Deliberate Portfolio Management Creates New Opportunity To Harvest Value For PREIT

PREIT is in the midst of executing a strategic capital-raising initiative to harvest value from its high-quality real estate portfolio. Having often made unconventional decisions, the company saw around corners and deftly executed a plan to dispose of low-productivity malls and proactively replace department stores that had lost relevance. Pundits had been calling for the closure of 40% of malls and PREIT agreed.        

After selling obsolete assets with limited future prospects and proactively replacing anchors with a productive mix of tenants that spanned a variety of new, exciting uses, the company reverted back to its roots — a real estate company on a mission to deliver one-stop destinations for communities to live, play, dine, stay and work. PREIT envisions each of its one-of-a-kind properties as a central hub for the local community, with experiences and amenities carefully tailored to the unique needs and desires of the customers. This has led the company to curate a portfolio of well-located assets targeting a variety of users and buyers.

As a result of these efforts, the PREIT’s properties have overcome cyclical economic changes. PREIT prides itself on two distinctive property segments – Winner-Take-All and Major Metro Suburban properties. “Winner-Take-All” properties have overtaken competitors in smaller markets. Capital City Mall, in Harrisburg PA, for example, one of its shining stars in this segment, caused two competitive malls to become obsolete resulting in sharply decreased retail inventory.     

It has the only fashion department store, Macy’s in 50+ miles and the only Dave & Buster’s in 75+ miles. Sales have grown over 20% from $453 per square foot in 2019 to $542 per square foot today. The company has been able to leverage this position to attract expanding retailers to open their only locations in Harrisburg - Rose & Remington, Lovisa, and BoxLunch. 

The “Major Metro Suburban” segment tends to have a broader value proposition, particularly as the population shifts to the suburbs as a result of an evolving work-life situation coupled with underutilized parking fields attractive for development. In short, its portfolio, with a major presence in the Philadelphia and Washington, D.C. regions, draws from an inventory of tenants, not typically found in a mall environment.

PREIT is in the process of creating an almost self-contained community with apartments and an outpatient medical facility, both under construction at Moorestown Mall, which competes with the company’s crown jewel and fashion powerhouse, Cherry Hill Mall. These join an already extensive array of tenants spanning off-price and popular retail, top-notch dining, a state-of-the-art movie theater, and fitness facilities.  

Creating this highly sought-after portfolio has allowed the company to extract value opportunistically toward the goal of improving its balance sheet. The company closed on the sale of its second land parcel to a multi-family developer at Moorestown Mall in June for $12 million and has several others under contract for thousands of apartments to be built in its portfolio. By the end of this year, the company expects to close on the sale of two parcels at Springfield Town Center, in Virginia’s Fairfax County, just outside of DC – one for apartments and one for a hotel.

Another similar opportunity is the sale of triple-net leased outparcels, generally leased to a stand-alone retailer or a restaurant, representing significant capitalization rate arbitrage as compared to a more traditional mall capitalization rate. PREIT has sold $17.5 million of parcels this year with others in the pipeline. PREIT believes that the path to creating shareholder value is improving the company’s balance sheet and continues to drive operational improvements such that asset values are driven even higher.

Image provided by PREIT

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