Northeast Real Estate Business

MAY 2018

Northeast Real Estate Business magazine covers the multifamily, retail, office, healthcare, industrial and hospitality sectors in the Northeast United States.

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30 • May 2018 • Northeast Real Estate Business ANCHORS AWEIGH PREIT's Joe Coradino discusses how the shopping center owner is transforming its portfolio by re-tenanting properties with dynamic retail concepts. By David Cohen A nchor tenants have long been the lifeblood of a shopping cen- ter because they generate the lion's share of repeat business. But the explosive growth of online shopping in recent years combined with shifting consumer tastes has heightened their vulnerability, particularly department stores. Nearly 7,000 stores either closed or announced plans to close in 2017, and 2018 has already seen the bankruptcy of major retailers like Toys 'R' Us, Bon-Ton and Nine West. In an effort to stay ahead of the curve, Pennsylvania Real Estate In- vestment Trust (PREIT) — a publicly traded real estate investment trust that trades on the New York Stock Exchange with the ticker symbol PEI — launched an anchor improvement program in 2012 designed to ensure the portfolio is best positioned for fu- ture success. Since 2013, PREIT has sold 17 un- derperforming malls and used the $800 million in gross proceeds to rede- velop its stronger performing proper- ties. The company also has simultane- ously reduced its exposure to several troubled department stores. Before starting the anchor improvement pro- gram, PREIT had 25 Macy's locations in its portfolio but now has only 14. Where it once had 27 Sears-anchored properties, the company now has eight. At one time, PREIT had 10 Bon- Ton locations in its portfolio, but by the time news broke in mid-April that the retailer would be closing all stores, there were only two Bon-Ton locations in PREIT's centers. In place of the former anchor boxes, PREIT has executed leases with new tenants in a variety of segments that include dining, en- tertainment, health & wellness, off-price and fast-fashion. Today, PREIT owns and manages a portfolio of 21 op- erating properties totaling 22.5 mil- lion square feet of retail space, with a concentration in the Mid-Atlantic region. PREIT properties generate $1.5 billion in total sales per year. Before the anchor improvement program, PREIT's portfolio consisted of 33 million square feet across 20 markets in 13 states, with sales of $365 per square foot in 2012. As of Febru- ary 2018, sales had reached $483 per square foot. Joseph Coradino, chairman and CEO of PREIT, recently spoke with Northeast Real Estate Business about the company's anchor improvement program. NREB: As retail continues to evolve, what is your goal with PREIT's an- chor improvement program? Joseph Coradino: We want to ensure that our portfolio is best positioned for success in the future, which we believe is heavily dependent on craft- ing a quality portfolio. So, just like our asset disposition program, we're focused on jettisoning that which doesn't necessarily support our ob- jectives. We've been proactive and aggressive with our anchor improve- ment program in order to capture de- mand for quality space. Through our efforts, we have significantly reduced our exposure to select department stores. In addition to proactively re- capturing the space and dramatically mitigating that risk, we're focused on transforming our portfolio with dy- namic, differentiating concepts that will elevate the shopper experience. NREB: Are you backfilling vacancies or actively terminating leases? Coradino: We are being as proactive as possible to ensure we're reposition- ing the anchor stores across our port- folio and optimizing the opportuni- ties to remerchandise. In many cases, PREIT takes the initiative to approach troubled anchor tenants with the in- tent to buy the properties back from them or terminate the leases. NREB: Have you been able to put your finger on why the tenants have been leaving and why are they not successful in a particular location? Coradino: The challenges of certain retailers have been well broadcast, and it's not our place to comment on a particular business model other than our own. But many department stores grew through acquisitions and may have ended up saturating cer- tain markets or being in markets that weren't relevant. We view department store closures as a win-win situation. We get to diversify our tenant rosters by bringing in innovative and highly sought-after concepts. Meanwhile, the departing tenants can focus their capi- tal allocation and merchandising on a smaller, more productive base. NREB: How are you choosing which tenants or types of tenants to pursue for specific projects? Coradino: Our top priority is secur- ing the right tenants for our malls. We constantly look to offer diverse expe- riences that align with the demands of our local shoppers. As a result, we closely assess the demographics and psychographics of consumers in our trade area to understand which tenants best suit their interests. The right tenant not only addresses the demands of our shoppers, but also complements our existing roster and further diversifies it to produce a mix of high-quality and in-demand retail, dining and entertainment. NREB: What unique retailers are you bringing into your centers? Coradino: The concepts that we seek are in a variety of formats. Smaller re- tailers are on our radar for the unique offerings they bring to our properties. For example, food kiosks are preva- lent at many of our properties and present an opportunity for shoppers to discover a new way to dine on the go. Pop-ups are also becoming more prevalent, offering consumers a short- term product or service that can help increase demand due to the exclusive- ness of the product or limited time frame of availability. We've recently welcomed several interesting concepts to our properties, such as Olde Good Things, an archi- tectural antique dealer, at Wyoming Valley Mall [in Wilkes-Barre, Penn- sylvania]; and Balsam, the world's leading online retailer of artificial Christmas trees and related holiday décor products at Cherry Hill Mall [in Cherry Hill, New Jersey]. n In 2017, a 193,150-square-foot Sears at Viewmont Mall in Scranton, Pennsylvania, was replaced as part of PREIT's ongoing anchor improvement program. The mall now features a 90,000-square-foot combined Dick's Sporting Goods and Field & Stream as well as a 22,577-square-foot HomeGoods store. Joseph Coradino PREIT We closely assess the demographics and psychographics of consumers in our trade area to understand which tenants best suit their interests. — Joseph Coradino, Chairman and CEO of PREIT

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