Pennsylvania Real Estate Investment Trust (PEI) Q1 2021 Earnings Conference Call May 6, 2021 11:00 AM ET
Company Participants
Heather Crowell - EVP, Strategy & Communications
Joseph Coradino - Chairman & CEO
Mario Ventresca - EVP & CFO
Conference Call Participants
Operator
Good day, and thank you for standing by. Welcome to the PREIT Q1 2021 Earnings Call. [Operator Instructions]. Please be advised that today's conference is being recorded.
I would now like to hand the conference over to your speaker today, Heather Crowell, EVP of Strategy and Communications. Thank you. Please go ahead.
Heather Crowell
Thank you. Good morning, and thank you all for joining us for PREIT's First Quarter 2021 Earnings Call. During this call, we will make certain forward-looking statements within the meaning of federal securities laws. These statements relate to expectations, beliefs, projections, trends and other matters that are not historical facts and are subject to risks and uncertainties that might affect future events or results. Descriptions of these risks are set forth in the company's SEC filings. Statements that PREIT makes today might be accurate only as of today, May 6, 2021. And PREIT makes no undertaking to update any such statements.
Also, certain non-GAAP measures will be discussed. PREIT has included reconciliations of such measures to the comparable GAAP measures in its earnings release and other documents filed with the SEC. During this call, management will answer questions from analysts. We also invite individual investors to submit questions via e-mail to investorinfo@preit.com.
Members of management on the call today are Joe Coradino, PREIT's Chairman and CEO; and Mario Ventresca, CFO. Joe?
Joseph Coradino
Thank you, Heather, and good morning, everyone. We're pleased that all indicators point to this quarter, marking the end of the COVID impact on our results. In fact, the year is kicking off better than our most optimistic expectation in many ways. As vaccine distribution increases, and we begin to approach herd immunity, restrictions are easing, and the strength of our portfolio is evident, with tangible results being demonstrated. Here are some facts that illustrate the strength of the recovery.
New transaction activity is exceeding expectations, with an increase of over 500% compared to 2020 activity and 135% of 2019 volume. Our collections levels continue to improve with cash collections approximately 150% of April billings. We are seeing improved pricing on residential land sales as we remarketed one project and received a bid of 40% higher, after receiving zoning and anchor approvals. Traffic is steadily increasing and reaching 90% of 2019 levels across the portfolio for the month of April. This is indicative of the direction of the portfolio.
On our last call, we made 5 key points, which we said signal a bright future for PREIT. One, it's clear we're in the real estate business, with an ability to attract a wide array of uses and deliver a broader customer base to our properties; two, demand is robust from uses far beyond traditional retail, including life sciences, healthcare and self-storage; three, business will return in a significant way for retailers, restaurants and entertainment in the brick-and-mortar format; four, quality real estate will thrive into the future, and our region-leading properties are gaining market share as weaker properties decline; and five, growth in suburban markets will catalyze demand for our offerings and for our multifamily and hotel densification effort. These statements have been validated by a growing body of evidence.
Consider this, since the beginning of the year, the company executed transactions to occupy nearly 600,000 square feet of space. This compares to over 100,000 in all of 2020. As tenants continue to commit to PREIT's collection of high barrier to entry communities. The diversity of tenancy illustrates the changing landscape that includes a broader array of uses, not always found in retail centers. These nontraditional uses included 165,000 square foot Cooper University medical facility at Moorestown Mall, a 90,000 square foot self-storage facility at Mall at Prince George's, Aldi at Dartmouth Mall and HomeGoods at Cumberland Mall. The dining and entertainment category is also poised for explosive growth as restrictions are alleviated, including Tilt Studios and Crab Du Jour at Magnolia Mall, and Restaurant 54 at Springfield Town Center. We also saw an increase in apparel retailers opening stores, including Rose & Remington, and expanding first-to-portfolio tenant known for its chic style, will open at Woodland Mall.
Windsor Fashion, best known for its array of dresses in formalwear, has signed 5 leases for 29,000 square feet in our portfolio. Rue21, well known for its offering of the latest trends at affordable price, has signed 3 new transactions for over 18,000 square feet. We're also seeing significant growth in local, regional and minority-owned businesses, opening new locations with us, creating a more unique mix of offerings. Toward that end, we launched a new initiative to support our black-owned businesses and brands by spotlighting these brands to bring awareness and drive sales to them through our mall websites.
Concurrently, we're seeing well-known retailers expand into new concepts like American Eagle's OFFLINE, or increase their store count betting on this revival. Our pipeline is healthier than it has been in years, and we're looking forward to bringing in new exciting concepts. This is a time of new growth in our industry, best described by Jay Schottenstein, American Eagle's CEO, who foresees "roaring 20s-like recovery occurring in the mall space." Adding to these factors is our anchor re-leasing program, where we continue to lead the sector, dealing with anchor challenges proactively.
Today, we have leases out or signed for all unleased anchor spaces in the portfolio. If this increased pace of leasing activity weren't enough evidence of the resurrection of the sector, the surging traffic and sales we are experiencing is. Based on a comparable set of tenants who reported sales, in March of '19 and '21, sales grew at 14 of the company's managed properties. For the quarter, more than half of our properties reported improved sales for comparable tenants. Traffic flows continue to climb back to prepandemic levels.
In April, our comparable properties recorded an 11 percentage point increase from March, registering 86% of 2019 levels with half of the portfolio registering 90% or more. The economic indicators for our business are strong. Consumer confidence saw its largest 1-month increase in 18 years in March. Consumers have amassed or reported $2 trillion in excess savings, and they are spending on discretionary goods and services. People are getting dressed, they're going out, and tenants are opening businesses as restrictions ease across the country.
We think our portfolio is uniquely situated to capitalize on this improving landscape, and is comprised of 3 distinct property classifications, fortress destinations comprised of high-quality retail and entertainment venues with an improving sales and tenant mix profile such as Cherry Hill Mall, high barrier to entry properties in Philadelphia and D.C., densely populated markets with a scarcity of well-located land. These properties are well situated with ample parking and access to millions of customers through major road networks. They attract an array of uses, including life sciences, medical, office, grocers, big box, other open-air tenancy, fulfillment, fitness, storage in addition to apartments, senior housing and hotels.
Now Moorestown Mall is a good example of this category. And winner-take-all properties, in markets where competitive retail centers have fallen by the wayside, we are finding that we have captured the undivided attention of the consumer. We call these are winner-take-all properties. Markets represented in this category include Harrisburg and Scranton in Pennsylvania, Newport News in Virginia; Dartmouth, Massachusetts; and Grand Rapids, Michigan. In these markets, there is a rightsizing of retail and clear evidence that we are winning the battle for tenants and customers with March sales for comparable properties in this group increasing 19% compared to 2019.
This collection of properties is designed to attract a broader array of customers, strengthening the opportunities for our tenants. As our tenants get stronger, our collections are improving and pricing power will follow. It is important that we continue to monitor and improve our liquidity position through continued progress in collections, sale of our multifamily land, and reduced capital spending. We are pleased with how far we have come and that our liquidity forecast is on track, we are well along in the entitlement and tenant approval process on our multifamily land and are seeing improved pricing in this market.
We expect to receive approvals on 2 of our multifamily properties during this calendar year. As we see it today, the recovery of our business is intensifying and the steps we have taken to strengthen our portfolio provides us with a myriad of options for the company as asset values improve. We believe we're well positioned and poised to pursue any, and all options, to drive stakeholder value. We have adapted, which we've been doing for years and will thrive in the future-ready marketplace.
With that, I'm happy to turn it over to Mario.
Mario Ventresca
Thank you, Joe. As Joe noted in his remarks, we are seeing incredible new leasing activity, collection levels that are exceeding our liquidity forecast, a sharp return of consumer spending and overall improved perception of the space. It is worth noting that this quarter represents a comparison to the first quarter of 2020, which was only minimally impacted by pandemic-related closures, and we expect our comps to improve considerably as the year progresses. The results that we are reporting are reflective of a portfolio that is nearly recovered from the impact of the pandemic as demonstrated by the sequential contraction in NOI decline compared to the fourth quarter of 2020 and a significant improvement over both second and third quarters of last year.
Last night, we reported results that were incrementally impacted by pandemic and bankruptcy-related closures as well as increased snow-removal costs and interest expenses. Conversely, in the first quarter, we have continued to see the pace of bankruptcies subside, having experienced only 3 immaterial tenant bankruptcies, marking one of the lowest volume first quarters in recent history. We believe that we are at an inflection point as leasing volumes are strong, and sales are improving with our tenants paying percentage sales in lieu of minimum rent, having exceeded our forecast.
On the leasing and occupancy front, when we factor in the impact of tenants with signed leases that have not yet taken physical occupancy, total occupancy is forecast to climb to 90.7%. Average renewal spreads in the wholly owned portfolio were a positive 2.2%, representing 300 basis points of sequential improvement, and the first quarter of positive renewal spreads since COVID manifested itself in our leasing activity.
We also saw a significant improvement in renewal spreads in the percentage rent and lieu category. In reviewing collections for the 12-month period from April 1, 2020, through March 31, 2021, we collected 58% of rents compared to 81% of current rents collected in this year's first quarter. Including collection of prior months' rents, we collected 89% of billed rent for the period from April 1, 2020, through March 31, 2021, and 119% of billed first quarter rents. As a result, our outstanding accounts receivable has decreased materially by $14.1 million. And at the end of the quarter, our accounts receivable balance was $40.4 million, which compares favorably to prepandemic levels of $41 million as of December 2019.
As it relates to April, the momentum continued. We collected 88.8% of our billed rents. And on a cash collected basis, including payments towards prior months rents, we collected 149% of our billed rents. As of March 31, 2021, total liquidity was $103.6 million, inclusive of $28.4 million of cash in unrestricted bank accounts, and $75.2 million of availability on our revolver. We are forecasting ending 2021 with incremental improvement in our total liquidity including $13.3 million of gross proceeds from anticipated land sales.
Regarding our outstanding mortgages, we are in the process of refinancing near-term maturities for Viewmont Mall and 3 joint venture properties, Red Rose Commons, The Court at Oxford Valley and Pavilion at Market East. A short extension has been executed for Pavilion, and the new loan is expected to close within the next month. Completion of this refinancing activity will address all of our near-term nonrecourse debt maturities. As we look ahead, comps will continue to improve, leading to an anticipated high single to low double-digit NOI growth this year as our backlog of revenue from signed leases comes online and continues to grow. Our cash flow and liquidity forecast are improving, and we believe we are at a tipping point where NOI is growing. There is positive momentum in the space such that we should see cap rate compression and improved asset valuations. We are pleased with where we are currently and see continued reasons for optimism.
With that, we'll open it up for questions.
Question-and-Answer Session
Operator
Joseph Coradino
Thank you, everyone. As we noted, this year is kicking off better than our most optimistic expectations. Economic and portfolio indicators are decidedly positive, and we are proactively taking advantage of these factors to improve our results. Just to recap, leasing activity is astonishing. Our liquidity picture is improving, and there are a myriad of options for PREIT's future. Thank you.
Operator
This concludes today's conference call. Thank you for participating. You may now disconnect.
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