Connecticut investor Jonathan Litt's investment company, Land and Buildings, says it applauds Pennsylvania Real Estate Trust's plan to sell four upstate Pennsylvania shopping centers and the half of Springfield Park in Delaware County that the company owns -- but he still wants PREIT to also unload the Exton, Willow Grove, Moorestown and Voorhees malls and 8 other "lowest productivity" shopping centers.
PREIT, which is trading today above $24 a share, its highest price since 2008, noted in response to earlier Litt letters that the company has already been selling off its less-profitable properties in batches since 2012, and sees no advantage to rushing the effort. Meantime PREIT is recruiting partners to invest in projects like Springfield Town Center in Virginia and a rebuild of Philadelphia's Gallery in partnership with national mall owner Macerich.
But Litt says PREIT would be worth more like $30 a share if investors were fully valuing its malls, and that it's trading at a discount due to the slow place of property improvements or disposals. Litt's company owns 0.8% of PREIT, according to public filings collected by Bloomberg LP. Lit's letter to PREIT boss Joseph Coradino is attached below; more on the investor's PREIT campaign at www.landandbuildings.com.
January 6, 2015 - (to) Joseph F. Coradino, Chief Executive Officer, Pennsylvania Real Estate Investment Trust
Land and Buildings is pleased to see that you have announced PREIT is marketing for sale five regional malls, but we believe it is unfortunately only a baby step towards maximizing value for shareholders.
Time and time again we have seen real estate companies bleed out their lowest productivity assets over multiple years, only to see their shares languish during this process as earnings are diluted and the overhang persists.
Premier mall REITs Simon Property Group (NYSE: SPG) and General Growth Properties (NYSE: GGP) "ripped the Band-Aid off" and disposed of their lower quality malls in one fell swoop and in our view enjoy a premium valuation today to pre-sale valuation as a result.
Land and Buildings estimates that the malls PREIT is marketing for sale (excluding Springfield Park Mall, a joint venture with Simon Property Group) account for just 10% of the gross value of the 17 lower productivity malls and other non-core assets that we believe should be sold in an auction.
As we have discussed in detail previously, we believe the sale of these 17 lower quality assets would materially close the gap between your share price and our estimated $30 per share net asset value.
As you indicated when we spoke last month, you have been contacted by multiple qualified buyers who are interested in acquiring your lower productivity malls, presumably the 17 we highlighted in our public presentation released on October 20, 2014.
The buyers you mentioned are deep pocketed and clearly have the ability to acquire all 17, not just the five you are officially marketing.
Pricing for the 17 lowest productivity malls appears to be in the low double digit cap rates, consistent with the valuation work we outlined in our presentation. Further, Land and Buildings has been contacted (also unsolicited) by multiple qualified buyers interested in acquiring the remaining 16 malls (the "Keeper" portfolio) as well as the entire company.
I have genuinely enjoyed working with you this year as we discussed strategies on how to drive your share price closer to NAV. We are encouraged by the Company's progress on its strategic plan, but we continue to believe bolder, swifter action is necessary.
We believe selling the 17 lower productivity mall assets is an important first step to maximizing value for shareholders. If the value of the "Keeper" portfolio remains at a discount after the sale of these malls, we would then encourage you to evaluate a sale of the remaining portfolio.
All the best, Jonathan Litt, Land and Buildings