PREIT’s newest directors scold colleagues who refused to step down after shareholder revolt
The shareholders rejected seven of nine board members, which meant they had to resign. Then they rejected one another's resignations.
Two real estate investors who joined Pennsylvania Real Estate Investment Trust’s (PREIT) board last year have repudiated a decision by seven longer-serving directors, including CEO Joseph F. Coradino, who did not step down after shareholders declined to reelect them to the board.
In an “open letter” to fellow shareholders of debt-laden PREIT, Christopher Swann and Kenneth Hart complained that the board majority “should have taken more time to critically and thoughtfully address” their colleagues’ fitness for the job — and should not have bypassed the pair in their “rush” to judgment.
In a response Thursday evening, board chairman Coradino and director Michael DeMarco, leader of the board’s independent trustees, called their own actions “prudent.” They said the protest failed to acknowledge that the board’s outside lawyer had approved it and insisted that they, not Swann and Hart, were responsible to the common shareholders who had voted them out.
Accepting their own resignations would “destabilize the company,” said Coradino and DeMarco, a real estate executive. They said the dissidents should have objected during earlier discussions and urged them to make their complaints at a board meeting, not in public.
The drama began at PREIT’s annual shareholder meeting on June 1, where around a million votes were withheld from all the sitting directors except Swann and Hart. The company’s corporate governance guidelines require that those who do not win a majority of shareholder votes must offer to resign. Shareholders also rejected the board’s compensation proposal for Coradino and other top executives, by a ratio of 3-1.
But then the board members who had to offer to step down all voted to reject one another’s resignations.
Swann and Hart, meanwhile, were reelected by a smaller group of preferred-share owners, who gained the right to add two directors last year after the company failed to pay them dividends.
They called on shareholders to “reject” the seven directors’ refusal to accept their own resignations, after most common-stock shareholders either voted against all seven or withheld their votes in PREIT’s annual board elections earlier this month.
“We are not in agreement with this board’s decision to reject all resignation offers,” the two directors wrote in their letter.
While PREIT says many of its mall properties, including Cherry Hill, have high occupancy and increased sales, the company is under pressure to make debt payments as interest rates rise. The company owes nearly $1 billion to its creditors.
PREIT share values have fallen from over $300 in mid-2016 to an average of under $1 over the past year. PREIT has sought to sell assets, including Exton Square in Chester County, but a buyer has been hard to find with financing costs and interest rates rising and online shopping affecting demand at brick-and-mortar stores.
Swann and Hart wrote that directors deciding on the resignations should have considered whether a smaller board would be “more effective and efficient.” They questioned whether directors and executives should be paid in line with the company’s stock performance and whether the remaining directors “have the right skill sets” to squeeze more profit from the company’s remaining malls.
The seven directors had served an average of more than 12 years each, according to the company’s April proxy statement to shareholders. Two — John J. Roberts, 77, a retired PricewaterhouseCoopers managing partner, and Mark Pasquerilla, 62, a hotel operations executive — have been on the board for 20 years. Coradino, 70, has served for 17 years.
Coradino collected $5.8 million in stock and cash compensation from PREIT in 2022. Shareholders rejected his proposed pay guidelines for this year by a 3-1 ratio. The six other long-serving directors collected at least $200,000 each in cash and PREIT stock for attending meetings.
The new directors, Swann and Hart, collected less because they joined the board partway through the year. Swann is the largest PREIT shareholder among board members, with 109,000 shares, or 2% of the total. The seven longer-serving board members own a total of about 235,000 shares, or 4%.
It is rare for shareholders to refuse to support a company’s directors, and it suggests a lack of confidence in the company, said Jun Frank, California-based managing director of compensation and governance at ISS Corporate Solutions, which advises public companies on governance issues.
Frank’s group is a subsidiary of Maryland-based Institutional Shareholder Services, which advises investors and recommended PREIT shareholders reject the directors in the recent vote.
Common-stock investors’ initial vote against all the sitting directors was “extremely unusual,” Frank said in an interview. Since 2020, just 65 of 110,000 directors put up for uncontested annual elections at U.S. companies have failed to win majorities, Frank said.
“It sends a strong message of no-confidence [by shareholders],” Frank added. “It raises more questions about the underlying causes and what can be done.”
Other directors who were initially voted down are George J. Alburger Jr., retired chief financial officer of the former Philadelphia-based Liberty Property Trust; JoAnne A. Epps, Temple University’s acting president and former law school dean; and Charles P. Pizzi, the last chief executive of the former Philadelphia-based Tasty Baking Co., who also sits on the board of Brandywine Realty Trust, Philadelphia’s dominant office landlord.
As Swann and Hart noted, those directors “were compelled to tender their resignations” under PREIT’s policy, common to many companies and sanctioned by the corporate law of Delaware where most big U.S. companies are incorporated, that they resign following their rejection by shareholders.
That vote “was an unequivocal message from shareholders that they are dissatisfied with the performance” of PREIT and want the board changed, Swann and Hart said in their letter.
They noted that PREIT’s own governing documents call on the board to set up “an independent committee of trustees” who weren’t voted out to conduct “a careful review” of shareholders’ concerns.
They added that also under PREIT’s own policy, “any trustee who tenders his or her resignation is not to participate in the Nominating Committee’s recommendation” on “whether to accept the resignation offer,” but leave it up to the board’s remaining members who haven’t been rejected — which is to say, Swann and Hart.
While Swann and Hart weren’t elected by common shareholders like the other trustees, as full board members, they still have an obligation to all shareholders and should have been left to decide on accepting or rejecting the resignations, they argued.
Instead, they wrote, PREITs board has decided to maintain the “status quo” and “appeared to be doing nothing to react to the recent shareholder vote.”