Philly-Area Mall Developer Warns Of Possible Chapter 11

One of the mall sector’s more innovative real estate investment trusts has hit financial turmoil. The Pennsylvania Real Estate Investment Trust (PREIT) last week reached a debt restructuring deal with its lenders and sent up a red flag about its future viability if it doesn’t get new financing.

PREIT had scored points as one of the companies that were focused on adding small businesses to their mall concepts in the Northeast, including the Fashion District in suburban Philadelphia. It has also been a proponent of experiential retailing, but the pandemic has hit the company hard.

Late last week, PREIT announced that it has reached an agreement with 80 percent of its bank lenders to maintain operations. Under the agreement, the banks would provide an additional $150 million to recapitalize the business and extend the company’s debt.

“Long before the COVID-19 pandemic hit, we began taking meaningful actions to enhance the financial and operational health of the business,” said Joseph F. Coradino, CEO of PREIT. “These steps have included proactive asset sales, anchor repositioning and redevelopment to significantly minimize our exposure to underperforming assets, as well as diversifying our tenant base to provide mass-market offerings appealing to shoppers while simultaneously improving the company’s underlying tenant credit profile.

“The next phase in our evolution is continuing on the path we have charted to create diverse multi-use ecosystems at our properties marked by a healthy mix of multifamily housing, healthcare services, fulfillment centers and other uses, alongside our robust retail, dining and entertainment lineups,” Coradino continued. “This agreement provides us with the liquidity to compete effectively, meet our obligations and continue providing our tenants, customers and communities with the high-quality shopping experience they expect at our properties.”

Under the terms of the agreement, the banks will convert the company’s existing credit facilities into a $150 million secured facility, an additional $919 million facility and a second secured term loan facility, all of which will have a two-year term with a one-year extension option. PREIT will retain 30 percent of proceeds from non-income-producing asset sales. The agreement remains subject to the approval of 100 percent of the bank group, which is expected before the end of October.

It’s here that PREIT launched its red flag.

If the company is unable to secure the support of its remaining lenders (holding less than 20 percent of the debt), PREIT says it may need to file for Chapter 11. It even set out an expectation that a reorganization process would be expedited, and that it would have no impact on “shareholders, suppliers and other trade creditors, business partners or other stakeholders, all of whom would be unimpaired. The company will continue operating as normal, with a primary focus on the health and safety of its employees, partners, customers and communities.”

“Given the significant support we have already received from a substantial majority of our lenders, we are confident in our ability to implement the recapitalization agreement quickly and efficiently,” said Coradino. “We appreciate the support of our bank lenders, tenants and customers, and above all, we are grateful for the continued dedication of our relentless team of associates at PREIT. We are excited to take another big step forward in positioning PREIT for an even more successful future.”