STAMFORD, Conn.--(BUSINESS WIRE)--Today Land and Buildings, an investment firm specializing in publicly traded real estate and real estate related securities, and a shareholder of Pennsylvania Real Estate Investment Trust (“PREIT”) (NYSE: PEI), sent a letter and presentation to the CEO of PREIT.
The letter and presentation suggest several strategic actions to unlock shareholder value at PREIT, and potentially drive the share price to net asset value of $30 per share – or 55% above the current share price.
The full text of the letter can be found below, and the presentation can be accessed at www.landandbuildings.com.
Full text of the letter follows:
October 20, 2014
Joseph F. Coradino
Chief Executive Officer
Pennsylvania Real Estate Investment Trust
200 South Broad Street
Philadelphia, PA 19102-3803
Thank you for collaborating with us since the second quarter to discuss ways to unlock the substantial undervaluation of Pennsylvania REIT’s (NYSE: PEI) shares relative to the private market value of the company’s assets. As we have discussed, we believe the net asset value of your mall portfolio is approximately $30 per share, 55% above the current share price.1
To management’s credit, PREIT’s mall portfolio has been substantially upgraded over the past several years. 80% of estimated asset value is derived from malls generating an average sales productivity of $4802 per square foot and Land and Buildings believes these 16 high quality “Keeper” malls are worth $24 per share alone, or more than 20% above the current stock price. We believe the current stock price reflects less than zero equity value for the bottom 17 malls in the portfolio.
Glimcher Realty Trust’s (NYSE: GRT) recent agreement to sell its mall portfolio to Washington Prime Group (NYSE: WPG) at a 30% premium to the stock price, representing a sub-6%3 cap rate for a portfolio generating $473 in sales per square foot,4 clearly highlights the value of the PREIT malls which at the current stock price are trading at a 9% implied cap rate.
Despite your improvements to portfolio quality through new investments and recent success in selling lower quality assets, we believe that PREIT is still largely viewed as a low quality mall company by many investors and analysts. We are sure that you could not disagree more with this misperception.
As we outline in detail in the attached presentation, we believe the clearest path to maximize shareholder value and drive the share price closer to NAV is as follows:
|Land and Buildings recommends PREIT liquidate its lowest productivity retail assets in a timely manner, transforming the “Keeper” company into a high quality $480 sales per square foot mall REIT|
|Management should communicate a strategic plan to narrow the discount to NAV, including a liquidation of lowest quality assets, and state that if the valuation gap is not closed within a finite timeframe that PREIT will explore strategic alternatives, including a sale of the entire company|
As shareholders of your company, we look forward to continuing to work with you and your team at PREIT to unlock the substantial discount to NAV and position PREIT to earn a cost of capital that will allow management to grow the company and further enhance shareholder value.
All the best,
Founder & CIO
Land and Buildings
About Land and Buildings:
Land and Buildings is a registered investment manager specializing in publicly traded real estate and real estate related securities. Land and Buildings seeks to deliver attractive risk adjusted returns by opportunistically investing in securities of global real estate and real estate related companies, leveraging its investment professionals' deep experience, research expertise and industry relationships.
Cautionary Statement Regarding Forward-Looking Statements
This communication contains “forward-looking statements” that involve numerous risks and uncertainties. The statements contained in this communication that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All forward-looking statements included in this document are based on information available to Land and Buildings on the date hereof. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “seek,” “should,” "could," “expect,” “anticipate,” “project,” “estimate,” “intend,” “continue” or “believe” or the negatives thereof or other variations thereon or comparable terminology. Such statements are not guarantees of future performance or activities. Due to various risks, uncertainties and assumptions, actual events or results or actual performance may differ materially from those reflected or contemplated in such forward-looking statements. The opinions of Land and Buildings are for general informational purposes only and do not have regard to the specific investment objective, financial situation, suitability or particular need of any specific person, and should not be taken as advice on the merits of any investment decision. This material does not recommend the purchase or sale of any security. Land and Buildings reserves the right to change any of its opinions expressed herein at any time as it deems appropriate. Land and Buildings disclaims any obligation to update the information contained herein. Land and Buildings and/or one or more of the investment funds it manages may purchase additional Pennsylvania REIT shares or sell all or a portion of their shares or trade in securities relating to such shares.
1 PREIT share price of $19.46 as of October 16, 2014 closing price
2 Total average sales per square foot for “Keeper” portfolio based on weighted average of Land and Buildings’ estimated NOI per asset using PREIT disclosures as of second quarter 2014 and based on reported sales by all comparable non-anchor tenants that lease individual spaces of 10,000 square feet or less
3 Wall Street Research
4 Based on Glimcher disclosures as of second quarter 2014 for sales for in-line stores with less than 10,000 square feet