PREIT, which owns a number of large shopping centers, lowers the salaries of its CEO and chief financial officer and suspends dividend payments under a contract with its lenders to avoid default, as the coronavirus pandemic continues to affect the troubled company.
The temporary 25% salary cut means a $ 38,000 reduction for CEO Joseph C. Coradino. It comes after The Inquirer reported earlier this year that he hadn't teamed up with other business executives to cut wages to save money during the health crisis, despite the fact that his company was on leave and government relief funds of $ 4, Received $ 5 million.
The new PREIT contract with Wells Fargo Bank and other creditors gives the company at least until the end of August a deadline from the covenants for the financial performance the company must meet to keep its loans in good condition, As it intends to renegotiate these debts, an admission application said. During this period, which has been formalized through changes to its lender agreements, PREIT is prohibited from making dividend payments to shareholders, the company said.
"PREIT continues to take measures to address the challenging operating environment, including measures to improve the company's liquidity, manage its debt obligations and further strengthen its financial base," said Heather Crowell, PREIT Vice President, in a statement.
"The voluntary 25% wage cuts by the CEO and CFO of PREIT are part of this effort and underline the commitment of management to act in the best interest of PREIT's stakeholders and to become stronger."
The shares of the Pennsylvania Real Estate Investment Trust, the full name of PREIT, closed at $ 1.08 in New York on Monday, down 8.5% on Friday. The Russell 3000 Index, which counts PREIT as a member, rose 0.9% during this period.
Matt Frankel of Millionacres LLC, a real estate-oriented division of the financial website Motley Fool, attributed Monday's drop in shares to the loss of dividend payments, which prompted investors to flee the company.
"For people who have stuck to it … to try to make an income, it doesn't look like that is going to happen," he said.
According to the Market Tracker CoStar Group, PREIT is the largest owner of a mall in Philadelphia and surrounding counties. 4.7 million square meters of space are managed in the region. Among the 21 shopping centers in nine states is the former Gallery in Center City, now known as the Philadelphia Fashion District. Willow Grove Park and the Plymouth Meeting Mall in Montgomery County; and Cherry Hill Mall, Moorestown Mall and Cumberland Mall in South Jersey.
Even before all of his properties were closed in March to contain the corona virus, PREIT had years of redesign problems as shoppers increasingly migrated from malls to e-commerce websites, from clothing to large appliances.
As business losses increased due to the pandemic in May, PREIT was asked to reveal "significant doubts as to whether the company would continue to operate" if it failed to successfully complete its plans to raise cash and renegotiate its debt through property sales.
All of the shopping centers had reopened until July 3, when the Philadelphia Fashion District resumed operations. In July, the company also announced that it had sold a portfolio of properties in its shopping centers that are separate from the main structures known as outparcels. These sales have raised a total of $ 27.8 million since February.
Meanwhile, the deal gives PREIT some time to complete the debt talks with its banks, said analyst Frankel.
"It gives them some room to negotiate," he said. "It will be less of an emergency."
The agreement runs from June 30 to August 31, but can be extended until September 30 if PREIT has successfully received a new loan and has agreed terms for permanent changes to its existing loan before the end of August.
Regardless of the agreement with its lenders, PREIT's disclosure stated that Coradino and CFO Mario C. Ventresca Jr. would each reduce their base salary by 25% from July 27th to September 30th, equivalent to 65 days.
The pay cuts add a PREIT to a list of at least 600 companies in the Russell 3000 Index that have announced plans to reduce or defer executive compensation to support their finances during the health crisis, said Esgauge, a corporate data company.
Coradino's base salary for 2020 is $ 850,000, as it did in 2019 when the payment was part of a $ 5.2 million total compensation package, including stock bonuses, performance bonuses and other earnings the company has announced.
A 25% reduction in Coradino's base salary for 65 days would, according to the investigator, save $ 37,842 in his salary. A further additional compensation, which has not yet been set for 2020, would not be affected by the cut. However, since it is largely stock-based, it is likely to be mitigated by the loss in value of corporate stocks.
Ventresca earned $ 1.2 million in 2019, including a base salary of $ 405,600. His 2020 base salary of $ 450,000 would be cut by the $ 20,034 cut.
"These cuts are symbolic," said Charles Elson, director of the Weinberg Center for Corporate Governance at the University of Delaware. "They try to explain to their employees that they share in the pain of the company. The question is how they [the employees] will react if they actually do the math."