduced holding period assumptions for each property, we recorded impairment losses on Cumberland Mall, which is classified as held for sale as of September 30, 2022, and on Plymouth Meeting Mall. 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. |
| Assets Classified as Held for Sale | Assets Classified as Held for Sale The determination to classify an asset as held for sale requires significant estimates by us about the property and the expected market for the property, which are based on factors including recent sales of comparable properties, recent expressions of interest in the property, financial metrics of the property and the physical condition of the property. We must also determine if it will be possible under those market conditions to sell the property for an acceptable price within one year. When assets are identified by our management as held for sale, we discontinue depreciating the assets and estimate the sales price, net of selling costs, of such assets. We generally consider operating properties to be held for sale when they meet criteria such as whether the sale transaction has been approved by the appropriate level of management and there are no known material contingencies relating to the sale such that the sale is probable and is expected to qualify for recognition as a completed sale within one year. If the expected net sales price of the asset that has been identified as held for sale is less than the net book value of the asset, the asset is written down to fair value less the cost to sell. Assets and liabilities related to assets classified as held for sale are presented separately in the consolidated balance sheets. If we determine that a property no longer meets the held-for-sale criteria, we reclassify the property’s assets and liabilities to their original locations on the consolidated balance sheet and record depreciation and amortization expense for the period that the property was in held-for-sale status. As of September 30, 2022, we determined that two of our hotel land parcels, one of our multifamily land parcels, one vacant anchor box space, and two retail properties met the criteria to be classified as held for sale. As of December 31, 2021, two of our hotel land parcels, two of our multifamily land parcels and vacant anchor box space met the criteria to be classified as held for sale. |
| Reverse Share Split | Reverse Share Split On June 16, 2022, the Company effected a one-for-fifteen reverse share split of its common shares. Upon the effectiveness of the reverse share split, every 15 issued and outstanding common shares were combined into one issued and outstanding common share, with no change in par value per share, and the authorized number of common shares was proportionally reduced. Shareholders entitled to fractional shares as a result of the reverse share split were entitled to receive a cash payment in lieu of receiving fractional shares. All common share and per share data in the consolidated financial statements and notes to the consolidated financial statements have been retrospectively revised to reflect the reverse share split. Common shares underlying outstanding options, RSUs, PSUs and restricted shares were proportionately reduced and the respective exercise prices, if applicable, were proportionately increased. Additionally, the conversion rate of OP Units into common shares was automatically proportionally adjusted from one-for-one to fifteen-for-one. Total cash payment in lieu of fractional shares paid to entitled shareholders was less than $4 thousand. The reverse share split was primarily intended to bring the Company into compliance with the minimum bid price requirement for maintaining its listing on the New York Stock Exchange (the “NYSE”), and on July 1, 2022, the Company received notice from the NYSE that it had regained compliance with the minimum bid price requirement. The Company's common shares continues to trade under the symbol “PEI” and began trading on a split-adjusted basis on June 16, 2022. Notwithstanding the reverse share split, there is no assurance that the Company's securities will remain in compliance with the NYSE's listing standards or that its securities will remain listed on the NYSE. |
| New Accounting Developments | New Accounting Developments In October 2021, the FASB issued ASU 2021-08, Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (Topic 805), which provides amendments to address diversity and inconsistency related to the recognition and measurement of contract assets and liabilities acquired in a business combination. The amendments require an acquirer to recognize and measure contract assets and liabilities acquired in a business combination in accordance with Topic 606, Revenue from Contracts with Customers. The standard is effective for public companies beginning December 15, 2022. The Company will evaluate and implement if applicable. |
Real Estate Activities (Tables) |
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| Investments in Real Estate | Investments in real estate as of September 30, 2022 and December 31, 2021 were comprised of the following:
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Investments in Partnerships (Tables) |
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| Equity Method Investments and Joint Ventures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Summary of Equity Method Investments | The following table presents summarized financial information of the equity method investments in our unconsolidated partnerships as of September 30, 2022 and December 31, 2021:
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(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 loss of partnerships.” |
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| Summary of Share of Equity in Loss of Partnerships | The following table summarizes our share of equity in loss of partnerships for the three and nine months ended September 30, 2022 and 2021:
(1) Net of capitalized interest expense of $8 and $92 for the three months ended September 30, 2022 and 2021, respectively, and $8 and $338 for the nine months ended September 30, 2022 and 2021, respectively. |
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Financing Activity (Tables) |
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| Debt Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule Of Credit Facility Interest Expense and Deferred Financing Fee Amortization | Interest expense and deferred financing fee amortization related to the Credit Agreements for the three and nine months ended September 30, 2022 and 2021 were as follows:
(1) All of the expense applied to the First Lien Revolving Facility. (2)
All of the expense applied to the Term Loans, of which $16.0 million and $42.0 million, for the three and nine months ended September 30, 2022 and $12.3 million and $35.7 million for the three and nine months ended September 30, 2021, respectively, was for the Second Lien Term Loan Facility and was not paid in cash, but capitalized to the principal balance of the loan. |
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| Carrying and Fair Values of Mortgage Loans | The estimated fair values of our consolidated mortgage loans based on year-end interest rates and market conditions at September 30, 2022 and December 31, 2021 were as follows:
(1) The carrying value of mortgage loans excludes unamortized debt issuance costs of $1.1 million and $1.2 million as of September 30, 2022 and December 31, 2021, respectively. |
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| Summary of Mortgage Payments | The following table represents mortgage payments which will come due during the following periods:
(1) Includes Cherry Hill Mall mortgage, for which subsequent to the end of the quarter ended September 30, 2022, the maturity date was extended through February 1, 2023. |
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Cash Flow Information (Tables) |
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| Summary of Cash, Cash Equivalents, and Restricted Cash Reported within Statement of Cash Flows | The following table provides a summary of cash, cash equivalents, and restricted cash reported within the statement of cash flows as of September 30, 2022 and 2021.
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Derivatives (Tables) |
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| Fair Value of Derivative Instruments | The following table summarizes the terms and estimated fair values of our interest rate swap derivative instruments as of September 30, 2022 and December 31, 2021 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.
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| Effect of Our Derivative Financial Instruments on Our Consolidated Statements of Operations | The tables below present the effect of derivative financial instruments on accumulated other comprehensive income (loss) and on our consolidated statements of operations for the three and nine months ended September 30, 2022 and 2021:
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Leases (Tables) |
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| Leases [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Lease, Cost | The following table presents additional information pertaining to the Company’s leases:
|
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| Supplemental Cash Flows and Terms | Other information related to leases as of and for the nine months ended September 30, 2022 and 2021 are as follows:
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| Future Minimum Payments Against Lease Liabilities Which Recorded in Accrued Expenses and Other Liabilities | Future payments against lease liabilities, which are recorded in Accrued expenses and other liabilities, as of September 30, 2022 are as follows:
|
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| Lessor, Operating Lease, Payments to be Received, Maturity | As of September 30, 2022, 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. 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. Except for utility reimbursements, the fixed and variable lease payments are included with lease revenue in the consolidated statements of operations. Utility reimbursements are included within expense reimbursements as a separate line item in the consolidated statement of operations as their pattern of transfer is not aligned with the other payments.
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Basis of Presentation - Reverse Share Split (Details) |
9 Months Ended | |
|---|---|---|
|
Jun. 16, 2022
USD ($)
|
Sep. 30, 2022 |
|
| Real Estate Properties [Line Items] | ||
| Common Stock Conversion Ratio | 15 | 15 |
| Stockholders' Equity, Reverse Stock Split | On June 16, 2022, the Company effected a one-for-fifteen reverse share split of its common shares. Upon the effectiveness of the reverse share split, every 15 issued and outstanding common shares were combined into one issued and outstanding common share, with no change in par value per share, and the authorized number of common shares was proportionally reduced. Shareholders entitled to fractional shares as a result of the reverse share split were entitled to receive a cash payment in lieu of receiving fractional shares. All common share and per share data in the consolidated financial statements and notes to the consolidated financial statements have been retrospectively revised to reflect the reverse share split. Common shares underlying outstanding options, RSUs, PSUs and restricted shares were proportionately reduced and the respective exercise prices, if applicable, were proportionately increased. Additionally, the conversion rate of OP Units into common shares was automatically proportionally adjusted from one-for-one to fifteen-for-one. Total cash payment in lieu of fractional shares paid to entitled shareholders was less than $4 thousand. The reverse share split was primarily intended to bring the Company into compliance with the minimum bid price requirement for maintaining its listing on the New York Stock Exchange (the “NYSE”), and on July 1, 2022, the Company received notice from the NYSE that it had regained compliance with the minimum bid price requirement. The Company's common shares continues to trade under the symbol “PEI” and began trading on a split-adjusted basis on June 16, 2022. Notwithstanding the reverse share split, there is no assurance that the Company's securities will remain in compliance with the NYSE's listing standards or that its securities will remain listed on the NYSE. | |
| Maximum | ||
| Real Estate Properties [Line Items] | ||
| Total cash payment in lieu of fractional shares paid | $ 4,000 |
Real Estate Activities - Investments in Real Estate (Details) - USD ($) $ in Thousands |
Sep. 30, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Real Estate [Abstract] | ||
| Buildings, improvements and construction in progress | $ 2,625,825 | $ 2,762,675 |
| Land, including land held for development | 398,414 | 443,686 |
| Total investments in real estate | 3,024,239 | 3,206,361 |
| Accumulated depreciation | (1,407,395) | (1,405,260) |
| Net investments in real estate | $ 1,616,844 | $ 1,801,101 |
Real Estate Activities - Impairment of Assets (Details) - USD ($) $ in Thousands |
1 Months Ended | 3 Months Ended | 9 Months Ended | |||
|---|---|---|---|---|---|---|
Oct. 31, 2022 |
Sep. 30, 2022 |
Sep. 30, 2021 |
Sep. 30, 2022 |
Sep. 30, 2021 |
Mar. 31, 2022 |
|
| Real Estate Properties [Line Items] | ||||||
| Impairment of real estate assets | $ 42,271 | $ 1,564 | ||||
| Cash proceeds from sales of real estate | $ 39,515 | 4,076 | ||||
| Valley View Center | ||||||
| Real Estate Properties [Line Items] | ||||||
| Impairment loss on assets as held for sale | $ 1,300 | |||||
| Exton Square Mall | ||||||
| Real Estate Properties [Line Items] | ||||||
| Sale price | $ 28,800 | |||||
| Plymouth Meeting Mall | ||||||
| Real Estate Properties [Line Items] | ||||||
| Impairment loss on assets as held for sale | $ 37,400 | |||||
| Cumberland Mall | ||||||
| Real Estate Properties [Line Items] | ||||||
| Impairment loss on assets as held for sale | $ 4,800 | |||||
| Cumberland Mall | Subsequent Event | ||||||
| Real Estate Properties [Line Items] | ||||||
| Cash proceeds from sales of real estate | $ 44,600 | |||||
| Monroe Marketplace Land | ||||||
| Real Estate Properties [Line Items] | ||||||
| Impairment of real estate assets | $ 300 | |||||
Investments in Partnerships - Summary of Share of Equity in Loss of Partnerships (Details) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2022 |
Sep. 30, 2021 |
Sep. 30, 2022 |
Sep. 30, 2021 |
|
| Equity Method Investments and Joint Ventures [Abstract] | ||||
| Real estate revenue | $ 25,076 | $ 27,790 | $ 82,656 | $ 85,827 |
| Expenses: | ||||
| Property operating and other expenses | (11,825) | (11,878) | (34,717) | (35,759) |
| Interest expense | (12,669) | (11,309) | 36,631 | 33,104 |
| Depreciation and amortization | (5,382) | (6,715) | 18,508 | 20,051 |
| Total expenses | (29,876) | (29,902) | 89,856 | 88,914 |
| Net loss | (4,800) | 2,112 | (7,200) | (3,087) |
| Less: Partners’ share | 2,444 | (719) | 3,261 | 810 |
| PREIT’s share | (2,356) | 1,393 | (3,939) | (2,277) |
| Amortization of excess investment | (36) | (152) | ||
| Equity in loss income of partnerships | $ (2,356) | $ 1,429 | $ (3,939) | $ (2,429) |
Investments in Partnerships - Summary of Share of Equity in Loss of Partnerships (Parenthetical) (Details) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2022 |
Sep. 30, 2021 |
Sep. 30, 2022 |
Sep. 30, 2021 |
|
| Equity Method Investments and Joint Ventures [Abstract] | ||||
| Capitalized interest expense | $ 8 | $ 92 | $ 8 | $ 338 |
Investments in Partnerships - Mortgage Loan Activity (Details) - USD ($) $ in Thousands |
1 Months Ended | |||
|---|---|---|---|---|
May 25, 2021 |
Oct. 31, 2022 |
Sep. 30, 2022 |
Dec. 31, 2021 |
|
| Schedule of Equity Method Investments [Line Items] | ||||
| Mortgage loans payable, net | $ 761,230 | $ 851,283 | ||
| Mortgage Loan | Pavilion at Market East | ||||
| Schedule of Equity Method Investments [Line Items] | ||||
| Mortgage loans payable, net | $ 7,600 | $ 8,750 | ||
| Debt instrument, payment terms | 2 years | 3 years | ||
| Debt instrument, maturity date | May 31, 2023 | Oct. 31, 2025 | ||
| Debt instrument interest only payments period | 2022-05 | |||
| Debt, variable interest rate | 4.00% | 5.50% | ||
| LIBOR | Mortgage Loan | Pavilion at Market East | ||||
| Schedule of Equity Method Investments [Line Items] | ||||
| Debt, variable interest rate | 3.50% |
Investments in Partnerships - Dispositions (Details) - USD ($) $ in Thousands |
1 Months Ended | 3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|---|
Jun. 30, 2022 |
Sep. 30, 2022 |
Sep. 30, 2021 |
Sep. 30, 2022 |
Sep. 30, 2021 |
|
| Schedule of Equity Method Investments [Line Items] | |||||
| Disposal group, cash | $ 100 | ||||
| Gain (loss) on sales of interests in real estate | $ 7,509 | $ (217) | $ 9,210 | $ (1,191) | |
| Cash proceeds from sales of real estate | $ 39,515 | $ 4,076 | |||
| Gain on sale of equity method investment | 100 | ||||
| Gloucester Premium Outlets | |||||
| Schedule of Equity Method Investments [Line Items] | |||||
| Disposal group, consideration | 35,400 | ||||
| Disposal group, cash | 14,100 | ||||
| Disposal group, debt assumption | 21,400 | ||||
| Gain (loss) on sales of interests in real estate | 9,100 | ||||
| Cash proceeds from sales of real estate | $ 14,000 | ||||
| Disposal group, percentage of ownership interest | 25.00% | ||||
Financing Activity - Credit Agreements (Details) |
1 Months Ended | 3 Months Ended | 9 Months Ended | ||||||
|---|---|---|---|---|---|---|---|---|---|
Oct. 01, 2021 |
Jun. 30, 2021 |
Feb. 08, 2021
USD ($)
|
Oct. 31, 2022
USD ($)
|
Sep. 30, 2022
USD ($)
ft²
Property
|
Sep. 30, 2021 |
Sep. 30, 2022
USD ($)
ft²
Property
|
Dec. 31, 2021
USD ($)
|
Dec. 10, 2020
USD ($)
Award
|
|
| Debt Instrument [Line Items] | |||||||||
| Outstanding line of credit | $ 26,078,000 | $ 26,078,000 | $ 54,549,000 | ||||||
| Amounts equal to greater than termination or modification of lease | 2,500,000 | ||||||||
| Maximum | |||||||||
| Debt Instrument [Line Items] | |||||||||
| Amounts received on behalf of guarantor in consideration of termination or modification of lease. | $ 3,500,000 | ||||||||
| Minimum | |||||||||
| Debt Instrument [Line Items] | |||||||||
| Leased premises | ft² | 7,500 | 7,500 | |||||||
| Debt instrument discounted amount | $ 750,000 | ||||||||
| Percentage of aggregate contractual base rent | 25.00% | ||||||||
| Outstanding obligations | $ 3,500,000 | ||||||||
| Unsecured Debt | |||||||||
| Debt Instrument [Line Items] | |||||||||
| Debt issuance costs, line of credit arrangements | $ 1,200,000 | $ 1,200,000 | |||||||
| First Lien Credit Agreement Base Rate Loans | Federal Funds Rate | |||||||||
| Debt Instrument [Line Items] | |||||||||
| Debt, variable interest rate | 0.50% | ||||||||
| First Lien Credit Agreement Base Rate Loans | LIBOR Market Index Rate | |||||||||
| Debt Instrument [Line Items] | |||||||||
| Debt, variable interest rate | 1.00% | ||||||||
| First Lien Credit Agreement Base Rate Loans | Base Rate | |||||||||
| Debt Instrument [Line Items] | |||||||||
| Debt, variable interest rate | 1.50% | ||||||||
| Second Lien Credit Agreement Base Rate Loan | Federal Funds Rate | |||||||||
| Debt Instrument [Line Items] | |||||||||
| Debt, variable interest rate | 0.50% | ||||||||
| Second Lien Credit Agreement Base Rate Loan | LIBOR Market Index Rate | |||||||||
| Debt Instrument [Line Items] | |||||||||
| Debt, variable interest rate | 1.00% | ||||||||
| Second Lien Credit Agreement Base Rate Loan | Base Rate | |||||||||
| Debt Instrument [Line Items] | |||||||||
| Debt, variable interest rate | 1.50% | ||||||||
| Debt instrument interest rate | 7.00% | 7.00% | |||||||
| Second Lien Credit Agreement LIBOR Loans | Maximum | |||||||||
| Debt Instrument [Line Items] | |||||||||
| Debt, variable interest rate | 0.50% | ||||||||
| Second Lien Credit Agreement LIBOR Loans | LIBOR | |||||||||
| Debt Instrument [Line Items] | |||||||||
| Debt, variable interest rate | 8.00% | ||||||||
| Credit Agreements | |||||||||
| Debt Instrument [Line Items] | |||||||||
| Number of credit agreements | Award | 2 | ||||||||
| Debt instrument maturity period | 2022-12 | ||||||||
| Debt instrument, payment terms | 2 years | ||||||||
| Number of properties | Property | 10 | 10 | |||||||
| Number of malls | Property | 9 | 9 | |||||||
| Number of additional parcels | Property | 1 | 1 | |||||||
| Debt instrument extension term | 1 year | ||||||||
| Debt instrument extended maturity period | 2023-12 | ||||||||
| Debt instrument minimum liquidity | $ 35,000,000.0 | ||||||||
| Percentage of minimum corporate debt yield | 7.25% | 6.50% | 8.00% | ||||||
| Percentage of maximum loan to value ratio | 105.00% | ||||||||
| Debt instrument expected maturity period | 2023-12 | ||||||||
| Debt Instrument, restrictive covenants | The Credit Agreements each provide for a two-year maturity of December 2022 (the “Maturity Date”), subject to a 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 loans under the Credit Agreements are repayable in full on the Maturity Date, subject to 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.In September 2022, we provided notice of our intention to extend the maturity date under the Credit Agreements through December 2023. We believe that we have demonstrated compliance with the criteria above for extension, subject to recalculation of certain debt yield covenants and payment of certain extension fees. | ||||||||
| Minimum liquidity comprised of unrestricted cash held in certain deposit accounts subject to control agreements | $ 25,000,000.0 | $ 25,000,000.0 | |||||||
| Maximum certain other deposit account not subject to control agreement | 5,000,000.0 | 5,000,000.0 | |||||||
| Percentage of minimum senior debt yield | 11.35% | ||||||||
| Maximum cash not retain in property level accounts held by subsidiaries | 6,500,000 | 6,500,000 | |||||||
| Credit Agreements | First Lien Term Loan | |||||||||
| Debt Instrument [Line Items] | |||||||||
| Outstanding borrowings | 345,100,000 | 345,100,000 | |||||||
| Credit Agreements | First Lien Term Loan | Subsequent Event | |||||||||
| Debt Instrument [Line Items] | |||||||||
| Repayment of Loan | $ 11,400,000 | ||||||||
| Credit Agreements | Second Lien Term Loan | |||||||||
| Debt Instrument [Line Items] | |||||||||
| Outstanding borrowings | 628,200,000 | 628,200,000 | |||||||
| Credit Agreements | First Lien Revolving Facility | |||||||||
| Debt Instrument [Line Items] | |||||||||
| Outstanding line of credit | 26,100,000 | 26,100,000 | |||||||
| Remaining borrowing capacity | $ 103,900,000 | $ 103,900,000 | |||||||
| Credit Agreements | First Lien Revolving Facility | Subsequent Event | |||||||||
| Debt Instrument [Line Items] | |||||||||
| Repayment of credit facility | $ 2,900,000 | ||||||||
| Secured First Lien Revolving Credit Facility | |||||||||
| Debt Instrument [Line Items] | |||||||||
| Maximum borrowing | $ 130,000,000.0 | ||||||||
| Letter of Credit | |||||||||
| Debt Instrument [Line Items] | |||||||||
| Maximum borrowing | 10,000,000.0 | ||||||||
| First Lien Term Loan Facility | |||||||||
| Debt Instrument [Line Items] | |||||||||
| Maximum borrowing | 384,500,000 | ||||||||
| Second Lien Term Loan Facility | |||||||||
| Debt Instrument [Line Items] | |||||||||
| Maximum borrowing | 535,200,000 | ||||||||
| Revolving Loans | |||||||||
| Debt Instrument [Line Items] | |||||||||
| Debt, variable interest rate | 2.50% | ||||||||
| Revolving Loans | LIBOR | |||||||||
| Debt Instrument [Line Items] | |||||||||
| Debt, variable interest rate | 3.50% | ||||||||
| First Lien Credit Agreement | |||||||||
| Debt Instrument [Line Items] | |||||||||
| Days of interest period | 30 days | ||||||||
| Percentage of amount greater than equal to 50% of aggregate amount of revolving commitments | 0.35% | ||||||||
| Percentage of daily amount of unused revolving commitments | 50.00% | ||||||||
| Percentage of amount less than 50% of aggregate amount of revolving commitments | 0.25% | ||||||||
| Debt instrument, variable rate description | 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 are required to pay certain fees to the administrative agent | ||||||||
| First Lien Credit Agreement | LIBOR | Maximum | |||||||||
| Debt Instrument [Line Items] | |||||||||
| Debt, variable interest rate | 0.50% | ||||||||
| First Lien Credit Agreement | Term Loans | |||||||||
| Debt Instrument [Line Items] | |||||||||
| Debt, variable interest rate | 4.74% | ||||||||
| First Lien Credit Agreement | Term Loans | LIBOR | |||||||||
| Debt Instrument [Line Items] | |||||||||
| Debt, variable interest rate | 5.74% | ||||||||
| Second Lien Credit Agreement | |||||||||
| Debt Instrument [Line Items] | |||||||||
| Days of interest period | 30 days | ||||||||
| Debt instrument, variable rate description | 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 obligations under the First Lien Credit Agreement and any other 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. | ||||||||
| First Amendment | |||||||||
| Debt Instrument [Line Items] | |||||||||
| Debt instrument waiver of default interest | $ 5,300,000 | ||||||||
| Principal amount of loans outstanding | $ 535,200,000 | ||||||||
Financing Activity - Interest Expense and Deferred Financing Amortization (Details) - Credit Agreements and Restructured Credit Agreements - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2022 |
Sep. 30, 2021 |
Sep. 30, 2022 |
Sep. 30, 2021 |
|
| 2018 Revolving Facility | ||||
| Debt Instrument [Line Items] | ||||
| Interest expense | $ 284 | $ 560 | $ 1,376 | $ 1,663 |
| Deferred financing amortization | 298 | 299 | 895 | 896 |
| Term Loans | ||||
| Debt Instrument [Line Items] | ||||
| Interest expense | 23,822 | 21,726 | 65,340 | 62,891 |
| Deferred financing amortization | $ 1,784 | $ 1,784 | $ 5,352 | $ 5,346 |
Financing Activity - Interest Expense and Deferred Financing Amortization (Parenthetical) (Details) - USD ($) $ in Millions |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2022 |
Sep. 30, 2021 |
Sep. 30, 2022 |
Sep. 30, 2021 |
|
| Second lien Term Loans | ||||
| Debt Instrument [Line Items] | ||||
| Interest expense | $ 16.0 | $ 12.3 | $ 42.0 | $ 35.7 |
Financing Activity - Carrying and Fair Values of Mortgage Loans (Details) - USD ($) $ in Thousands |
Sep. 30, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Debt Instrument [Line Items] | ||
| Mortgage loans, carrying value | $ 761,230 | $ 851,283 |
| Carrying Value | Mortgage Loan | ||
| Debt Instrument [Line Items] | ||
| Mortgage loans, carrying value | 762,300 | 852,500 |
| Fair Value | Mortgage Loan | ||
| Debt Instrument [Line Items] | ||
| Mortgage loans, fair value | $ 739,900 | $ 846,600 |
Financing Activity - Carrying and Fair Values of Mortgage Loans (Parenthetical) (Details) - USD ($) $ in Millions |
Sep. 30, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Mortgage Loan | ||
| Debt Instrument [Line Items] | ||
| Debt issuance costs, line of credit arrangements | $ 1.1 | $ 1.2 |
Financing Activity - Summary of Mortgage Payments (Details) - Mortgage Loan $ in Thousands |
Sep. 30, 2022
USD ($)
|
|---|---|
| Debt Instrument [Line Items] | |
| October 1 to December 31, 2022 | $ 359,083 |
| 2023 | 59,886 |
| 2024 | 127,629 |
| 2025 | 215,751 |
| Total | $ 762,349 |
Financing Activity - Summary of Mortgage Payments (Parenthetical) (Details) |
3 Months Ended |
|---|---|
Sep. 30, 2022 | |
| Mortgage Loan | |
| Debt Instrument [Line Items] | |
| Debt instrument, maturity date | Feb. 01, 2023 |
Financing Activity - Mortgage Loan Activity (Details) - USD ($) $ in Thousands |
9 Months Ended | ||||
|---|---|---|---|---|---|
Oct. 31, 2022 |
Aug. 31, 2022 |
Sep. 30, 2022 |
Sep. 30, 2021 |
Dec. 31, 2021 |
|
| Debt Instrument [Line Items] | |||||
| Mortgage loans, carrying value | $ 761,230 | $ 851,283 | |||
| Repayments of mortgage loans | $ 135,155 | ||||
| Cherry Hill Mall | |||||
| Debt Instrument [Line Items] | |||||
| Debt instrument extended maturity period description | The maturity date was extended by one month and subsequently for an additional month through November 1, 2022. As of September 30, 2022, the mortgage loan outstanding balance was $246.5 million. On October 31, 2022, certain of our consolidated subsidiaries entered into a second amendment and extension agreement to extend the maturity date for three months through February 1, 2023 with one option to extend by an additional three month period through May 1, 2023. | ||||
| Cherry Hill Mall | Mortgage Loan | Commercial Real Estate | |||||
| Debt Instrument [Line Items] | |||||
| Debt instrument, maturity date | Sep. 01, 2022 | ||||
| Mortgage loans, carrying value | $ 246,500 | ||||
| Cumberland Mall | Mortgage Loan | Commercial Real Estate | |||||
| Debt Instrument [Line Items] | |||||
| Debt instrument, maturity date | Aug. 01, 2022 | ||||
| Mortgage loans, carrying value | $ 38,200 | ||||
| Cumberland Mall | Mortgage Loan | Commercial Real Estate | Subsequent Event [Member] | |||||
| Debt Instrument [Line Items] | |||||
| Repayments of mortgage loans | $ 39,100 | ||||
| Woodland Amendment | Mortgage Loan | Commercial Real Estate | |||||
| Debt Instrument [Line Items] | |||||
| Mortgage loans, carrying value | $ 110,700 | ||||
Cash Flow Information - Additional Information (Detail) - USD ($) $ in Thousands |
9 Months Ended | |||
|---|---|---|---|---|
Sep. 30, 2022 |
Sep. 30, 2021 |
Dec. 31, 2021 |
Dec. 31, 2020 |
|
| Other Significant Noncash Transactions [Line Items] | ||||
| Cash and cash equivalents and restricted cash | $ 34,449 | $ 40,862 | $ 58,077 | $ 51,231 |
| Tenant security deposits | 1,800 | 1,400 | ||
| Cash paid for interest | 49,600 | 53,100 | ||
| Net of capitalized interest | 100 | 200 | ||
| Aggregate repayments on term loan | 34,269 | 4,027 | ||
| Increase (decrease) in accrued construction costs | (2,600) | (1,100) | ||
| First Lien Revolving Facility | ||||
| Other Significant Noncash Transactions [Line Items] | ||||
| Aggregate repayments on term loan | 28,500 | $ 4,000 | ||
| Term Loans | ||||
| Other Significant Noncash Transactions [Line Items] | ||||
| Aggregate repayments on term loan | $ 34,300 | |||
Cash Flow Information - Summary of Cash, Cash Equivalents, and Restricted Cash Reported within Statement of Cash Flows (Details) - USD ($) $ in Thousands |
Sep. 30, 2022 |
Dec. 31, 2021 |
Sep. 30, 2021 |
Dec. 31, 2020 |
|---|---|---|---|---|
| Cash and Cash Equivalents [Abstract] | ||||
| Cash and cash equivalents | $ 21,063 | $ 43,852 | $ 28,975 | |
| Restricted cash included in other assets | 13,386 | 11,887 | ||
| Total cash, cash equivalents, and restricted cash shown in the statement of cash flows | $ 34,449 | $ 58,077 | $ 40,862 | $ 51,231 |
Derivatives - Fair Value of Derivative Instruments (Details) - USD ($) $ in Millions |
Sep. 30, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Derivative Instruments, Gain (Loss) [Line Items] | ||
| Aggregate Notional Value | $ 400.0 | |
| Aggregate Fair Value | $ 3.9 | $ (8.1) |
| Weighted Average Interest Rate | 2.92% | |
| Interest Rate Swaps 2023 Maturity | ||
| Derivative Instruments, Gain (Loss) [Line Items] | ||
| Aggregate Notional Value | $ 300.0 | |
| Aggregate Fair Value | $ 2.9 | $ (8.1) |
| Weighted Average Interest Rate | 2.70% | |
| Interest Rate Swaps 2024 Maturity | ||
| Derivative Instruments, Gain (Loss) [Line Items] | ||
| Aggregate Notional Value | $ 100.0 | |
| Aggregate Fair Value | $ 1.0 | |
| Weighted Average Interest Rate | 3.59% |
Derivatives - Effect of Our Derivative Financial Instruments on Our Consolidated Statements of Operations (Details) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2022 |
Sep. 30, 2021 |
Sep. 30, 2022 |
Sep. 30, 2021 |
|
| Derivative Instruments and Hedging Activities Disclosure [Abstract] | ||||
| Amount of Gain or (Loss) Recognized in Other Comprehensive Income on Derivative Instruments | $ 2,400 | $ 400 | $ 8,500 | $ 400 |
| Amount of Loss Reclassified from Accumulated Other Comprehensive Income into Interest Expense | 500 | 3,000 | 3,800 | 8,600 |
| Interest Expense | $ (36,481) | $ (32,426) | $ (100,473) | $ (95,135) |
Leases - Supplemental Cash Flows and Terms (Details) - USD ($) $ in Thousands |
9 Months Ended | |
|---|---|---|
Sep. 30, 2022 |
Sep. 30, 2021 |
|
| Leases [Abstract] | ||
| Operating cash flows used for finance leases | $ 182 | $ 184 |
| Operating cash flows used for operating leases | 1,961 | 2,028 |
| Financing cash flows used for finance leases | $ 561 | $ 560 |
| Weighted average remaining lease term-finance leases (months) | 66 months | 77 months |
| Weighted average remaining lease term-operating leases (months) | 285 months | 292 months |
| Weighted average discount rate-finance leases | 4.37% | 4.33% |
| Weighted average discount rate-operating leases | 6.45% | 6.43% |
Leases - Lessor Payments to be Received, Maturity (Details) $ in Thousands |
Sep. 30, 2022
USD ($)
|
|---|---|
| Leases [Abstract] | |
| October 1 to December 31, 2022 | $ 56,077 |
| 2023 | 199,618 |
| 2024 | 171,869 |
| 2025 | 136,809 |
| 2026 | 114,658 |
| Thereafter | 314,716 |
| Total payments to be received | $ 993,747 |
Commitments and Contingencies - Contractual Obligations (Details) $ in Millions |
9 Months Ended |
|---|---|
|
Sep. 30, 2022
USD ($)
| |
| Fashion District Philadelphia | |
| Other Commitments [Line Items] | |
| Contractual obligation and other commitments | $ 1.2 |
| Percentage of contractual obligation | 100.00% |
| Ownership percentage | 50.00% |
| Construction in Progress | |
| Other Commitments [Line Items] | |
| Contractual obligation and other commitments | $ 5.2 |
Commitments and Contingencies - Preferred Dividend Arrearages (Details) $ / shares in Units, shares in Millions, $ in Millions |
9 Months Ended |
|---|---|
|
Sep. 30, 2022
USD ($)
$ / shares
shares
| |
| Other Commitments [Line Items] | |
| Preferred shares, authorized (in shares) | shares | 25.0 |
| Cumulative amount of unpaid dividends on preferred stock | $ | $ 1.6 |
| Series B Preferred Stock | |
| Other Commitments [Line Items] | |
| Preferred stock annual dividend rate | $ 1.8436 |
| Unpaid dividends per share on preferred stock | 4.15 |
| Series C Preferred Stock | |
| Other Commitments [Line Items] | |
| Preferred stock annual dividend rate | 1.80 |
| Unpaid dividends per share on preferred stock | 4.05 |
| Series D Preferred Stock | |
| Other Commitments [Line Items] | |
| Preferred stock annual dividend rate | 1.7188 |
| Unpaid dividends per share on preferred stock | $ 3.87 |