PREIT Reports Fourth Quarter and Full Year 2018 Results
Core Mall total leased space reached 96.6%
NOI-weighted sales per square foot reach $525; Sales up 5.1% at Top 5 Assets
Average renewal spreads of 6.3% for the quarter and 6.9% for the year
Opened Belk in former Bon-Ton and signed DICK’s Sporting Goods in former Sears at Valley Mall
Completed first multifamily land sale
Philadelphia, PA, February 13, 2019 – PREIT (NYSE: PEI) today reported results for the quarter and year ended December 31, 2018. A description of each non-GAAP financial measure used in this release and the related reconciliation to the comparable GAAP financial measure are located in the tables accompanying this release.
| Quarter EndedDecember 31, | Year EndedDecember 31, | ||||
| (per share amounts) | 2018 | 2017 | 2018 | 2017 | |
| Net loss – basic and diluted | $(1.23) | $(0.03) | $(1.98) | $(0.84) | |
| FFO | $0.42 | $0.44 | $1.43 | $1.58 | |
| FFO, as adjusted | $0.52 | $0.51 | $1.54 | $1.67 | |
| FFO from assets sold in 2018 | — | $(0.01) | — | $(0.09) | |
| FFO, as adjusted for assets sold | $0.52 | $0.50 | $1.54 | $1.58 |
Highlights from the quarter include:
- Same Store NOI increased 0.3% for the year ended December 31, 2018 and decreased by 4.3% for the quarter compared to the same period last year.
- Core Mall NOI-weighted sales per square foot reached $525. Core mall sales per square foot reached an all time high of $510.
- Total Occupancy at Core Malls improved 100 basis points sequentially; non-anchor occupancy at core malls increased 150 basis points sequentially.
- Total Leased space at Core Malls improved 140 basis points sequentially.
- Average renewal spreads during the quarter were 10.0% for wholly-owned, under 10,000 square foot transactions.
- Including larger-format and unconsolidated transactions, average renewal spreads were 6.3% for the quarter.
- During the quarter, key differentiated uses opened including: Dave & Buster’s at Capital City Mall, 1776 at Cherry Hill Mall and Belk, Tilt and Onelife Fitness at Valley Mall.
“Our disciplined approach to low-productivity asset sales and proactive department store repositioning along with tenant diversification has resulted in a quality portfolio with densification opportunities,” said Joseph F. Coradino, CEO of PREIT. “The work we’re doing in this milestone-marked year as we complete many of the anchor and redevelopment projects underway sets the stage for a stronger Company in 2020 and beyond. The early results from this effort are evident with core portfolio sales reaching $510 per square foot and traffic up 5% during the holidays at properties that have undergone remerchandising, paving the way for a solid NOI growth forecast despite a rapidly changing environment.”
Primary Factors Affecting Financial Results for the Quarters Ended December 31, 2018 compared to December 31, 2017:
- Portfolio Same Store NOI was impacted by the following items:
- Lost revenue from tenants who filed for bankruptcy protection: ($0.8 million),
- Incremental co-tenancy compared to prior year quarter: ($0.2 million),
- Lost revenue from terminated tenants: ($0.6 million),
- Lower common area revenue: ($1.4 million),
- Higher CAM and real estate tax expenses: ($1.4 million),
- Increased lease termination revenue: $1.1 million, and
- Increased revenue from anchor replacements and other leasing activity: $0.4 million.
- Previous asset sales contributed to a $0.4 million, or $0.01 per share, FFO decline.
- During the quarter, we recorded a gain on sale of $8.1 million related to the sale of a land parcel at Exton Square to a multifamily developer.
- We recorded $103.2 million in impairments related to non-core properties and other assets.
- A reconciliation of Funds From Operations (FFO) between current and prior year periods is included in the financial tables accompanying this release.
Leasing and Redevelopment
- Excluding Fashion District Philadelphia, 647,000 square feet of leases are signed for future openings.
- At Moorestown Mall, HomeSense and Five Below opened in the former Macy’s box. Sierra Trading Post will open in early 2019 and a lease with Michael’s was executed.
- At Willow Grove Park, construction continues on the 51,000 square foot Studio Movie Grill which is now projected to open in Q1 2020. The twelve screen Studio Movie Grill will be joined by other dining and entertainment tenants, for which leases are being negotiated, to replace a former JC Penney store.
- At Valley Mall, Tilt Studio opened in 48,000 square feet of a former Macy’s box along with Onelife Fitness, which occupies the remaining 70,000 square feet. Belk also opened in 123,000 square feet replacing a former Bon-Ton that was proactively recaptured prior to its bankruptcy filing. During the quarter, the Company signed a lease with DICK’s Sporting Goods to replace a former Sears that was acquired earlier in the year.
- At Capital City Mall, Dave & Buster’s opened in 28,000 square feet.
- At Fashion District Philadelphia, leases for over 85% of the leasable area are signed or in active negotiation. Noteworthy commitments joining Century 21 and Burlington include H&M, Nike, Forever 21, AMC Theaters, Round One, City Winery, Ulta, Columbia Sportswear and Guess Factory. Grand opening is planned for September 2019.
- At Plymouth Meeting Mall, work continues to replace a former Macy’s with five new tenants. All five tenants are expected to open in October 2019.
- During 2018, we raised $1.2 billion in proceeds through financing activities and asset sales, underscoring our ability to creatively access capital markets to fund redevelopment activity.
Retail Operations
The following tables set forth information regarding sales per square foot and occupancy in the Company’s mall portfolio, including unconsolidated properties:
A reconciliation of portfolio sales per square foot (1) can be found below:
| Comp store sales for the rolling twelve months ended December 31, 2017 | $ | 475 |
| Organic sales growth | 16 | |
| Impact of non-core malls | 19 | |
| Core mall comp store sales for the rolling twelve months ended December 31, 2018 | $ | 510 |
(1) Based on reported sales by all comparable non-anchor tenants that lease individual spaces of less than 10,000 square feet and have occupied the space for at least 24 months.
2019 Outlook
The Company is introducing its earnings guidance for the year ending December 31, 2019 of GAAP Net loss between ($0.55) and ($0.40) per diluted share and estimates FFO for the year will be between $1.14 and $1.29 per diluted share. FFO, as adjusted per share is expected to be between $1.20 and $1.34. Same Store NOI, excluding termination revenue is expected to grow between 1.0% and 1.9% with wholly-owned properties in the range of 1.5% to 2.6% and joint venture properties declining between (2.7%) and (2.4%).
A reconciliation between GAAP net loss and FFO is as follows:
| 2019 Guidance Range | ||
| (Estimates per diluted share) | Low | High |
| Net loss attributable to common shareholders | $(0.55) | (0.40) |
| Depreciation and amortization, non controlling interest | ||
| and other | 1.72 | 1.68 |
| FFO per share | $1.14 | $1.29 |
| Mortgage loan defeasance | 0.06 | 0.06 |
| FFO per share, as adjusted | $1.20 | $1.34 |
Our guidance assumes the defeasance of the mortgage loan secured by Capital City Mall during the first quarter of 2019.
Detailed guidance assumptions are included herein in our Financial tables.
Our 2019 guidance is based on our current assumptions and expectations about market conditions, our projections regarding occupancy, retail sales and rental rates, and planned capital spending. Our guidance is forward-looking, and is 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.
Conference Call Information
Management has scheduled a conference call for 11:00 a.m. Eastern Time on Thursday,
February 14, 2019, to review the Company’s results and future outlook. To listen to the call, please dial 1-844-885-9139 (domestic toll free), or 1-647-689-4441 (international), and request to join the PREIT call, Conference ID 3088886, at least five minutes before the scheduled start time. Investors can also access the call in a “listen only” mode via the internet at the Company’s website, preit.com. Please allow extra time prior to the call to visit the site and download the necessary software to listen to the Internet broadcast. Financial and statistical information expected to be discussed on the call will also be available on the Company’s website. For best results when listening to the webcast, the Company recommends using Flash Player.
For interested individuals unable to join the conference call, the online archive of the webcast will also be available for one year following the call.
About PREIT
PREIT (NYSE:PEI) is a publicly traded real estate investment trust that owns and manages quality properties in compelling markets. PREIT’s robust portfolio of carefully curated retail and lifestyle offerings mixed with destination dining and entertainment experiences are located primarily in the densely-populated eastern U.S. with concentrations in the mid-Atlantic’s top MSAs. Since 2012, the Company has driven a transformation guided by an emphasis on portfolio quality and balance sheet strength driven by disciplined capital expenditures. Additional information is available at www.preit.comor on Twitter or LinkedIn.
Rounding
Certain summarized information in the tables above may not total due to rounding.
CONTACT: AT THE COMPANY
Robert McCadden
EVP & CFO
(215) 875-0735
Heather Crowell
SVP, Strategy and Communications
(215) 454-1241