Pennsylvania Real Estate Investment Trust

Thank you for standing by. Welcome to the Pre-Q1 2021 Earnings Call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today, Head Please go ahead.

Thank you. Good morning, and thank you all for joining us for PREET's first quarter 2021 earnings call. During this call, we will make certain forward-looking statements within the meaning of federal securities laws. These statements relate to expectations, beliefs, projections, trends, and other matters that are not historical facts and are subject to risks and uncertainties that might affect future events or results. Descriptions of these risks are set forth in the company's SEC filings. Statements that Preet makes today might be accurate only as of today, May 6, 2021, and Preet makes no undertaking to update any such statements. Also, certain non-GAAP measures will be discussed. Preet has included reconciliations of such measures to the comparable GAAP measures in its earnings release and other documents filed with the SEC. During this call, management will answer questions from analysts. We also invite individual investors to submit questions via email to InvestorInfo at Preet.com. Members of management on the call today are Joe Corradino, Preach Chairman and CEO, and Mario Ventresca, CFO. Joe?

Thank you, Heather, and good morning, everyone. We're pleased that all indicators point to this quarter marking the end of the COVID impact on our results. In fact, the year is kicking off better than our most optimistic expectation in many ways. As vaccine distribution increases, and we begin to approach herd immunity, restrictions are easing, and the strength of our portfolio is evident with tangible results being demonstrated. Here are some facts that illustrate the strength of the recovery. New transaction activity is exceeding expectations with an increase of over 500% compared to 2020 activity and 135% of 2019 volumes. Our collections levels continue to improve with cash collections approximately 150% of April billings. We are seeing improved pricing on residential land sales as we remarketed one project and received a bid of 40% higher after receiving zoning and anchor approvals. Traffic is steadily increasing and reaching 90% of 2019 levels across the portfolio for the month of April. This is indicative of the direction of the portfolio. On our last call, we made five key points, which we said signal a bright future for Preet. One, it's clear we're in the real estate business with an ability to attract a wide array of uses and deliver a broader customer base to our properties. Two, demand is robust from uses far beyond traditional retail, including life sciences, healthcare, and self-storage. Three, business will return in a significant way for retailers, restaurants, and entertainment in the brick-and-mortar format. Four, quality real estate will thrive into the future, and our region-leading properties are gaining market share as weaker properties decline. And five, growth in suburban markets will catalyze demand for our offerings and for our multifamily and hotel densification effort. These statements have been validated by a growing body of evidence. Consider this. Since the beginning of the year, the company executed transactions to occupy nearly 600,000 square feet of space. This compares to over 100,000 in all of 2020. as tenants continue to commit to Preet's collection of high barrier to entry communities. The diversity of tenancy illustrates the changing landscape that includes a broader array of uses not always found in retail centers. These nontraditional uses included 165,000 square foot Cooper University medical facility at Moorestown Mall. a 90,000-square-foot self-storage facility at Mall of Prince George's, Aldi at Dartmouth Mall, and HomeGoods at Cumberland Mall. The dining and entertainment category is also poised for explosive growth as restrictions are alleviated, including Tilt Studios and Crab du Jour at Magnolia Mall and Restaurant 54 at Springfield Town Center. We also saw an increase in apparel retailers opening stores including Rosen Remington, an expanding first-to-portfolio tenant known for its chic style, will open at Woodland Mall. Windsor Fashion, best known for its array of dresses and formal wear, has signed five leases for 29,000 square feet in our portfolio. Route 21, well known for its offering of the latest transit affordable price, has signed three new transactions for over 18,000 square feet. We're also seeing significant growth in local, regional, and minority-owned businesses opening new locations with us, creating a more unique mix of offerings. Toward that end, we launched a new initiative to support our black-owned businesses and brands by spotlighting these brands to bring awareness and drive sales to them through our mall websites. Concurrently, we're seeing well-known retailers expanding their new concepts, like American Eagle's Offline, or increased their store count, betting on this revival. Our pipeline is healthier than it has been in years, and we're looking forward to bringing in new exciting concepts. This is a time of new growth in our industry, best described by Jay Schottenstein, American Eagle's CEO, who foresees a quote, roaring 20s like recovery occurring in the mall space, end quote. Adding to these factors is our anchor releasing program, where we continue to lead the sector dealing with anchor challenges proactively. Today, today we have leases out or signed for all unleashed anchor spaces in the portfolio. If this increased pace of leasing activity weren't enough evidence of the resurrection of the sector, the surging traffic in sales we are experiencing is. Based on a comparable set of tenants who reported sales in March of 19 and 21, sales grew at 14 of the company's managed properties. For the quarter, more than half of our properties reported improved sales for comparable tenants. Traffic flows continue to climb back to pre-pandemic levels. In April, our comparable properties recorded an 11 percentage point increase from March, registering 86 percent of 2019 levels, with half of the portfolio registering 90 percent or more. The economic indicators for our business are strong. Consumer confidence saw its largest one-month increase in 18 years in March. Consumers have amassed a reported $2 trillion in excess savings, and they are spending on discretionary goods and services. People are getting dressed, they're going out, and tenants are opening businesses as restrictions ease across the country. We think our portfolio is uniquely situated to capitalize on this improving landscape, and it's comprised of three distinct property classifications, fortress destinations, comprised of high-quality retail and entertainment venues with an improving sales and tenant mix profile, such as Cherry Hill Mall. High barrier-to-entry properties in Philadelphia and D.C., densely populated markets with a scarcity of well-located land. These properties are well-situated with ample parking and access to millions of customers through major road networks. They attract an array of uses, including life sciences, medical, office, grocers, big box, other open-air tenancy, fulfillment, fitness, storage, in addition to apartments, senior housing, and hotels. Now, Morristown Mall is a good example of this category. And winner-take-all properties. In markets where competitive retail centers have fallen by the wayside, we are finding that we have captured the undivided attention of the consumer. We call these our winner-take-all properties. Markets represented in this category include Harrisburg and Scranton in Pennsylvania, Newport News in Virginia, Dartmouth, Massachusetts, and Grand Rapids, Michigan. In these markets, there is a right sizing of retail. and clear evidence that we are winning the battle for tenants and customers with March sales for comparable properties in this group increasing 19% compared to 2019. This collection of properties is designed to attract a broader array of customers, strengthening the opportunities for our tenants. As our tenants get stronger, our collections are improving and pricing power will follow. It is important that we continue to monitor and improve our liquidity position through continued progress in collections, sale of our multifamily land, and reduced capital spending. We are pleased with how far we have come and that our liquidity forecast is on track. We are well along in the entitlement and tenant approval process on our multifamily land and are seeing improved pricing in this market. We expect to receive approvals on two of our multifamily properties during this calendar year. As we see it today, the recovery of our business is intensifying, and the steps we have taken to strengthen our portfolio provides us with a myriad of options for the company as asset values improve. We believe we're well positioned and poised to pursue any and all options to drive stakeholder value. We have adapted, which we've been doing for years, and we'll thrive in a future-ready marketplace. With that, I'm happy to turn it over to Mario.

Thank you, Joe. As Joe noted in his remarks, we are seeing incredible new leasing activity, collection levels that are exceeding our liquidity forecast, a sharp return of consumer spending, and overall improved perception of the space. it is worth noting that this quarter represents a comparison to the first quarter of 2020 which was only minimally impacted by pandemic related closures and we expect our comps to improve considerably as the year progresses the results that we are reporting are reflective of a portfolio that is nearly recovered from the impact of the pandemic as demonstrated by the sequential contraction in noi decline compared to the fourth quarter of 2020 and a significant improvement over both second and third quarters of last year. Last night, we reported results that were incrementally impacted by pandemic and bankruptcy-related closures, as well as increased snow removal costs and interest expenses. Conversely, in the first quarter, we have continued to see the pace of bankruptcy subside, having experienced only three immaterial tenant bankruptcies marking one of the lowest volume first quarters in recent history. We believe that we are at an inflection point as leasing volumes are strong and sales are improving with our tenants paying percentage sales in lieu of minimum rent, having exceeded our forecast. On the leasing and occupancy front, when we factor in the impact of tenants with signed leases that have not yet taken physical occupancy, Total occupancy is forecast to climb to 90.7%. Average renewal spreads in the wholly owned portfolio were a positive 2.2%, representing 300 basis points of sequential improvement and the first quarter of positive renewal spreads since COVID manifested itself in our leasing activity. We also saw significant improvement in renewal spreads in the percentage rent and lieu category. In reviewing collections for the 12-month period from April 1, 2020 through March 31, 2021, we collected 58% of rents compared to 81% of current rents collected in this year's first quarter. Including collection of prior months' rents, we collected 89% of build rent for the period from April 1st, 2020 through March 31st, 2021, and 119% of build first quarter rents. As a result, our outstanding accounts receivable has decreased materially by $14.1 million over And at the end of the quarter, our accounts receivable balance was $40.4 million, which compares favorably to pre-pandemic levels of $41 million as of December 2019. As it relates to April, the momentum continued. We collected 88.8% of our billed rents and, on a cash-collected basis, including payments towards prior months' rents, we collected 149% of our build rents. As of March 31st, 2021, total liquidity was $103.6 million, inclusive of $28.4 million of cash in unrestricted bank accounts and $75.2 million of availability on our revolver. We are forecasting ending 2021 with incremental improvement in our total liquidity, including $13.3 million of gross proceeds from anticipated land sales. Regarding our outstanding mortgages, we are in the process of refinancing near-term maturities for Viewmont Mall and three joint venture properties, Red Rose Commons, the Court at Oxford Valley, and Pavilion at Market East. A short extension has been executed for Pavilion, and the new loan is expected to close within the next month. Completion of this refinancing activity will address all of our near-term non-recourse debt maturities. As we look ahead, comps will continue to improve, leading to an anticipated high single to low double-digit NOI growth this year as our backlog of revenue from signed leases comes online and continues to grow. Our cash flow and liquidity forecasts are improving, and we believe we are at a tipping point where NOI is growing. There is positive momentum in the space such that we should see cap rate compression and improved asset valuations. We are pleased with where we are currently and see continued reasons for optimism. With that, we'll open it up for questions.

At this time, I'd like to remind everyone, in order to ask a question, press star 1 on your telephone. To withdraw your question, press the pound key. We will pause for a moment to compile the Q&A roster. And we will continue to pause to compile questions. As a reminder, to ask a question, press star 1. And I will turn the call back over to the speakers for closing remarks.

Thank you, everyone. As we noted, this year is kicking off better than our most optimistic expectations. Economic and portfolio indicators are decidedly positive, and we are proactively taking advantage of these factors to improve our results. Just to recap, leasing activity is astonishing our liquidity picture is improving and there are a myriad of options for preach future thank you this concludes today's conference call thank you for participating you may now disconnect