PREIT, owner of the former Gallery at Market East and other big malls, has gotten approval to refill its multi-million-dollar supply of stock for executive payouts, even as the company furloughed employees and received $4.5 million in coronavirus relief money.
The move, approved last month by a slimmer-than-usual majority of shareholders, signals that the mall owner’s financial woes won’t pare future paychecks for chief executive Joseph C. Coradino, whose total compensation has grown 39%, from $3.7 million in 2017 to $5.2 million in 2019, including a guaranteed base salary of $850,000 for the year.
PREIT’s stock was already on a years-long downward spiral when it disclosed in May, as the pandemic took its toll, that it had “substantial doubt about the company’s ability to continue as a going concern” if it was unsuccessful in its plan to renegotiate debt and sell off property.
The approval of the “equity plan" — a routine action that typically garners greater shareholder support — now puts PREIT squarely into a national conversation over how much of the burden executives should share with employees and taxpayers as they struggle to keep their businesses afloat in the coronavirus economy.
“If your rank-and-file are going through difficult times, it’s important from an incentive basis that those who lead the organization should demonstrate solidarity,” said Charles Elson, director of the Weinberg Center for Corporate Governance at the University of Delaware. “It’s hard to argue that while everybody else is down to Spam, you’re still dining on what you had before.”
Heather Crowell, a PREIT vice president, said executives are already sharing in the pain as major holders of the company’s plummeting stock, and that its leaders have taken “decisive steps” to weather the health crisis and other obstacles.
“The company has worked tirelessly to develop protocols to safely reopen malls as we navigate these uncertain times,” she said. “As the economy begins to reopen across the country, we believe that the actions we have taken during this sudden downturn will position us for the strongest possible recovery and success over the long-term.”
Pennsylvania Real Estate Investment Trust, PREIT’s full name, is the biggest mall owner in Philadelphia and its surrounding counties, with 4.7 million square feet of space under management in the region, according to market tracker CoStar Group.
Its 21 malls in nine states include the former Gallery in Center City, now known as Fashion District Philadelphia; Willow Grove Park and the Plymouth Meeting Mall in Montgomery County; and the Cherry Hill Mall, Moorestown Mall, and Cumberland Mall in South Jersey.
Even before all its properties were ordered closed in March to help stem the coronavirus, PREIT had been in a punishing years-long struggle to revamp as shoppers increasingly migrate from shopping malls to e-commerce sites for everything from clothing to major appliances.
It confronted that challenge with an aggressive push to sell off lesser-performing properties and fill space vacated by bankrupt or downsizing retailers with “experiential” tenants such as restaurants, movie theaters, and entertainment arcades.
But none of that reversed the downward trajectory of PREIT’s stock.
Between the start of 2017 and the end of 2019, PREIT shares dropped from $19.33 to $5.33, a 72% decline. During that time, the FTSE NAREIT Retail Index, which includes PREIT and most other publicly traded retail landlords with a market value of more than $100 million, declined only about 13%. The Russell 3000 Index of the 3,000 largest publicly held companies incorporated in the United States, which also counts PREIT as a component, rose 41% over that period.
But as PREIT’s stock fell, payouts grew for Coradino, who was named chief executive in 2012 after decades with the company and at the Rubin Organization, which was acquired by PREIT in 1997.
The 68-year-old’s total 2019 paycheck of $5.2 million, which was set by a compensation committee made up of company board members, is not extravagant by real-estate-mogul standards. Coradino’s pay is below the median $6 million earned by chief executives of companies on the Retail Index that have made compensation disclosures this year, according to figures compiled by Esgauge, a corporate-data firm.
Coradino’s compensation relative to his workforce’s also is near the middle ground. Among companies on the Retail Index reporting “pay ratios” in 2019, chief executives earned a median of 60 times as much as an employee at the middle of a firm’s pay scale. Coradino’s earnings are 65 times higher than PREIT’s median employee paycheck of $79,777.
But Coradino’s pay seems out of step with the company’s stock-market fortunes, according to an analysis by International Shareholder Services, an advisory firm.
ISS analyzed pay at a subset of similarly sized companies from the Retail Index and found that, while Coradino ranks in the lower-third among his peers in terms of compensation, PREIT is near the very bottom of its scale in terms of “total shareholder return,” a measure that comprises dividend payouts in addition to stock appreciation.
“There’s a disconnect between how the management team is being incentivized, versus the outcomes they have produced,” said Brett Miller, head of data solutions for an ISS investment arm. “Their pay is not in line with their performance.”
Crowell said that ISS’s accounting was skewed because it grouped PREIT with owners of outdoor shopping centers, rather than just mall landlords. Those companies haven’t seen the same level of tenant bankruptcies as mall owners, so they’ve performed better, she said.
With the health crisis battering its business, PREIT’s stock performance has now been hitting new lows, as the company’s revenue-starved tenants hold off paying rent while its own debt-service deadlines approach.
Shares have fallen 71% since the end of last year to close at $1.54 on Tuesday, after trading at under a dollar for most of April. The Retail Index is down 35% over that period, while the Russell 3000 is down 4%.
Among mall owners, PREIT is being hit especially hard by the pandemic because so many of its properties are in states such as Pennsylvania and New Jersey that have not permitted indoor malls to resume full operations, Crowell said. By Saturday, only 11 of its properties will have reopened.
Amid the virus-related cash crunch, PREIT said it had applied for and received $4.5 million from the Small Business Administration’s $659-billion Paycheck Protection Program, which lawmakers authorized in coronavirus-relief bills earlier this spring to help firms with fewer than 500 workers weather the pandemic. The money turns into a grant if employers use it to keep staff on the payroll.
PREIT is the only company on the FTSE NAREIT Retail Index to get a PPP loan, according to an analysis of data compiled by Accountable.US, a left-of-center advocacy group. Other publicly traded companies have been criticized for taking money from the program after smaller businesses struggled to access funds.
In another cost-cutting move, the company furloughed 103 of its employees — 41 office staff and 62 property management workers — accounting for 37% of its staff. Thirteen of them are now back at work at reopened malls.
More cash was preserved by delaying payment of $11.6 million in property taxes to local governments where its malls are located, which are used to fund local services. The company did not disclose the properties for which those deferrals were granted.
The company has also cut $25 million in capital spending, reduced the dividend paid to investors, and reached forbearance deals with some lenders.
One step it hasn’t taken: announcing pay cuts for executives.
That stands in contrast to a roster of 600 companies on the Russell 3000 index that have said they would reduce or defer executive compensation to help shore up their finances during the health crisis.
“If you’re going to furlough employees and you’re going to cut costs throughout, then those costs should be cut elsewhere in the business as well, and that includes executive salaries,” said Paul Hodgson, a corporate-governance specialist who serves as an advisor to Esgauge.
Coradino’s employment contract stipulates that his base salary, which has risen every year since 2017, cannot be reduced without his written consent. It will be $850,000 again in 2020.
The vote at PREIT’s annual meeting gave the company permission to issue 2.44 million shares of company stock — worth $3.76 million at Tuesday’s close of trading — to be divided among its “key employees” over an estimated one- to three-year period, according to filings with the Securities and Exchange Commission.
PREIT does not specify who qualifies as a “key employee” eligible for payment with that stock. Thirteen executives and board members including Coradino took a little less than two-thirds of the 1.74 million shares awarded last year, with the remainder going to other employees, filings show. Coradino’s portion was slightly more than a third of the total.
The last time PREIT issued stock for its pay packages was in 2018, when the company told shareholders it expected the batch to last five-and-a-half years. It needed to come back for more after only two years because of its deflated stock price,” Crowell said.
Many shareholders did not seem thrilled by the request. Only 72% voted in favor of the plan, making it the 31st-lowest support rate for the 377 such “equity-plan” votes so far this year by companies on the Russell 3000, according to ISS. By comparison, 96% of shareholders approved the 2018 stock issue, records show.
Crowell said “it is not a surprise" that shareholders would be reluctant to issue new shares, since the move would dilute the already diminished value of the company’s stock.
ISS’s Miller, however, said the lower support likely reflects dissatisfaction among shareholders with PREIT’s management of stock for paying executives.
With PREIT also accepting funds from the Paycheck Protection Program, shareholders may not be the only ones frustrated by its pay practices, said Hodgson.
“Asking for help form the government while at the same time maintaining pay for executives,” he said, “seems a little hypocritical.”