Pennsylvania Real Estate Investment Trust indicated this week that it was open to merging with another shopping-mall operator, raising the possibility that the Philadelphia company may join a wave of buyouts among retail-center owners nationwide.
PREIT chief executive Joseph Coradino said at a real estate investment conference in New York that the company - owner of Cherry Hill Mall, among others locally, and a partner in the $325 million redevelopment of Center City's Gallery at Market East - would consider combining with another operator if such a move would be good for shareholders.
"As it relates to becoming part of a bigger portfolio, I think of myself - and the management team really sees us - as here to drive shareholder value," Coradino said Tuesday in remarks streamed online. "If that becomes the best solution, it's certainly one the board would need to consider."
Coradino's remarks come as Brookfield Asset Management Inc. completes a $2.8 billion takeover of the New York-based retail landlord Rouse Properties Inc. Shopping-center developer Kite Realty Group Trust of Indianapolis is said to be negotiating a merger with Ohio-based WP Glimcher Inc., Reuters reported this week.
The activity is in response to an increasingly difficult environment for brick-and-mortar retail as more shopping moves online, said Scott Crowe, chief investment strategist at CenterSquare Investment Management in Plymouth Meeting. By banding together, retail-center owners can better negotiate with tenants and more easily borrow money, said Crowe, who manages a real estate portfolio.
"A lot more companies these days are open to thinking about consolidation than they have been in the past," he said. "It's a direct consequence of what's happening in the retail landscape overall."
Coradino had previously outlined PREIT's moves to protect itself from the online threat by offering experiences at its malls that cannot be replicated on the internet. Underway are a Lego attraction at Plymouth Meeting Mall, a bowling alley with karaoke and arcade games at Exton Square Mall, and more restaurants across its portfolio.
He said in an interview Thursday that it was his job to take any steps that might enhance shareholder value, including mergers, but that "there's nothing in the works."
Coradino would not say what a buyout would mean for work at the Gallery, which PREIT aims to have completed in 2018.
The Philadelphia Redevelopment Authority said PREIT's agreement with the city on the project also would bind any company that acquired PREIT to finish the work.
"PRA feels that we have more than adequate protection to ensure completion of the Gallery project," the agency said in a statement.
PREIT may have made itself more attractive as an acquisition target through its three-plus-year effort to boost average sales across its portfolio by selling off lesser-performing malls.
That tally of mall sales - 13 so far, with another under contract - could grow. Coradino also said Tuesday that PREIT was considering the sale of Beaver Valley Mall in Western Pennsylvania, prompted by Royal Dutch Shell's announcement that it will proceed with plans for a petrochemical plant nearby that will be a boon to the local economy.
PREIT's average sales value per square foot - a key measure of mall success - has risen 21 percent, to $460, during the first three months of this year, from $381 during the same period of 2013, according to company data.
But the company's average stock price in that time rose just 5.9 percent, hinting that investors may be undervaluing the company. That creates an opening for an acquisitive company to snap PREIT up at a discount, some analysts believe.
PREIT's "substantial and ongoing discount to asset value could garner it even more attention," Green Street Advisors, a California-based real estate advisory firm, said in a May 26 research note.
Floris van Dijkum, an analyst with Conshohocken investment firm Boenning & Scattergood, said in a February report that PREIT's value relative to its stock price made it a possible future target for Rouse under the umbrella of Toronto-based Brookfield.
Brookfield said June 1 that it has raised $4 billion in private equity to fund further investments.
PREIT "would be a relatively easy bite size for a well-capitalized competitor like" Rouse, van Dijkum said in the report.