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Mall REIT Says It May Not Survive

The Springfield Town Center Mall, owned by Pennsylvania Real Estate Investment Trust.
The Springfield Town Center Mall in Northern Virginia, owned by Pennsylvania Real Estate Investment Trust.

A REIT that owns more than 20 U.S. shopping malls is at risk of going out of business. 

Pennsylvania Real Estate Investment Trust said in its Q1 earnings report its financial challenges have created "substantial doubt about the company's ability to continue," the Washington Business Journal first reported

The Philadelphia-based REIT owns seven properties in its home state, three in New Jersey, three in Maryland, two in Virginia, two in the Carolinas, one in Michigan, one in Wisconsin and one in Massachusetts. In the Washington, D.C., area, it owns the Mall at Prince George's in Hyattsville and Springfield Town Center in Fairfax County

All but four of the REIT's shopping malls remain closed because of the coronavirus, but it hopes that all of them can reopen by June, PREIT CEO Joe Coradino said on the quarterly earnings call. 

The company's Q1 same-store net operating income, a measure of its earnings compared to last year, decreased by $5.3M. It attributed the loss to the coronavirus forcing its malls to close, leading to declining sales and tenant bankruptcies. 

The bankruptcies it cited included Modell's, Papyrus, Pier 1 Imports, J. Crew, True Religion, Rio Bravo, Hair Cuttery and Aldo. The REIT has reached agreements with some tenants on rent deferrals, but it expects to collect just 45% of April and May rents by the end of the year. 

The REIT's stock has declined from $5.13 per share at the beginning of the year to $1.19 per share when the market opened Friday. Shopping malls, which were already facing challenges from e-commerce, have been among the hardest hit properties in commercial real estate during the pandemic. 

PREIT said it has furloughed 37% of its staff and reduced other operating costs and corporate expenses. It also said it has secured forbearance on real estate taxes and mortgage payments for some of its properties to help preserve liquidity. 

The mall owner has implemented curbside pickup services at some of its properties, and Coradino said the malls that have opened have gained significant momentum, with traffic increasing since opening weekend. 

"These steps we have taken and continue to take are creating the space to get our business to the other side of COVID," Coradino said on the earnings call, according to a Seeking Alpha transcript