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With recent mall sales, PREIT looks to shed B mall standing

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Six trends shaping the industries and sectors we cover in 2021

Six trends shaping the industries and sectors we cover in 2021

Capital Markets View – January 2021


With recent mall sales, PREIT looks to shed B mall standing

Theend is in sight for PennsylvaniaReal Estate Investment Trust's years-long portfolio program.

The REIT,which has sold 13 malls over the last three and a half years, has only onenoncore, underperforming mall asset left to sell. CEO Joe Coradino said in aninterview that the company aims to achieve a tenant sales average of $500 persquare foot across the portfolio of remaining properties — somewhat higher thanthe traditional performance boundary of B malls.

"That$500-per-foot mark starts to move you into a different category — which hasbeen our goal," Coradino said. "We have always thought our portfoliowas being unduly penalized by these 13 or 14 properties that were C malls, orworse. And getting them out of the mix really allows the rest of the portfolioto shine through."

Re-tenantingremains at the top of Pennsylvania REIT's list of priorities. At in Scranton,Pa., for example, the company had a large space occupied by Rite Aid Pharmacythat it re-appropriated, and then split up and used to expand the footprints ofVictoria's Secret, Bath & Body Works and Express, which all used to besituated in the same large-format store.

ViewmontMall is now at a sales-per-square foot average of $460, up from $390, theexecutive said.

Theonly mall property left on the to-sell list is Washington Crown Center in Washington, Pa.Coradino said the company is still some distance from a firm deal for thatproperty.

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"Asmuch as I'd love to give you a certain time frame, the simple answer is: assoon as we can. It's on the market, bidding is due in soon, but there's a lotthat needs to happen to get to a close," he said.

The company also has a land parcel in Gainesville, Fla.,under agreement to sell, and it is expects a close on that deal this year ornext year. Another land parcel outside of Philadelphia is on the market.

PennsylvaniaREIT's latest batch of mall sales included a portfolio of three properties —Gadsden Mall inGadsden, Ala.; New RiverValley Mall in Christiansburg, Va.; and inDothan, Ala. — the only multi-property transaction of the company's recent mallsales.

JimCostello, senior vice president with Real Capital Analytics, said in aninterview that Pennsylvania REIT's recent sales jibe with the broader REITsales trend of late: selling lower-quality assets and recycling capital intothe core. The hunt for buyers has not been easy, but there aresome still out there, he said.

"Thereare a number of investors hungry for yield, worldwide, and a number ofinvestors looking for value-add opportunities," Costello said.

Mallsales are not particularly common, but deals in recent years have, for the mostpart, been executed at the lower end of the quality spectrum, Costello added.The price per square foot of such deals, using mall age as a proxy for mallquality, has fallen off steeply in the last few quarters, according to RCA data.

 

Costellopointed out also that most of the buyers in recent mall sales have been localplayers, who he said are in the advantageous position of knowing the market intimatelyand understanding what is needed to make a lower-quality mall a worthwhileinvestment.

"It'sgoing to take a lot of work to help these things survive and flourish," hesaid. "You're not going to have someone who just looks at it on thespread."

OneREIT's sale is indeed another man's opportunity. Michael Kohan, managing memberof Kohan Retail, the buyer of the Lycoming Mall in Pennsdale, Pa. — the other property inPennsylvania REIT's recently announced group of sales — said in an interviewthat the transaction's price point was about on par with other recent malldeals he has done.

Kohan,who said he never buys at market price, aims to clean the property upsignificantly and re-tenant it with a mix of local and national retailers andrestaurants. He said B mall owners must be more aggressive in leasing andproperty maintenance.

"Ifyou pay attention, if you put effort and money into it, at the end of the dayit's going to turn out to be a good deal," he said.

For further company research, try SNL's Real Estate 2-Page Profile Excel template, as well as other real estate templates that can be found in the template library.