Mall landlord PREIT has filed for bankruptcy protection for the second time in three years as it struggles to cope with a retail property landscape disrupted by the pandemic, saying it has arranged financing and is reorganizing to reduce its overall indebtedness by about $880 million.

Pennsylvania Real Estate Investment Trust said on Monday it has a prepackaged plan supported by 100% of its first and second lien lenders. The Philadelphia-based real estate investment trust had about $1.1 billion in debt due on Sunday, and in November warned that it would not be able to make those payments. PREIT owns and operates more than 18.3 million square feet of retail space in eight states across the eastern United States, with 23 retail properties including the Springfield Town Center in Virginia just south of Washington, D.C.

For the proposed restructuring, PREIT has received commitments for new money debtor-in-possession and exit-revolver financing in an aggregate amount of roughly $135 million from a diverse group of investors led by Redwood Capital Management and Nut Tree Capital Management. That plan will "reduce its total indebtedness by approximately $880 million," according to PREIT.

The company was one of several mall landlords that filed for Chapter 11, and then emerged from it during the pandemic in 2020. PREIT went about redeveloping some of its properties, adding additional uses such as healthcare. And it sold off some malls to pay down debt. However, it still wasn't able to meet its entire debt obligation, leading it to turn to a restructuring.

"This funding commitment, together with the unanimous support from the company’s existing lender group for the prepackaged plan, is a testament to the lenders’ confidence in the company’s forward path and represents a crucial source of capital to support the company’s financial stability and long-term growth," PREIT said.

The REIT added that it expects to emerge from bankruptcy proceedings in early February. It filed its voluntary Chapter 11 petition in the U.S. Bankruptcy Court for the District of Delaware.

In its statement, PREIT said its existing preferred and common shares will be canceled and it will no longer be a publicly traded company. An aggregate $10 million payment, net of costs defined in the prepackaged plan, will be provided to holders of the existing stock. The payment, if made, will be allocated with 70% for preferred shareholders and 30% for common shareholders.

"Following the pandemic disruption, PREIT has worked tirelessly to enhance the portfolio, dramatically improve occupancy and diversify its tenancy," Joseph Coradino, the REIT's Chairman and CEO, said in a statement. "However, unusual economic conditions have limited the company’s options with respect to its debt obligations as meaningful achievements on the operating front were met with inflation and rising interest rates.”

According to the CEO, "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. 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 plans to continue its business operations and said it will pay all vendors, suppliers and employees during the course of the Chapter 11 proceedings and, pursuant to the terms of the prepackaged plan, which will be subject to court approval, the pre-petition claims of all vendors, suppliers and employees will be unimpaired.

In November 2021 PREIT retained PJT Partners to explore all strategic options for the company, according to Michael DeMarco, lead independent trustee at the REIT.

"PJT robustly marketed the company’s properties, sought capital infusion and otherwise explored any available options," DeMarco said in a statement. "That process did not result in any options that would allow the company to refinance or otherwise achieve value that would exceed the aggregate amount of its first and second lien loans. After months of evaluation and review with our financial advisers, the board has unanimously approved a transaction that we believe to be the alternative that maximizes the value of PREIT for all of our stakeholders."

PREIT had owned a 50% stake in the Fashion District mall in Philadelphia in a joint venture with Macerich. But on Dec. 9, PREIT relinquished its share of the retail property to Macerich, PREIT Chief Financial Officer Mario Ventresca Jr. disclosed in a court filing. Macerich had been controlling Fashion District's operations and making major decisions regarding it since 2020, Ventresca said.

PREIT and PJT in February 2022 kicked off a marketing campaign that focused on selling all or part of the Cherry Hill Mall, Dartmouth Mall and Woodland Mall in an attempt to raise capital and facilitate the refinancing its credit agreements, according to Ventresca.

"Notwithstanding the focus on these three properties, PJT also engaged with parties on alternative transactions, exploring the sale of other properties as well as the entirety of the company’s portfolio as a whole," he said. "All told, PJT approached approximately 50 prospective investors across a range of private equity firms and public retail REITs, but the efforts did not produce any meaningful interest."

Potential buyers were put off by several factors, according to Ventresca, including "negative investor sentiment in the mall sector given the perceived change in consumer shopping behavior including disruption from e-commerce and headwinds stemming from tenant bankruptcies" and continuing investor preference for outdoor or open-air shopping centers.

DeMarco added, "While PREIT continues to operate in a challenging market, we are pleased to arrive at an agreement with our key creditors that also provides a $10 million payment to preferred and common shareholders if certain conditions are met, who otherwise would receive nothing. ... The board has concluded that the consideration provided to Preferred and Common shareholders is in effect a gift resulting from voluntary agreement with the existing first and second lien lenders to avoid the expense of protracted Chapter 11 proceedings and shall only be available in the event that the equity distribution conditions are satisfied.”

DLA Piper, Wachtell, Lipton, Rosen & Katz and Dilworth Paxson are serving as legal counsel and PJT Partners is serving as financial adviser to PREIT. Paul Hastings LLP and Young Conaway Stargatt & Taylor are serving as legal counsel and Houlihan Lokey is serving as financial adviser to the ad hoc group of PREIT’s first lien and second lien-secured lenders.

Mark Heschmeyer contributed to this report.