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How is PREIT Placed Amid Transforming Landscape of Malls?

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In a recent video interview at Nareit’s REITworld: 2018 Annual Conference in San Francisco, CEO, Joe Coradino, of Pennsylvania Real Estate Investment Trust (PEI - Free Report) — better known as PREIT — discussed the evolving landscape of malls and consumers’ growing sophistication.

He noted, “It’s clear that given the track record of success we’re experiencing with restaurants, entertainment, health, fitness, and other experiences, that the consumer is enjoying this and they’re coming back more often to experience it.”

Admittedly, the shrinking mall traffic, store closures and retailer bankruptcies amid aggressive growth in online sales have kept retail REITs, including PREIT and others like Kimco Realty Corp. (KIM - Free Report) , Macerich Company (MAC - Free Report) , Taubman Centers, Inc. (TCO - Free Report) , on tenterhooks. In addition, tenants are demanding substantial lease concessions due to a choppy retail real estate market scenario.

Nonetheless, retail REITs are countering this dreary situation and putting in immense efforts to enhance the productivity of malls, by trying to grab attention from new and productive tenants, and disposing the non-productive ones on the other hand.

Specifically, retail REITs are fighting back and transforming their retail shopping centers in a way such that these spaces appear as a one-stop destination where people can not only shop, live and work, but also entertain, socialize and exercise, and even visit doctors or relax at the spa.

Also, the companies are making efforts to grab the attention of online retailers, and rolling out innovative platforms to go beyond e-commerce and expand their presence to physical-store formats. Eventually, such measures are aimed at growing mall traffic and driving sales.

PREIT, too, along with its re-merchandising efforts, has resorted to a portfolio rejig, selling low productive assets, and investing heavily in refurbishments and remerchandising to increase property value.

Moreover, recently, the company announced a partnership with 1776, a network of incubators, which encourages start-up companies in the Northeast. This will offer scope to bring in a company that will help nurture retailers in an actual retail environment, which will support having interface with customers, making the most of their business potential in a short span. In addition, PREIT’s CEO pointed out its least chance of being affected by the Sears bankruptcy. Although the company initially had 27 Sears stores, the number is now down effectively to four.

Though such steps will likely help PREIT efficiently tide over the tepid retail real estate market, portfolio-redevelopment measures entail considerable capital and tend to drag margins in the near term. In addition, rate hike adds to its woes.

PREIT currently has a Zacks Rank #3 (Hold). The company’s shares have declined 19.9% in the past three months compared to the industry’s loss of 13.8%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.



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