H&M Among Top 10 Claimants in Mall Operator’s Second Bankruptcy
The Pennsylvania Real Estate Investment Trust best known as PREIT will soon be under new ownership.
Philadelphia-based PREIT filed its second Chapter 11 bankruptcy petition in three years on Sunday in a Delaware court. The company said Monday that its reorganization plan under its pre-packaged filing has the support of its First and Second Lien Lenders through a restructuring support agreement (RSA).
More from Sourcing Journal
One of its holdings, Fashion District Philadelphia in Center City, has already changed hands and is now under the ownership of its developer, Santa Monica-based REIT Macerich. PREIT and Macerich had a joint partnership agreement going back to January 2018 to redevelop the mall. Macerich’s website said the mall still has leasing opportunities available, noting also that the location at 901 Market Street totals 803,000 square feet and will include a venue that’s the “future home” of the NBA’s Philadelphia 76ers.
PREIT filed its first Chapter 11 in November 2020 during the Covid-19 pandemic, and was eyeing a December 2020 exit. That pre-packaged filing focused more on extending its debt maturity schedule than on reducing debt. And higher interest rates over the past year stressed its balance sheet, which came to a head when $1.1 billion in debt came due on Sunday.
A court statement from executive vice president and chief financial officer Mario Ventresca, Jr. said measures taken since the 2020 restructuring “proved insufficient” to address the firm’s long-term liquidity needs and ongoing macroeconomic challenges. He also cited the loss of key tenants—such as JC Penney, which closed stores at PREIT’s properties due to its own 2020 bankruptcy—and supply chain challenges and inflationary pressures that have impacted consumer spending. And while he said the sale of some assets a year ago plus excess cash paid down $154 million in debt through the end of last year, it hardly made a dent on its looming billion-dollar debt.
Founded in 1960 and considered one of the first REITs in the U.S., PREIT has interests in 23 retail properties across eight states, including 19 shopping malls, three other retail properties and one development property. Many of its malls still include JCPenney. Other tenants across its mall base include Dicks Sporting Goods, Macy’s, Nordstrom Rack, Burlington and HomeGoods. There’s also either a Boscov’s, Dillard’s or Belk at some of the other sites. Ventresca said revenue in 2022 primarily from rental income totaled $296 million. The company and its affiliate PREIT Services employ 152.
He said the reorganization plan will reduce PREIT’s debt load by converting $727 million of its $1.1 billion in funded debt into equity.
PREIT said under the plan, First Lien Lenders can opt to receive a cash payment equal to 100 percent of their claims or convert their claims into term loans under the firm’s exit facility. Second Lien Lenders receive their pro rata share of 65 percent of the new equity in a reorganizaed PREIT, and those who backstop the exit facility will 35 percent of the new equity interest in the reorganized company.
PREIT has secured $135 million in financing comprised of a debtor-in-possession facility and an exit facility upon emergence from Chapter 11, which is expected to occur in February 2024. Among the facility investors are Redwood Capital Management LLC and Nut Tree Capital Management.
The RSA provides that all holders of unsecured pre-petition claims will be paid in full on what they are owed. One unique aspect about the plan is the lender agreement to allocate a $10 million payment split between 70 percent for preferred shareholders and 30 percent for common shareholders once conditions are met. The payment cushions the blow for stockholders who typically receive nothing when existing equity shares get extinguished during a bankruptcy. When it comes out of bankruptcy, PREIT won’t be a publicly listed company.
“Today’s announcement will position a restructured PREIT to execute on strategic initiatives to continue transforming its portfolio for the tenants and communities it serves,” PREIT chairman and CEO Joseph F. Coradino said. “We look forward to quickly emerging from this process as a financially stronger company with the resources and support to continue creating diverse, multi-use property experiences throughout our portfolio.”
PREIT’s Chapter 11 petition listed assets of $1.72 billion and liabilities at $1.99 billion, both as of Sept. 30, 2023. The 30 largest unsecured claims run the gamut from security services to tax collectors, realty claims and other service providers. The largest unsecured claim is Wilmington Savings Fund Society, a second lien holder, at $427 million after deducting a $300 million collateral setoff. H&M is also listed in the top 10 with a trade claim of $237,837 connected to real estate.
