PREIT will pay $465M for Virginia mall

PREIT continues to retool its lineup of regional shopping malls.

The Philadelphia-based mall owner will buy the Springfield Town Mall in Fairfax County, Va., for $465 million. The deal gives Pennsylvania Real Estate Investment Trust (NYSE: PEI) a key foothold in an affluent market, where it will have the option to expand another 3 million square feet of mixed-use development.

Vornado Realty Trust, the Paramus, N.J.-based seller, is in the midst of redeveloping the 1.35 million-square-foot mall, a process that will take till the end of the year.

The deal, expected to close on March 15, 2015, has couple of interesting wrinkles.

PREIT will pay $340 million in cash and $125 million in PREIT operating partnership units, making Vornado a “passive” investor with 9.9 percent equity stake. PREIT will also pay off debt to affiliates of Vornado.

The transaction was set up as a tax-free exchange. Vornado will record a non-cash “impairment” loss of approximately $20 million in the first quarter of 2014.

PREIT has malls in 12 states, but it still biggest in its home territory, Philadelphia, where it has eight regional malls.

In recent years, PREIT has invested hundreds of millions each to upgrade its properties, including Cherry Hill Mall, Moorestown Mall, Voorhees Town Center, all in South Jersey, as well as the Plymouth Meeting Mall in Pennsylvania. In coming weeks and months, it will turn its sights on redeveloping The Gallery at Market East in Center City and Exton Square Mall in Exton, Pa.

Common themes of PREIT’s redevelopment strategy are to turn malls “inside out” and make food a major anchor component. For instance, at Cherry Hill Mall, it added a “restaurant row” of free-standing or outward-facing places, including Capital Grille, Seasons 52 and Cheesecake Factory’s Grand Lux Cafe. At Moorestown Mall, the developer won approval to add four liquor licenses, in turn inviting Philadelphia chefs Marc Vetri and Jose Garces to open restaurants. In Plymouth Meeting, it added the region’s largest Whole Foods Market. In the next two years at Exton Square Mall, it will replace two old-line retailers, JC Penney and Kmart, and reposition the shopping center to take advantage of the area’s growing residential base and growing affluence.

Source: Philadelphia Business Journal