PREIT Reports Third Quarter 2016 Results Highlighted by Standout Operating Metrics and Increased Guidance
GAAP Earnings (Loss) Per Share improved $0.51 for the quarter
FFO, as adjusted per share increased 14% excluding dilution from asset sales
Same Store NOI grew by 5.2% for the quarter
Renewal Spreads were 11.2% for the quarter and 14.8% YTD
Sales PSF increased 8.5% to $460 over prior year
Completed sale of 2 non-core properties and executed agreement of sale for Beaver Valley
Mall
Philadelphia, PA, November 2, 2016 – PREIT (NYSE: PEI) today reported results for the quarter and nine months ended September 30, 2016.
- Net loss attributable to PREIT common shareholders was $1.4 million for the quarter compared to $36.3 million in the prior year period. On a per share basis, net loss was $0.02 for the quarter ended September 30, 2016 compared to net loss per share of $0.53 for the prior year quarter
- FFO per share was flat for the quarter at $0.49; after adjusting for dilution from asset sales, FFO per share increased by $0.06 per share or 14%
- Net income available to PREIT common shareholders was $0.6 million for the nine month period ended September 30, 2016 compared to loss attributable to PREIT common shareholders of $88.7 million in the prior year period.
- FFO per share increased 9.1% to $1.32 for the nine month period ended September 30, 2016 compared to the prior year period.
- Same Store NOI improved by 5.2% for the quarter and by an average of 4.3% for the first three quarters ended September 30, 2016 as compared to the prior year period.
- Same Store NOI excluding lease terminations improved by 1.4% for the quarter and by an average of 3.1% for the first three quarters ended September 30, 2016 as compared to the prior year period.
- Non-anchor leased space for malls excluding those held for sale was 93.9%, a 160 basis point improvement over current physical occupancy.
- Comparable store sales per square foot across the portfolio increased 8.5% to $460 compared to $424 in the prior period.
- Renewal spreads for tenants under 10,000 square feet were 12.0% for the quarter and 15.5% for the nine month period ended September 30, 2016.
- Cash basis renewal spreads for these tenants were 4.5% for the quarter and 7.9% for the nine month period ended September 30, 2016.
- Non-anchor occupancy for same store malls improved 190 basis points to 92.8% compared to the quarter ended June 30, 2016.
- Completed dispositions of Washington Crown Center and an office building in Voorhees, NJ,executed an Agreement of Sale for Beaver Valley Mall and brought Crossroads Mall in Beckley, WV to market.
- New anchor stores,Dick’s Sporting Goods at Cumberland and Saks Fifth Avenue OFF 5TH, at Springfield Town Center, opened respectively.
Our results reflect the high quality, improving shopper demographics and well-located portfolio of assets we have created through dispositions, redevelopment and repositioning,” said Joseph F. Coradino, Chief Executive Officer. “We are consistently delivering strong operating results and have, in full swing, a pipeline of value creating projects that will further strengthen the portfolio and continue the cycle of portfolio improvement and growth through increased traffic, sales and NOI.
The following tables set forth information regarding net income (loss), net (loss attributable) income available to PREIT common shareholders and net (loss) earnings per diluted share for the quarter and nine months ended September 30, 2016 and 2015:
| Quarter Ended September 30, | Nine Months Ended September 30, | ||||
| (In millions, except per share amounts) | 2016 | 2015 | 2016 | 2015 | |
| Net income (loss) | $2.9 | ($36.2) | $14.0 | ($84.8) | |
| Net (loss attributable) income available to PREIT common shareholders | ($1.4) | ($36.3) | $0.6 | ($88.7) | |
| Net (loss) earnings per share – basic and diluted | ($0.02) | ($0.53) | $0.01 | ($1.29) | |
The following tables set forth information regarding Funds From Operations (“FFO”) and FFO, as adjusted for the quarter and nine months ended September 30, 2016 and 2015:
| Quarter Ended September 30, | Nine Months Ended September 30, | ||||
| (In millions) | 2016 | 2015 | 2016 | 2015 | |
| FFO | $ 37.8 | $37.7 | $ 102.5 | $ 91.4 | |
| Mortgage prepayment penalty and accelerated amortization of deferred financing costs | — | — | — | 1.1 | |
| Acquisition costs | — | — | — | 3.5 | |
| Provision for employee separation expense | 0.2 | 0.1 | 1.4 | 0.1 | |
| Loss on hedge ineffectiveness | — | — | 0.1 | 0.5 | |
| FFO, as adjusted | $ 38.0 | $ 37.9 | $ 104.0 | $ 96.6 | |
| FFO from Assets Sold | (0.3) | (5.1) | (5.1) | (17.1) | |
| FFO, as adjusted for Assets Sold | $ 37.7 | $ 32.8 | $ 98.9 | $ 79.5 | |
| Quarter Ended September 30, | Nine Months Ended September 30, | |||||||
| Per Diluted Share and OP Unit | 2016 | 2015 | 2016 | 2015 | ||||
| FFO | $ 0.49 | $ 0.49 | $ 1.32 | $ 1.21 | ||||
| FFO, as adjusted | $ 0.49 | $ 0.49 | $ 1.34 | $ 1.28 | ||||
| FFO from Assets Sold | — | (0.07) | (0.07) | (0.23) | ||||
| FFO, as adjusted for Assets Sold | $ 0.48 | $ 0.42 | $ 1.27 | $ 1.05 | ||||
Descriptions of each non-GAAP financial measure and the related reconciliation to the comparable GAAP measure are located at the end of this press release.
Primary Factors Affecting Financial Results for the Quarters Ended September 30, 2016 and 2015:
Net loss attributable to PREIT common shareholders was $1.4 million, or $0.02 per basic and diluted share compared to net loss attributable to PREIT common shareholders of $36.3 million, or $0.53 per basic and diluted share for the quarter ended September 30, 2015.
- Same Store NOI increased by $3.3 million to $65.4 million, primarily driven by an incremental $1.1 million increase from Springfield Town Center and a $2.4 million increase in lease terminations, partially offset by $0.7 million of lower revenue from tenants that filed for bankruptcy in 2016.
- Non Same Store NOI decreased $4.6 million including a $6.2 million decrease from properties sold in 2015 and 2016, partially offset by a $1.1 million increase related to the recovery of costs previously expensed at Fashion Outlets of Philadelphia.
- FFO, as adjusted, for the quarter was $0.49 per share and OP Unit, compared to $0.49 per share and OP Unit in the prior year. Dilution from assets sold in 2015 and 2016 was approximately $0.06 per share.
- Impairment of assets of $9.9 million was recognized on Beaver Valley Mall in the quarter ended September 30, 2016, as compared to $51.4 million recognized on Lycoming Mall and Voorhees Town Center in the quarter ended September 30, 2015.
Primary Factors Affecting Financial Results for the Nine Months Ended September 30, 2016 and 2015:
- Net income available to PREIT common shareholders was $0.6 million, or $0.01 per basic and diluted share, compared to loss attributable to PREIT common shareholders of $88.7 million, or $1.29 per basic and diluted share, for the nine months ended September 30, 2015.
- NOI increased by $0.3 million to $200.6 million. The net increase results from an incremental $8.6 million aggregate increase from Springfield Town Center and Gloucester Premium Outlets, rent increases, new store openings and termination fees at existing properties, net of $15.0 million lower NOI from properties sold in 2015 and 2016.
- Gains on sales of interests in real estate were $23.0 million primarily due to the sale of the Walnut and Chestnut Street retail properties and two operating parcels.
- Acquisition costs of $3.4 million in the nine months ended September 30, 2015 that did not recur in 2016.
- Activist shareholder defense costs of $1.8 million for the nine months ended September 30, 2015 that did not recur in 2016.
- FFO, as adjusted, for the nine months ended September 30, 2016 was $1.34 per share and OP Unit, compared to $1.28 in the prior year. Dilution from assets sold in 2015 and 2016 was approximately $0.15 per share.
- Impairment of assets of $24.6 million was recognized on Beaver Valley Mall, Washington Crown Center and the office building located at Voorhees Town Center in the nine months ended September 30, 2016 as compared to $86.3 million that was recognized on Lycoming Mall, Voorhees Town Center, Uniontown, Gadsden, New River Valley and Wiregrass Commons Malls in the nine months ended September 30, 2015.
All NOI and FFO amounts referenced as primary factors affecting financial results above include our share of unconsolidated properties’ revenues and expenses.
Asset Dispositions
During the quarter, the Company sold Washington Crown Center in Washington, PA, an office building in Voorhees, NJ and a land parcel adjacent to Beaver Valley Mall in Monaca, PA.
In October 2016, the Company entered into an Agreement of Sale for Beaver Valley Mall and has placed Crossroads Mall in Beckley, WV on the market for sale.
Retail Operations
The following tables set forth information regarding sales per square foot and occupancy in the Company’s mall portfolio, including unconsolidated properties:
| Rolling Twelve Months Ended: | ||
| September 30, 2016 | September 30, 2015 | |
| Portfolio Sales per square foot (1) (2) | $460 | $ 424 |
|
(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 excluding Springfield Town Center which is 12 months. (2) We own a 25% to 50% interest in each of our unconsolidated properties and do not control such properties. Our percentage ownership is not necessarily indicative of the legal and economic implications of our ownership. |
||
A reconciliation of portfolio sales per square foot can be found below:
| September 30, 2015 | $424 |
| Organic sales growth | 9 |
| Asset sales | 24 |
| Springfield Town Center | 3 |
| September 30, 2016 Sales | $460 |
| Leased as of: | Occupancy as of: | ||||
| September 30, 2016 | September 30, 2016 | September 30, 2015 | |||
| Same Store Malls: | |||||
| Total including anchors (1) (2) | 95.1% | 93.9% | 95.3% | ||
| Total excluding anchors (1) (2) | 94.2% | 92.8% | 93.3% | ||
| Portfolio Total Occupancy: | |||||
| Total including anchors (1) (2) | 94.8% | 93.6% | 94.0% | ||
| Total excluding anchors (1) (2) | 93.6% | 92.3% | 91.5% | ||
| (1) Includes both consolidated and unconsolidated properties. | |||||
| (2) We own a 25% to 50% interest in each of our unconsolidated properties and do not control such properties. Our percentage ownership is not necessarily indicative of the legal and economic implications of our ownership. | |||||
2016 Outlook
The Company has revised its previous estimates of net income attributable to PREIT common shareholders, FFO and FFO as adjusted, each on a per share basis, for the year ending December 31, 2016. The changes give consideration to the Company’s results of operations for the first nine months of the year, completed and planned dispositions of assets, completed financing transactions and management’s outlook for the balance of the year.
| Estimates Per Diluted Share | Lower End | Upper End |
| Net income attributable to PREIT common shareholders | $0.08 | $0.11 |
| Depreciation and amortization (includes the Company’s share of unconsolidated properties), non-controlling interest and other adjustments |
1.72 |
1.72 |
| Impairment of assets | 0.32 | 0.32 |
| Gain on sale of interests in real estate | (0.29) | (0.29) |
| FFO | 1.83 | 1.86 |
| Provison for employee separation expense and hedge ineffectiveness | 0.02 | 0.02 |
| FFO, as adjusted | $ 1.85 | $ 1.88 |
Our 2016 guidance is based on our current assumptions and expectations about market conditions, and 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.
Our revised guidance incorporates the following assumptions, among others:
- Same Store NOI growth in the fourth quarter is expected to be 3.5% to 4.5%;
- Additional asset sales, if any, would not occur until the end of 2016 or early 2017;
- No additional financing activity; and
- No acquisitions.
Conference Call Information
Management has scheduled a conference call for 11:00 a.m. Eastern Time on Thursday,
November 3, 2016, to review the Company’s results and future outlook. To listen to the call, please dial 1-877-201-0168 (domestic toll free), or 1-647-788-4901 (international), and request to join the PREIT call, Conference ID 74250243, 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 25 million square feet of carefully curated retail and lifestyle offerings mixed with destination dining and entertainment experiences are located primarily in the 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.com or on Twitter or LinkedIn.
Rounding
Certain summarized information in the tables above may not total due to rounding.
Definitions of Non-GAAP Measures
Funds From Operations
The National Association of Real Estate Investment Trusts (“NAREIT”) defines Funds From Operations (“FFO”), which is a non-GAAP measure commonly used by REITs, as net income (computed in accordance with GAAP) excluding gains and losses on sales of operating properties, plus real estate depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures to reflect funds from operations on the same basis. We compute FFO in accordance with standards established by NAREIT, which may not be comparable to FFO reported by other REITs that do not define the term in accordance with the current NAREIT definition, or that interpret the current NAREIT definition differently than we do. NAREIT’s established guidance provides that excluding impairment write downs of depreciable real estate is consistent with the NAREIT definition.
FFO is a commonly used measure of operating performance and profitability among REITs. We use FFO and FFO per diluted share and unit of limited partnership interest in our operating partnership (“OP Unit”) in measuring our performance against our peers and as one of the performance measures for determining incentive compensation amounts earned under certain of our performance-based executive compensation programs.
FFO does not include gains and losses on sales of operating real estate assets or impairment write downs of depreciable real estate, which are included in the determination of net income in accordance with GAAP. Accordingly, FFO is not a comprehensive measure of our operating cash flows. In addition, since FFO does not include depreciation on real estate assets, FFO may not be a useful performance measure when comparing our operating performance to that of other non-real estate commercial enterprises. We compensate for these limitations by using FFO in conjunction with other GAAP financial performance measures, such as net income and net cash provided by operating activities, and other non-GAAP financial performance measures, such as NOI. FFO does not represent cash generated from operating activities in accordance with GAAP and should not be considered to be an alternative to net income (determined in accordance with GAAP) as an indication of our financial performance or to be an alternative to cash flow from operating activities (determined in accordance with GAAP) as a measure of our liquidity, nor is it indicative of funds available for our cash needs, including our ability to make cash distributions. We believe that net income is the most directly comparable GAAP measurement to FFO.
We also present Funds From Operations, as adjusted, and Funds From Operations per diluted share and OP Unit, as adjusted, which are non-GAAP measures, for the three and nine months ended September 30, 2016 and 2015, respectively, to show the effect of such items as accelerated amortization of deferred financing costs and prepayment penalties, acquisition costs, provision for employee separation expense, and loss on hedge ineffectiveness, which had a significant effect on our results of operations, but are not, in our opinion, indicative of our operating performance.
We believe that FFO is helpful to management and investors as a measure of operating performance because it excludes various items included in net income that do not relate to or are not indicative of operating performance, such as gains on sales of operating real estate and depreciation and amortization of real estate, among others. We believe that Funds From Operations, as adjusted, is helpful to management and investors as a measure of operating performance because it adjusts FFO to exclude items that management does not believe are indicative of our operating performance, such as accelerated amortization of deferred financing costs and prepayment penalties, acquisition costs, provision for employee separation expense, and loss on hedge ineffectiveness.
Net Operating Income (“NOI”)
NOI (a non-GAAP measure) is derived from real estate revenue (determined in accordance with GAAP, including lease termination revenue), minus property operating expenses (determined in accordance with GAAP), plus our share of revenue and operating expenses of our unconsolidated partnership investments. NOI does not represent cash generated from operating activities in accordance with GAAP and should not be considered to be an alternative to net income (determined in accordance with GAAP) as an indication of our financial performance or to be an alternative to cash flow from operating activities (determined in accordance with GAAP) as a measure of our liquidity. It is not indicative of funds available for our cash needs, including our ability to make cash distributions. We believe that NOI is helpful to management and investors as a measure of operating performance because it is an indicator of the return on property investment, and provides a method of comparing property performance over time. We believe that net income is the most directly comparable GAAP measurement to NOI.
NOI excludes other income, general and administrative expenses, provision for employee separation expenses, interest expense, depreciation and amortization, gains on sale of interest in non operating real estate, gain on sale interest in real estate, impairment of assets, acquisition costs and other expenses.
Same Store NOI
Same Store NOI is calculated using retail properties owned for the full periods presented and excludes properties acquired or disposed of or under redevelopment during the periods presented. Non Same Store NOI is calculated using the retail properties excluded from the calculation of Same Store NOI. Springfield Town Center is included in Same Store NOI for the three months ended September 30, 2016 and 2015, respectively, and excluded for the nine months ended September 30, 2016 and 2015, respectively.
Financial Information of our Unconsolidated Properties
The non-GAAP financial measures of FFO and NOI presented in this press release incorporate financial information attributable to our share of unconsolidated properties. This pro rata financial information is also non-GAAP financial information, but we believe that it is helpful information because it reflects the pro rata contribution from our unconsolidated properties that are owned through investments accounted for under GAAP using the equity method of accounting. Under such method, earnings from these unconsolidated partnerships are recorded in our statements of operations prepared in accordance with GAAP under the caption entitled “Equity in income of partnerships.”
To derive the pro rata financial information from our unconsolidated properties, we multiplied the percentage of our economic interest in each partnership on a property-by-property basis by each line item. Under the partnership agreements relating to our current unconsolidated partnerships with third parties, we own a 25% to 50% economic interest in such partnerships, and there are generally no provisions in such partnership agreements relating to special non-proportionate allocations of income or loss, and there are no preferred or priority returns of capital or other similar provisions. While this method approximates our indirect economic interest in our pro rate share of the revenue and expenses of our unconsolidated partnerships, we do not have a direct legal claim to the assets, liabilities, revenues or expenses of the unconsolidated partnerships beyond our rights as an equity owner in the event of any liquidation of such entity. Accordingly, NOI and FFO results based on our share of the results of unconsolidated partnerships do not represent cash generated from our investments in these partnerships.
Forward Looking Statements
This press release, together with other statements and information publicly disseminated by us, contain certain “forward-looking statements” within the meaning of the federal securities laws. Forward-looking statements relate to expectations, beliefs, projections, future plans, strategies, anticipated events, trends and other matters that are not historical facts. These forward-looking statements reflect our current views about future events, achievements or results and are 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. In particular, our business might be materially and adversely affected by uncertainties affecting real estate businesses generally as well as the following, among other factors:
Changes in the retail industry, including consolidation and store closings, particularly among anchor tenants; our ability to maintain and increase property occupancy, sales and rental rates, in light of the relatively high number of leases that have expired or are expiring in the next two years; increases in operating costs that cannot be passed on to tenants; current economic conditions and the state of employment growth and consumer confidence and spending, and the corresponding effects on tenant business performance, prospects, solvency and leasing decisions and on our cash flows, and the value and potential impairment of our properties; our ability to sell properties that we seek to dispose of or our ability to obtain estimated sale prices; potential losses on impairment of certain long-lived assets, such as real estate, or of intangible assets, such as goodwill, including such losses that we might be required to record in connection with any dispositions of assets; risks relating to development and redevelopment activities; our ability to identify and execute on suitable acquisition opportunities and to integrate acquired properties into our portfolio; our partnerships and joint ventures with third parties to acquire or develop properties; concentration of our properties in the Mid-Atlantic region; changes in local market conditions, such as the supply of or demand for retail space, or other competitive factors; changes to our corporate management team and any resulting modifications to our business strategies; the effects of online shopping and other uses of technology on our retail tenants; acts of violence at malls, including our properties, or at other similar spaces, and the potential effect on traffic and sales; our substantial debt and stated value of preferred shares and our high leverage ratio; constraining leverage, unencumbered debt yield, interest and tangible net worth covenants under our Credit Agreements; our ability to refinance our existing indebtedness when it matures, on favorable terms or at all; our ability to raise capital, including through the issuance of equity or equity-related securities if market conditions are favorable, through joint ventures or other partnerships, through sales of properties or interests in properties, or through other actions; our short and long-term liquidity position; potential dilution from any capital raising transactions or other equity issuances; and general economic, financial and political conditions, including credit and capital market conditions, changes in interest rates or unemployment.
Additional factors that might cause future events, achievements or results to differ materially from those expressed or implied by our forward-looking statements include those discussed herein and in our Annual Report on Form 10-K for the year ended December 31, 2015 in the section entitled “Item 1A. Risk Factors.” We do not intend to update or revise any forward-looking statements to reflect new information, future events or otherwise.
** Quarterly supplemental financial and operating **
** information will be available here **
** Full earnings release **
** with tables and data can be found here **
Company Contacts:
Robert McCadden
EVP & CFO
(215) 875-0735
Heather Crowell
SVP, Corporate Communications and Investor Relations
(215) 454-1241
heather.crowell@preit.com