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Pennsylvania REIT CEO: Tenants have pricing power, mall business at 'trough'

The regional mall business is at a "trough" in the wake of 2017's department store downsizing and retailer bankruptcies, and the business will improve from here, Pennsylvania Real Estate Investment Trust Chairman and CEO Joe Coradino said.

On an earnings call, Coradino touted a "dramatic" amount of ongoing leasing activity from domestic and international brands at midyear, but acknowledged that tenants have a slight edge in lease negotiations, particularly at weaker properties.

"The leverage, I would say generally these days, probably is slightly in favor of the tenant," Coradino said. "But that tends to change as asset quality improves. ... Our view is that the balance will begin to shift in favor of the landlord again, given the significant demand that we're experiencing."

One analyst on the call pressed management for detail about what "aggressive" steps the leadership can take at present, beyond backfilling tenants, refinancing and executing asset sales, to address the shares' particularly steep discount in the public market. The shares are down roughly 38% year-to-date.

"We're going to be in a position by year-end to make a statement that our anchor space is 100% leased, and to announce a list of exciting new tenants, many of which are new to the markets they'll be going to," Coradino said.

Coradino later added: "I said this is the trough. I believe it is. We think our plan, on a going-forward basis, will generate outsized [net operating income] returns, and begin to get the attention of investors."

Later, the CEO gave a "qualified yes" that the company is considering selling joint-venture interests in its higher-quality assets to lower debt or potentially repurchase stock. Coradino said the company had engaged the real estate investment banking outfit Eastdil Secured to explore potential sales and has "several foreign buyers coming in next week," but did not address specific pricing expectations.

"We all are clear it's a tough environment to sell interest [in] right now, and we're not prepared to give anything away," he said.

The company continues to forecast non-anchor occupancy between 93% and 94% at year-end.