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PREIT's Redevelopment Efforts at Woodland Mall Get a Boost

Zacks Equity Research

Pennsylvania Real Estate Investment Trust PEI — better known as PREIT — is leaving no stone unturned to drive tenants and traffic at its malls. Recently, the company announced the addition of The Cheesecake Factory as a dining anchor to its Woodland Mall at Grand Rapids. This property in the second largest city of Michigan is undergoing an extensive redevelopment.

PREIT’s execution of the lease with The Cheesecake Factory will increase the dining options at the property. Specifically, the 8,500 square foot restaurant of The Cheesecake Factory, which is slated to open in late October this year, will mark its second location in Michigan and its only location in more than 50 miles’ distance. Notably, The Cheesecake Factory earned its reputation globally for its extensive menu, generous portions and legendary desserts.

Apart from The Cheesecake Factory, the renovated property will include Black Rock Bar & Grill, a well-known steakhouse and the first-to-market experiential dining offering with an expected inauguration this summer.

Moreover, PREIT made concerted efforts to bring new-to-portfolio and new-to-market retailers to the mall. A 90,000-square-foot Von Maur department store is set to open this fall. This will be the brand’s debut outlet in the region, which is coming up at a space, previously occupied by Sears. Also, Von Maur will be joined by Urban Outfitters. Further, Woodland Mall will usher in Tricho Salon, a best-in-class salon this fall.

The addition of these retailers will diversify the high-quality roster of tenants at the premium mall including Apple, Pottery Barn, H&M and Altar’d State among others and cater to the surging retail demand from the region’s solid shopper demographics. Along with a number of dining establishments, a movie theater and game-changing tenants soon-to-open, the property is likely to lure shoppers and experience a high footfall.

Admittedly, the shrinking mall traffic and store closures amid aggressive growth in online sales kept retail REITs including PREIT and others like Kimco Realty KIM, Taubman Centers, Inc. TCO and Macerich Company MAC on tenterhooks. Additionally, tenants are demanding substantial lease concessions due to a turbulent retail real estate market scenario.

Nonetheless, retail REITs are countering this dreary situation and putting in every effort to enhance the productivity of malls by trying to grab attention from the new and productive tenants, and discarding the non-productive ones. Further, retail REITs have been transforming the traditional retail hubs into entertainment destinations by avoiding heavy dependence on apparel and accessories and instead, expanding the dining options through the launch of movie theaters, recreational facilities and fitness centers.

Similarly, PREIT along with its remerchandising efforts resorted to a portfolio rejig, selling low productive assets and investing heavily in refurbishments to enhance the property value. The company’s strategy to solidify the Woodland Mall redevelopment positions the property to woo the high-income communities in the region. This overhaul will not only redefine the customers’ shopping experience but also add a significant value by driving net operating income (NOI) growth. In fact, the Woodland Mall is projected to deliver around 20% NOI growth in 2020.

Although such steps are likely to help PREIT efficiently tide over the lackluster retail real estate environment, portfolio-redevelopment measures entail a considerable capital investment and tend to drag margins in the near term.

Meanwhile, shares of this Zacks Rank #4 (Sell) company have underperformed its industry over the past three months. The stock has slipped 0.4% versus the industry’s rally of 28.2%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.


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Pennsylvania Real Estate Investment Trust (PEI) : Free Stock Analysis Report
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