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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

 

Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended March 31, 2023

or

 

Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from to

Commission File Number: 001-6300

PENNSYLVANIA REAL ESTATE INVESTMENT TRUST

(Exact name of Registrant as specified in its charter)

 

Pennsylvania

23-6216339

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

One Commerce Square

2005 Market Street, Suite 1000

Philadelphia, PA

19103

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code (215) 875-0700

 

Securities registered pursuant to Section 12(b) of the Act: None*

 

Title of each class

Trading Symbol(s)

Name of Exchange on which registered

Shares of Beneficial Interest, par value $1.00 per share

PRET

*

Series B Preferred Shares, par value $0.01 per share

PRETL

*

Series C Preferred Shares, par value $0.01 per share

PRETM

*

Series D Preferred Shares, par value $0.01 per share

PRETN

*

*Pennsylvania Real Estate Investment Trust's securities began trading exclusively on the over-the-counter market on December 16, 2022 under the symbols PRET, PRETL, PRETM, and PRETN.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No

 


Table of Contents

 

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13, or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ☒ No ☐

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. On May 5, 2023, 5,340,735 shares of beneficial interest, par value $1.00 per share, of the Registrant were outstanding.

 

 

 

 


Table of Contents

 

PENNSYLVANIA REAL ESTATE INVESTMENT TRUST

 

CONTENTS

 

 

 

Page

 

PART I—FINANCIAL INFORMATION

 

Item 1.

 

Financial Statements (Unaudited):

1

 

 

 

 

 

 

Consolidated Balance Sheets—March 31, 2023 and December 31, 2022

1

 

 

 

 

 

 

Consolidated Statements of Operations—Three Months Ended March 31, 2023 and 2022

2

 

 

 

 

 

 

Consolidated Statements of Comprehensive Loss—Three Months Ended March 31, 2023 and 2022

3

 

 

 

 

 

 

Consolidated Statements of Equity—Three Months Ended March 31, 2023 and 2022

4

 

 

 

 

 

 

Consolidated Statements of Cash Flows —Three Months Ended March 31, 2023 and (as restated) 2022

5

 

 

 

 

 

 

Notes to Unaudited Consolidated Financial Statements

6

 

 

 

 

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

19

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

40

 

 

 

 

Item 4.

 

Controls and Procedures

42

 

 

 

 

 

 

PART II—OTHER INFORMATION

 

Item 1.

 

Legal Proceedings

43

 

 

 

 

Item 1A.

 

Risk Factors

43

 

 

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

43

 

 

 

 

Item 3.

 

Defaults Upon Senior Securities

43

 

 

 

 

Item 5.

 

Other Information

43

 

 

 

 

Item 6.

 

Exhibits

44

 

 

 

 

Signatures

 

 

46

 

Except as the context otherwise requires, references in this Quarterly Report on Form 10-Q to “we,” “our,” “us,” the “Company” and “PREIT” refer to Pennsylvania Real Estate Investment Trust and its subsidiaries, including our operating partnership, PREIT Associates, L.P. References in this Quarterly Report on Form 10-Q to “PREIT Associates” or the “Operating Partnership” refer to PREIT Associates, L.P.

 

Explanatory Note

 

This Quarterly Report on Form 10-Q contains a restatement of the unaudited Consolidated Statement of Cash Flows for the three months ended March 31, 2022. For a more detailed discussion of the restatement, refer to Note 1 to the unaudited consolidated financial statements.

 


Table of Contents

 

Item 1. FINANCIAL STATEMENTS

PENNSYLVANIA REAL ESTATE INVESTMENT TRUST

CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

 

 

March 31,

 

 

December 31,

 

(in thousands, except per share amounts)

 

2023

 

 

2022

 

ASSETS:

 

 

 

 

 

 

INVESTMENTS IN REAL ESTATE, at cost:

 

 

 

 

 

 

Operating properties

 

$

2,884,367

 

 

$

2,894,944

 

Construction in progress

 

 

43,109

 

 

 

42,659

 

Land held for development

 

 

2,058

 

 

 

2,058

 

Total investments in real estate

 

 

2,929,534

 

 

 

2,939,661

 

Accumulated depreciation

 

 

(1,377,167

)

 

 

(1,370,065

)

Net investments in real estate

 

 

1,552,367

 

 

 

1,569,596

 

INVESTMENTS IN PARTNERSHIPS, at equity:

 

 

7,621

 

 

 

7,845

 

OTHER ASSETS:

 

 

 

 

 

 

Cash and cash equivalents

 

 

20,240

 

 

 

22,937

 

Tenant and other receivables

 

 

33,972

 

 

 

40,459

 

Intangible assets (net of accumulated amortization of $23,303 and $23,029 at March 31, 2023 and December 31, 2022, respectively)

 

 

8,349

 

 

 

8,623

 

Deferred costs and other assets, net

 

 

86,754

 

 

 

91,902

 

Assets held for sale

 

 

35,036

 

 

 

61,767

 

Total assets

 

$

1,744,339

 

 

$

1,803,129

 

LIABILITIES:

 

 

 

 

 

 

Mortgage loans payable, net

 

 

740,167

 

 

$

749,396

 

Term Loans, net

 

 

971,506

 

 

 

976,903

 

Revolving Facilities

 

 

22,481

 

 

 

22,481

 

Tenants’ deposits and deferred rent

 

 

14,099

 

 

 

13,264

 

Distributions in excess of partnership investments

 

 

96,092

 

 

 

93,136

 

Accrued expenses and other liabilities

 

 

69,930

 

 

 

69,846

 

Liabilities on assets held for sale

 

 

1,975

 

 

 

2,539

 

Total liabilities

 

 

1,916,250

 

 

 

1,927,565

 

COMMITMENTS AND CONTINGENCIES (Note 8)

 

 

 

 

 

 

EQUITY:

 

 

 

 

 

 

Series B Preferred Shares, $.01 par value per share; 3,450 shares issued and outstanding; liquidation preference of $103,741 and $102,151 at March 31, 2023 and December 31, 2022, respectively

 

 

35

 

 

 

35

 

Series C Preferred Shares, $.01 par value per share; 6,900 shares issued and outstanding; liquidation preference of $206,655 and $203,550 at March 31, 2023 and December 31, 2022, respectively

 

 

69

 

 

 

69

 

Series D Preferred Shares, $.01 par value per share; 5,000 shares issued and outstanding; liquidation preference of $148,634 and $146,485 at March 31, 2023 and December 31, 2022, respectively

 

 

50

 

 

 

50

 

Shares of beneficial interest, $1.00 par value per share; 13,333 shares authorized; 5,341 and 5,356 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively

 

 

5,341

 

 

 

5,356

 

Capital contributed in excess of par

 

 

1,858,851

 

 

 

1,858,675

 

Accumulated other comprehensive income

 

 

1,415

 

 

 

3,282

 

Distributions in excess of net income

 

 

(2,025,779

)

 

 

(1,980,693

)

Total equity (deficit) – Pennsylvania Real Estate Investment Trust

 

 

(160,018

)

 

 

(113,226

)

Noncontrolling interest

 

 

(11,893

)

 

 

(11,210

)

Total equity (deficit)

 

 

(171,911

)

 

 

(124,436

)

Total liabilities and equity

 

$

1,744,339

 

 

$

1,803,129

 

See accompanying notes to the unaudited consolidated financial statements.

1


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PENNSYLVANIA REAL ESTATE INVESTMENT TRUST

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

 

 

Three Months Ended March 31,

 

 

(in thousands, except per share amounts)

 

2023

 

 

2022

 

 

REVENUE:

 

 

 

 

 

 

 

Real estate revenue:

 

 

 

 

 

 

 

Lease revenue

 

$

61,515

 

 

$

64,283

 

 

Expense reimbursements

 

 

4,653

 

 

 

4,144

 

 

Other real estate revenue

 

 

1,006

 

 

 

767

 

 

Total real estate revenue

 

 

67,174

 

 

 

69,194

 

 

Other income

 

 

91

 

 

 

241

 

 

Total revenue

 

 

67,265

 

 

 

69,435

 

 

EXPENSES:

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

Property operating expenses:

 

 

 

 

 

 

 

CAM and real estate taxes

 

 

(26,159

)

 

 

(27,872

)

 

Utilities

 

 

(3,395

)

 

 

(3,561

)

 

Other property operating expenses

 

 

(2,215

)

 

 

(2,140

)

 

Total property operating expenses

 

 

(31,769

)

 

 

(33,573

)

 

Depreciation and amortization

 

 

(26,369

)

 

 

(29,110

)

 

General and administrative expenses

 

 

(11,125

)

 

 

(11,483

)

 

Other expenses

 

 

(3

)

 

 

(144

)

 

Total operating expenses

 

 

(69,266

)

 

 

(74,310

)

 

Interest expense, net

 

 

(41,048

)

 

 

(31,391

)

 

Total expenses

 

 

(110,314

)

 

 

(105,701

)

 

Equity in loss of partnerships

 

 

(2,696

)

 

 

(395

)

 

Gain on sale of preferred equity interest

 

 

 

 

 

3,688

 

 

Net loss

 

 

(45,745

)

 

 

(32,973

)

 

Less: net loss attributable to noncontrolling interest

 

 

659

 

 

 

504

 

 

Net loss attributable to PREIT

 

 

(45,086

)

 

 

(32,469

)

 

Less: preferred share dividends

 

 

(6,844

)

 

 

(6,844

)

 

Net loss attributable to PREIT common shareholders

 

$

(51,930

)

 

$

(39,313

)

 

 

 

 

 

 

 

 

 

Basic and diluted loss per share:

 

$

(9.75

)

 

$

(7.41

)

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding—basic

 

 

5,324

 

 

 

5,305

 

 

Effect of common share equivalents(1)

 

 

 

 

 

 

 

Weighted average shares outstanding—diluted

 

 

5,324

 

 

 

5,305

 

 

(1) The Company had net losses used to calculate earnings per share for the three months ended March 31, 2023 and 2022. Therefore, the effects of common share equivalents are excluded from the calculation of diluted loss per share for these periods because they would be antidilutive.

 

See accompanying notes to the unaudited consolidated financial statements.

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PENNSYLVANIA REAL ESTATE INVESTMENT TRUST

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(Unaudited)

 

 

 

Three Months Ended March 31,

 

 

(in thousands of dollars)

 

2023

 

 

2022

 

 

Comprehensive loss:

 

 

 

 

 

 

 

Net loss

 

$

(45,745

)

 

$

(32,973

)

 

Unrealized (loss) gain on derivatives

 

 

(1,885

)

 

 

5,807

 

 

Amortization of settled swaps

 

 

(6

)

 

 

 

 

Total comprehensive loss

 

 

(47,636

)

 

 

(27,166

)

 

Less: comprehensive loss attributable to noncontrolling interest

 

 

683

 

 

 

431

 

 

Comprehensive loss attributable to PREIT

 

$

(46,953

)

 

$

(26,735

)

 

See accompanying notes to the unaudited consolidated financial statements.

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PENNSYLVANIA REAL ESTATE INVESTMENT TRUST

CONSOLIDATED STATEMENTS OF EQUITY

Three Months Ended March 31, 2023 and 2022

(Unaudited)

 

 

 

 

 

 

PREIT Shareholders

 

 

 

 

 

 

 

 

 

Preferred Shares $.01 par

 

 

Shares of
Beneficial

 

 

Capital
Contributed

 

 

Accumulated
Other

 

 

Distributions

 

 

Non-

 

(in thousands of dollars, except per share amounts)

 

Total
Equity

 

 

Series
B

 

 

Series
C

 

 

Series
D

 

 

Interest,
$
1.00 Par

 

 

in Excess of
Par

 

 

Comprehensive
Loss

 

 

in Excess of
Net Income

 

 

controlling
interest

 

Balance January 1, 2023

 

$

(124,436

)

 

$

35

 

 

$

69

 

 

$

50

 

 

$

5,356

 

 

$

1,858,675

 

 

$

3,282

 

 

$

(1,980,693

)

 

$

(11,210

)

Net loss

 

 

(45,745

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(45,086

)

 

 

(659

)

Other comprehensive loss

 

 

(1,891

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,867

)

 

 

 

 

 

(24

)

Shares issued under employee compensation plan, net of shares retired

 

 

(52

)

 

 

 

 

 

 

 

 

 

 

 

(15

)

 

 

(37

)

 

 

 

 

 

 

 

 

 

Amortization of deferred compensation

 

 

213

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

213

 

 

 

 

 

 

 

 

 

 

Balance March 31, 2023

 

$

(171,911

)

 

$

35

 

 

$

69

 

 

$

50

 

 

$

5,341

 

 

$

1,858,851

 

 

$

1,415

 

 

$

(2,025,779

)

 

$

(11,893

)

 

 

 

 

 

 

PREIT Shareholders

 

 

 

 

 

 

 

 

 

Preferred Shares $.01 par

 

 

Shares of
Beneficial

 

 

Capital
Contributed

 

 

Accumulated
Other

 

 

Distributions

 

 

Non-

 

(in thousands of dollars, except per share amounts)

 

Total
Equity

 

 

Series
B

 

 

Series
C

 

 

Series
D

 

 

Interest,
$
1.00 Par

 

 

in Excess of
Par

 

 

Comprehensive
Loss

 

 

in Excess of
Net Income

 

 

controlling
interest

 

Balance January 1, 2022

 

$

7,047

 

 

$

35

 

 

$

69

 

 

$

50

 

 

$

5,347

 

 

$

1,851,866

 

 

$

(8,830

)

 

$

(1,832,375

)

 

$

(9,115

)

Net loss

 

 

(32,973

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(32,469

)

 

 

(504

)

Other comprehensive income

 

 

5,807

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5,734

 

 

 

 

 

 

73

 

Shares issued under employee compensation
   plans, net of shares retired

 

 

4,449

 

 

 

 

 

 

 

 

 

 

 

 

28

 

 

 

4,421

 

 

 

 

 

 

 

 

 

 

Amortization of deferred compensation

 

 

814

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

814

 

 

 

 

 

 

 

 

 

 

Balance March 31, 2022

 

$

(14,856

)

 

$

35

 

 

$

69

 

 

$

50

 

 

$

5,375

 

 

$

1,857,101

 

 

$

(3,096

)

 

$

(1,864,844

)

 

$

(9,546

)

 

See accompanying notes to the unaudited consolidated financial statements.

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PENNSYLVANIA REAL ESTATE INVESTMENT TRUST

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

 

 

Three Months Ended March 31,

 

(in thousands of dollars)

 

2023

 

 

2022

 

 

 

 

 

 

(as restated)

 

Cash flows from operating activities:

 

 

 

 

 

 

Net loss

 

$

(45,745

)

 

$

(32,973

)

Adjustments to reconcile net loss to net cash provided by operating activities:

 

 

 

 

 

 

Depreciation

 

 

24,900

 

 

 

27,436

 

Amortization

 

 

4,448

 

 

 

2,098

 

Straight-line rent adjustments

 

 

(50

)

 

 

290

 

Deferred compensation

 

 

213

 

 

 

(165

)

Gain on sale of preferred equity interest

 

 

 

 

 

(3,688

)

Paid-in-kind interest

 

 

20,491

 

 

 

12,547

 

Gain on hedge ineffectiveness

 

 

(8

)

 

 

(8

)

Equity in loss of partnerships

 

 

2,696

 

 

 

395

 

Cash distributions from partnerships

 

 

485

 

 

 

1,570

 

Change in assets and liabilities:

 

 

 

 

 

 

Net change in other assets

 

 

11,605

 

 

 

7,161

 

Net change in other liabilities

 

 

(498

)

 

 

(189

)

Net cash provided by operating activities

 

 

18,537

 

 

 

14,474

 

Cash flows from investing activities:

 

 

 

 

 

 

Cash proceeds from sales of real estate

 

 

26,312

 

 

 

 

Investments in real estate improvements

 

 

(6,297

)

 

 

(2,746

)

Additions to construction in progress

 

 

(1,131

)

 

 

(1,385

)

Investments in partnerships

 

 

 

 

 

(415

)

Capitalized leasing costs

 

 

(265

)

 

 

(29

)

Proceeds from sale of preferred equity interest

 

 

 

 

 

2,438

 

Additions to leasehold improvements and corporate fixed assets

 

 

(14

)

 

 

 

Net cash provided by (used in) investing activities

 

 

18,605

 

 

 

(2,137

)

Cash flows from financing activities:

 

 

 

 

 

 

Net repayments to term loans

 

 

(26,312

)

 

 

(2,437

)

Repayments of finance lease liabilities

 

 

(174

)

 

 

 

Principal installments on mortgage loans

 

 

(9,557

)

 

 

(6,048

)

Payment of deferred financing costs

 

 

(2,500

)

 

 

(235

)

Repurchase of shares retired under equity incentive plans, net of shares issued

 

 

(52

)

 

 

(593

)

Net cash used in financing activities

 

 

(38,595

)

 

 

(9,313

)

Net change in cash, cash equivalents, and restricted cash

 

 

(1,453

)

 

 

3,024

 

Cash, cash equivalents, and restricted cash, beginning of period

 

 

34,689

 

 

 

58,077

 

Cash, cash equivalents, and restricted cash, end of period

 

$

33,236

 

 

$

61,101

 

Supplemental non-cash disclosures:

 

 

 

 

 

 

Transfer of equity compensation from liability to equity

 

$

-

 

 

$

6,020

 

See accompanying notes to the unaudited consolidated financial statements.

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PENNSYLVANIA REAL ESTATE INVESTMENT TRUST

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2023

 

1. BASIS OF PRESENTATION

Nature of Operations

Pennsylvania Real Estate Investment Trust (“PREIT” or the “Company”) prepared the accompanying unaudited consolidated financial statements pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted pursuant to such rules and regulations, although we believe that the included disclosures are adequate to make the information presented not misleading. Our unaudited consolidated financial statements should be read in conjunction with the audited financial statements and the notes thereto included in PREIT’s Annual Report on Form 10-K for the year ended December 31, 2022. In our opinion, all adjustments, consisting only of normal recurring adjustments, necessary to present fairly our consolidated financial statements are included. The results of operations for the interim periods presented are not necessarily indicative of the results for the full year.

PREIT, a Pennsylvania business trust founded in 1960 and one of the first equity real estate investment trusts (“REITs”) in the United States, has a primary investment focus on retail shopping malls located in the eastern half of the United States, primarily in the Mid-Atlantic region. As of March 31, 2023, our portfolio consists of a total of 23 properties operating in eight states, including 19 shopping malls, three other retail properties and one development property. The property in our portfolio that is classified as under development does not currently have any activity occurring.

We hold our interest in our portfolio of properties through our operating partnership, PREIT Associates, L.P. (“PREIT Associates” or the “Operating Partnership”). We are the sole general partner of the Operating Partnership and, as of March 31, 2023, we held a 98.7% controlling interest in the Operating Partnership and consolidated it for reporting purposes. The presentation of consolidated financial statements does not itself imply that the assets of any consolidated entity (including any special-purpose entity formed for a particular project) are available to pay the liabilities of any other consolidated entity, or that the liabilities of any consolidated entity (including any special-purpose entity formed for a particular project) are obligations of any other consolidated entity.

Pursuant to the terms of the partnership agreement of the Operating Partnership, each of the limited partners has the right to redeem such partner’s units of limited partnership interest in the Operating Partnership (“OP Units”) for cash or, at our election, we may acquire such OP Units in exchange for our common shares on a fifteen-for-one basis (as a result of our recent reverse share split (described below)), in some cases beginning one year following the respective issue date of the OP Units and in other cases immediately. The current terms of our credit agreements prohibit the Company from acquiring whole share OP Units for cash and, as such, any whole share OP Units presented for redemption will be redeemed for shares. Partial share OP Unit redemptions will be redeemed for cash.

We provide management, leasing and real estate development services through two of our subsidiaries: PREIT Services, LLC (“PREIT Services”), which generally develops and manages properties that we consolidate for financial reporting purposes, and PREIT-RUBIN, Inc. (“PRI”), which generally develops and manages properties that we do not consolidate for financial reporting purposes, including properties owned by partnerships in which we own an interest, and properties that are owned by third parties in which we do not have an interest. PREIT Services and PRI are consolidated. PRI is a taxable REIT subsidiary, as defined by federal tax laws, which means that it is able to offer an expanded menu of services to tenants without jeopardizing our continuing qualification as a REIT under federal tax law.

We evaluate operating results and allocate resources on a property-by-property basis, and do not distinguish or evaluate our consolidated operations on a geographic basis. Due to the nature of our operating properties, which involve retail shopping, dining, entertainment and certain non-traditional tenant operations, we have concluded that our individual properties have similar economic characteristics and meet all other aggregation criteria. Accordingly, we have aggregated our individual properties into one reportable segment. In addition, no single tenant accounts for 10% or more of consolidated revenue, and none of our properties are located outside the United States.

 

Current Economic and Industry Conditions

Conditions in the economy have caused fluctuations and variations in business and consumer confidence, retail sales, and consumer spending on retail goods, destination dining and entertainment. In particular, current conditions in the economy have caused fluctuations in unemployment rates, and together with supply chain challenges, the current inflationary environment, overall economic uncertainty and the potential for recession, have impacted consumer confidence and spending. The economic factors have had corresponding effects on tenant business performance, prospects, solvency and leasing decisions. Further, traditional mall tenants, including department store anchors and smaller format retail tenants face significant challenges resulting from changing consumer expectations, the convenience of e-commerce shopping, the expansion of outlet centers, and declining mall traffic, among other factors. In recent years, there has been an increased level of tenant bankruptcies and store closings by tenants who have been significantly impacted by these factors. We anticipate that our future business, financial condition, liquidity and results of operations, will continue to be materially impacted by these conditions, and more recently by inflationary pressures and substantial increases in interest rates.

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Going Concern Considerations

Under the accounting guidance related to the presentation of financial statements, when preparing financial statements for each annual and interim reporting period, management has the responsibility to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the financial statements are issued. The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The consolidated financial statements do not include any adjustments that might be necessary should the Company be unable to continue as a going concern. As a result of the considerations articulated below, we believe there is substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the financial statements are issued.

In applying the accounting guidance, management considered our current financial condition and liquidity sources, including current funds available, forecasted future cash flows and our conditional and unconditional obligations due over the next twelve months after the date that our financial statements were issued. Management specifically considered the two secured credit agreements (collectively, as amended, the “Credit Agreements”), further defined in Note 4, with a maturity date in December 2023 as an event or condition that raised substantial doubt about our ability to continue as a going concern. As of March 31, 2023, we had borrowed $305.7 million under the First Lien Term Loan Facility, $667.6 million under the Second Lien Term Loan Facility and $22.5 million under the First Lien Revolving Facility. Our obligations under the Credit Agreements are guaranteed by certain of our subsidiaries. The Credit Agreements include several events of default as described in Note 4. Upon the occurrence of an event of default (except with respect to bankruptcy), the lenders may declare all of the obligations in connection with the applicable Credit Agreement (including an amount equal to the outstanding letters of credit under the First Lien Credit Agreement) immediately due and payable and may terminate the lenders’ commitments thereunder. When the borrowings under the Credit Agreements come due and payable due to a default or at maturity in December 2023, the Company would not be able to satisfy its obligations. Management plans to work with the lender groups under the credit facilities and also explore other options to satisfy this obligation, however, any such relief involves performance by third parties and cannot be considered probable of occurring.

Therefore, due to the inherent risks, unknown results and significant uncertainties associated with this matter and the direct correlation to our ability to satisfy our financial obligations that may arise over the applicable twelve month period, we are unable to conclude that it is probable that we will be able to meet our obligations arising within twelve months of the date of issuance of these financial statements under the parameters set forth in this accounting guidance.

 

Fair Value

Fair value accounting applies to reported balances that are required or permitted to be measured at fair value under existing accounting pronouncements.

Fair value measurements are determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, these accounting requirements establish a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy).

Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that we have the ability to access.

Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs might include quoted prices for similar assets and liabilities in active markets, as well as inputs that are observable for the asset or liability (other than quoted prices), such as interest rates, foreign exchange rates and yield curves that are observable at commonly quoted intervals.

Level 3 inputs are unobservable inputs for the asset or liability and are typically based on an entity’s own assumptions, as there is little, if any, related market activity.

In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability. We utilize the fair value hierarchy in our accounting for derivatives (Level 2), fixed rate and variable rate debt (Level 2), and in our reviews for impairment of real estate assets (Level 3) and goodwill (Level 3).

 

Impairment of Assets

Real estate investments and related intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the property might not be recoverable, which is referred to as a “triggering event.” If there is a triggering event in relation to a property to be held and used, we will estimate the aggregate future cash flows, net of estimated capital expenditures, to be

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generated by the property, undiscounted and without interest charges. In addition, this estimate may consider a probability weighted cash flow estimation approach when alternative courses of action to recover the carrying amount of a long-lived asset are under consideration or when a range of possible values is estimated.

During the three months ended March 31, 2023, there were no new indicators of impairment at any of our properties. No impairment review or assessment of the undiscounted future cash flows was required.

Our review of long-lived assets for impairment utilizes qualitative and quantitative factors in order to estimate fair value. The significant qualitative factors that we use include age and condition of the property, market conditions in the property’s trade area, competition with other shopping centers within the property’s trade area and the creditworthiness and performance of the property’s tenants. The significant quantitative factors that we use include historical and forecasted financial and operating information relating to the property, such as net operating income, estimated holding periods, occupancy statistics, vacancy projections and tenants’ sales levels.

The determination of undiscounted cash flows requires significant estimates by our management, including the expected course of action at the balance sheet date that would lead to such cash flows. Subsequent changes in estimated undiscounted cash flows arising from changes in the anticipated action to be taken with respect to the property could affect the determination of whether an impairment exists, and the effects of such changes could materially affect our net income. If the estimated undiscounted cash flows are less than the carrying value of the property, the carrying value is written down to its fair value. Our intent is to hold and operate our properties long-term, which reduces the likelihood that our carrying value is not recoverable. A shortened holding period would increase the likelihood that the carrying value is not recoverable. We will obtain a third party appraisal of the property as deemed necessary.

Assessment of our ability to recover certain lease-related costs must be made when we have a reason to believe that a tenant might not be able to perform under the terms of the lease as originally expected. This requires us to make estimates as to the recoverability of such costs.

An other-than-temporary impairment of an investment in an unconsolidated joint venture is recognized when the carrying value of the investment is not considered recoverable based on evaluation of the severity and duration of the decline in value. To the extent impairment has occurred, the excess carrying value of the asset over its estimated fair value is recorded as a reduction to income.

Assets Classified as Held for Sale

The determination to classify an asset as held for sale requires significant estimates by us about the property and the expected market for the property, which are based on factors including recent sales of comparable properties, recent expressions of interest in the property, financial metrics of the property and the physical condition of the property. We must also determine if it will be possible under those market conditions to sell the property for an acceptable price within one year. When assets are identified by our management as held for sale, we discontinue depreciating the assets and estimate the sales price, net of selling costs, of such assets. We generally consider operating properties to be held for sale when they meet criteria such as whether the sale transaction has been approved by the appropriate level of management and there are no known material contingencies relating to the sale such that the sale is probable and is expected to qualify for recognition as a completed sale within one year. If the expected net sales price of the asset that has been identified as held for sale is less than the net book value of the asset, the asset is written down to fair value less the cost to sell. Assets and liabilities related to assets classified as held for sale are presented separately in the consolidated balance sheets. If we determine that a property no longer meets the held-for-sale criteria, we reclassify the property’s assets and liabilities to their original locations on the consolidated balance sheet and record depreciation and amortization expense for the period that the property was in held-for-sale status.

As of March 31, 2023, we determined that two of our hotel land parcels, one multifamily land parcel, and one retail property met the criteria to be classified as held for sale. As of December 31, 2022, two of our hotel land parcels, one multifamily land parcel, and two retail properties met the criteria to be classified as held for sale.

Reverse Share Split

On June 16, 2022, the Company effected a one-for-fifteen reverse share split of its common shares. Upon the effectiveness of the reverse share split, every 15 issued and outstanding common shares were combined into one issued and outstanding common share, with no change in par value per share, and the authorized number of common shares was proportionally reduced. Shareholders entitled to fractional shares as a result of the reverse share split were entitled to receive a cash payment in lieu of receiving fractional shares. All common share and per share data in the consolidated financial statements and notes to the consolidated financial statements have been retrospectively revised to reflect the reverse share split. Common shares underlying outstanding options, time based and restricted share units, performance based share units and restricted shares were proportionately reduced and the respective exercise prices, if applicable, were proportionately increased. Additionally, the conversion rate of OP Units into common shares was automatically proportionally adjusted from one-for-one to fifteen-for-one. The reverse share split resulted in bringing the Company into compliance with the minimum bid price requirement for maintaining its listing on the New York Stock Exchange (the “NYSE”), and on July 1, 2022, the Company received notice from the NYSE that it had regained compliance with the minimum bid price requirement. The Company's common shares continued to trade under the symbol “PEI” and began trading on a split-adjusted basis on June 16, 2022.

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On December 15, 2022, the Company received written notice from the NYSE that the Company failed to maintain an average market global capitalization over a consecutive 30 trading-day period of at least $15 million which resulted in NYSE delisting its securities. The securities were transferred to "OTC Pink Market" and later to OTCQB, both operated by OTC Markets Group Inc. As of March 31, 2023, the Company's shares were traded on OTCQB under the symbols PRET (Common Shares), PRETL (Preferred Series B), PRETM (Preferred Series C), and PRETN (Preferred Series D).

New Accounting Developments

The Company considers all new accounting standards for their applicability to the consolidated financial statements. We determined that there were no new accounting standards, issued or effective during the quarter ended March 31, 2023, that have had or are expected to have a material impact on our consolidated financial statements.

 

Restatement of Previously Reported Financial Statements

 

The consolidated statement of cash flows for the three months ended March 31, 2022 has been restated due to a misclassification. The value of beneficial shares issued as settlement of certain compensation liabilities was previously reported as cash provided by financing activities, with offsetting reductions to operating cash flows. The cash flow presentation has been restated to properly reflect this transaction as supplemental non-cash financing activity. This restatement only impacts the consolidated statement of cash flows for the three months ended March 31, 2022 and resulted in no change in cash, cash equivalents and restricted cash as of March 31, 2022.

 

The following table provides a summary of the restatement on the Company's consolidated statement of cash flows for the three months ended March 31, 2022.

 

 

 

For the three months ended March 31, 2022

 

(in thousands of dollars)

 

As Previously Reported

 

 

Restatement Adjustment

 

 

As Restated

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

 

Adjustments to reconcile net loss to net cash provided by operating activities:

 

 

 

 

 

 

 

 

 

Net change in other liabilities

 

$

(6,209

)

 

$