PREIT has been opportunistically selling some of its nonessential assets, but the key to increasing its valuation lies in redeveloping its core growth assets, which correspond to 46 percent of its NOI, and improving its debt profile, which has been above 50 percent.
According to the management team, PREIT is “in the white space between lower and higher productivity.” On the higher productivity side sit Simon Property Group (NYSE:SPG), Macerich Company (NYSE:MAC), Taubman Centers (NYSE:TCO) and General Growth Properties (NYSE:GGP); on the lower side, CBL & Associates Properties (NYSE:CBL) and Rouse Properties (NYSE:RSE). PREIT’s average mall sale per square foot has exceeded the $400 barrier and is now $414.
Nonetheless, among all subgroups separated by management (premier, core growth, opportunistic and non-core), average mall sales of the largest subgroup — core growth — increased the least and occupancy decreased in 2015 Q1. The last two subgroups make up about ten percent of the NOI.
Core growth has an average sale of $370 per square foot; as premier, $563. The recent sale of Springfield Park, Pennsylvania, demonstrates the effort PREIT has been making to recycle capital and upgrade its portfolio in that group. The sale was apparently motivated by proximity to New York City buyers and low potential growth, perhaps because the property had few anchors and was open air; furthermore, PREIT only owned half of it.
Other avenues PREIT has been pursuing include reconfiguring property plans, re-tenanting for higher sales stores and redevelopment. The most coveted redevelopment has been The Gallery near the Independence Mall in Philadelphia. This property, re-branded as the Fashion Outlets of Philadelphia, has been the result of an extensive effort — tax enhancement, state grants, lease reinstatement — and should be ready by 2017.
Additionally, late in June, PREIT signed more favorable terms for the revolving facility and a new term loan, improving debt profile. It has been granted lower interest rates, more borrowing capacity and extended maturities.
Today, PREIT trades at 11.9x for price-to-FFO. Its high and low productivity peers are over 19.1x and under 10.1x respectively. In terms of dividend yield, PREIT is at 3.7 percent, whereas its high and low productivity peers are under 3.4 and over 4.2 percent respectively.
The key to transition to higher valuation is to monitor the makeover of the company’s core growth portfolio. During the first quarter, core growth performance has not been very encouraging, but a quarterly result cannot be taken as a sign that PREIT won’t step harder on the accelerator to reach the goal.
Source: PREIT, REIT Stream, Fast Graphs
Written by Heli Brecailo
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