A mall landlord that sought Chapter 11 bankruptcy protection during the pandemic has just over $1 billion in debt payments due next month it said it can't pay.

So the Pennsylvania Real Estate Investment Trust is warning it may not be able to continue operations at a time when the brick-and-mortar retail landscape is undergoing dramatic change.

The Philadelphia-based REIT reported in its third-quarter earnings on Tuesday it is in discussions with its advisers and lenders on a possible restructuring so it can comply with its credit agreements. As it stands now, the firm won't be able to satisfy its borrowing obligations and "there is substantial doubt about the company's ability to operate as a going concern," according to its filing with the Securities and Exchange Commission.

PREIT added in its earnings statement that "there can be no assurance that the parties will reach a binding agreement regarding terms of a restructuring in a timely manner, on terms that are attractive to the company, or at all."

The pandemic upended the retail sector as well as the office market. PREIT, which didn't hold a conference call on its results, and another mall owner, CBL Properties of Chattanooga, Tennessee, both filed for Chapter 11 on the same day in November 2020, when the COVID outbreak was still raging. Many mall landlords — including PREIT and others such as Simon Property Group and Triple Five Group — as well as retailers were financially battered when pandemic restrictions closed their properties for months in 2020.

Columbus, Ohio-based Washington Prime Group, a mall owner, sought Chapter 11 protection in June 2021.

PREIT, CBL and Washington Prime reorganized and successfully emerged from the Chapter 11 proceedings. But PREIT, which has 18 malls mainly clustered on the East Coast, has ended up in a sea of red ink despite its efforts to sell off assets to help pay off its debt. Since the start of the year, PREIT has only sold properties that generated just over $30 million in gross proceeds.

For the third quarter ended Sept. 30, PREIT said it had $30.6 million available under its first lien revolving credit facility. Its corporate cash balances, when combined with available credit, provide total liquidity of $38.6 million.

But PREIT's credit facilities, which have a balance of $1.12 billion, mature on Dec. 10. Those include loans for $305.7 million, $713.7 million and $99.4 million, according to the REIT.

PREIT said it will not be able to satisfy its obligations under its credit agreements when they "come due and payable at maturity in December 2023."

As a result, PREIT put its warning about possibly not being able to continue as a "going concern" if it can't come to an agreement on a restructuring in its 10-Q filing with the SEC, meaning it may not be able to remain financially stable and have the expectation of operating indefinitely.

PREIT declined to comment on its results beyond what it said in its third-quarter press release and securities filings.

The company has made strides executing the most common strategy for malls right now: diversifying their tenant rosters, with additions such as housing, hospitality, healthcare and entertainment. That's viewed as a way to draw foot traffic to shopping centers and to better compete against e-commerce.

For example, at the Moorestown Mall in Moorestown, New Jersey, construction is underway for a state-of-the-art Cooper University Healthcare facility, which is expected to open its initial phase shortly, and the 375-unit Pearl apartment development. At Springfield Town Center in Virginia, a LEGO Discovery Center held its grand opening in August. And a new self-storage facility — in previously unused, below grade space at the Mall at Prince George's in Hyattsville, Maryland — is now open.

In December last year the REIT was delisted by the New York Stock Exchange. That same month, PREIT reported that it had met the requirements to exercise a one-year extension of its first- and second-lien credit facilities, exceeding the minimum $35 million liquidity requirement. Year-to-date then, the company has sold properties generating over $110 million in gross proceeds and has used those funds and excess cash from operations to pay down debt by $148 million through Oct. 31.

But in March this year, when it reported its fourth-quarter earnings, PREIT said it was exploring its options, including a possible sale of the company, a merger, or selling more properties as it faced upcoming loan payments.

“As we noted last quarter, our plan is to spend the coming months exploring all possible outcomes available to the company as our credit facility matures, including refinancing, merger, sale, joint ventures, and selling high-quality assets and more," PREIT Chairman and CEO Joseph Coradino said at that time on a conference call. "We have demonstrated, through our disposition history, that we are open to selling assets and we continue to work towards finalizing the sale of our multifamily land. And again, we are exploring all possible options with our investment adviser.”

PREIT's executives and the board came under fire this summer from several shareholders who wrote the company letters critical of the REIT's management and strategy. The REIT denied their accusations. In part, the dissidents were unhappy with the PREIT board's election.

John Saunders, president of Saunders Property Co. and PREIT's largest common shareholder — with just under 10% — blasted the company in his letter.

"Over the last five years, the vast majority of the shareholders’ asset value has been lost, yet management and the board continue to pay themselves handsomely," Saunders wrote. "The board seems content to let the company drift until it inevitably falls into the hands of its creditors, leaving little or nothing for the shareholders."

In reply, Coradino said the company hadn't been left to "drift," as Saunders charged, "but has taken responsible action to maximize value for shareholders and all other stakeholders in the face of very difficult circumstances."

Saunders didn't respond to a phone call from CoStar News seeking a comment on PREIT's report it made Tuesday.

David Steinberg, founder and principal of DLS Capital, and two other PREIT shareholders wrote their own letter to the REIT in the summer claiming it had "insufficiently pursued" strategic options.

"The common stock's recent trading price is down approximately 88% relative to the lows when PREIT filed for bankruptcy in the fall of 2020," that letter said.

Coradino had lobbed back a response to Steinberg's letter, calling its allegations frivolous.

"While your letter engages in name-calling and blame-casting as if there were some magic solution that everyone is ignoring, the reality is that, in order to manage the company's impending debt maturities and the difficult state of the real estate and financing markets, management, the board and PJT [Partners, an investment bank] have been vigorously exploring all strategic alternatives," Coradino said.

Steinberg declined to comment on Tuesday.

In the third quarter, PREIT's overall revenue dropped to $68 million from $72.8 million in the same year-earlier quarter. The company didn't offer any guidance for 2023. Funds from operations decreased in the quarter compared to the prior year, primarily due to higher interest rates.