Struggling mall owner PREIT’s board members reject one another’s resignations

The Pennsylvania Real Estate Investment Trust’s (PREIT) board of directors has decided against firing themselves.

A report to the federal Securities and Exchange Commission posted on Monday showed that the board has rejected the resignations offers of seven of its nine members who failed to win a majority of votes at the annual shareholder meeting June 1.

PREIT’s corporate governance guidelines require that those who did not win a majority of votes must offer to resign. Seven directors, including CEO Joseph F. Coradino, tendered their resignations.

The other directors who offered to resign were George J. Alburger Jr., Michael J. DeMarco, JoAnne A. Epps, Mark E. Pasquerilla, Charles P. Pizzi, and John J. Roberts.

The board had 90 days to decide their fates after the board meeting’s results were ratified. It did not need that long.

On June 8, a day after the resignation offers were made public, they were rejected.

“After consideration and deliberation of all these factors, the board determined that the resignation … would be detrimental to, and not in the best interests of, the trust and its shareholders,” the document submitted to the SEC reads.

In each case, the individual whose resignation was being considered was not allowed to vote but all the others who offered resignations at the same time were. Two directors, Kenneth B. Hart and Christopher Swann, joined the board after the others and were elected separately by preferred-share holders. Swann has pushed for a reorganization of the company and more rapid sale of its properties.

“I’m not surprised. They only had two remaining members, and it’s not enough [to function],” said Charles Elson, a corporate governance consultant, former University of Delaware finance professor, and founding director of the Weinberg Center for Corporate Governance.

Elson said it’s rare for such a large number of directors to fail to win a majority of votes all at once. But even when it’s a smaller number, it’s more common for the board to keep the rejected director on until a replacement is appointed — or even a whole new board.

“Directors failing to receive majority support is rare. But for that to happen to an entire board, is extremely unusual. It sends a strong message of no-confidence to the board,” said Jun Frank, managing director of compensation and governance advisory at ISS Corporate Solutions, a Rockville, Md., group which advises investors on governance issuers.

PREIT declined to comment beyond what was laid out in the filing.

The shareholder revolt on June 1 is the latest sign of trouble for PREIT, long known as the largest mall owner in Pennsylvania.

Over the past five years, its stock price plummeted from almost $170 a share to under a dollar. In 2020 the company declared bankruptcy, and in December it was delisted from the New York Stock Exchange. The company owes creditors almost $1 billion, and debt service costs have strained its financial performance.

With a few major exceptions — such as the Exton Square Mall and the Fashion District in Philadelphia (which PREIT no longer controls) — the company has strong occupancy rates and sales across its properties.

It owns a variety of well-known malls across the Philadelphia region and in Washington, D.C., notably including the Cherry Hill Mall, which takes in sales at almost twice the national average for malls.

PREIT’s fate is also important to the 25,000 workers who are employed throughout its properties.

The company’s fortunes have flagged during a period when many mall owners have struggled. The market is bifurcated, with superstar performers such as Cherry Hill and King of Prussia continuing to succeed, while many other malls seeking redevelopment and diversified offerings such as housing.

PREIT’s debt load is partly due to its efforts to face this new reality, as its malls require large capital commitments — as do the efforts to diversify its real estate.

Market observers have speculated that the shareholder revolt could be a prelude to a sale. There are few takers for mall properties in the present environment, however, so any sale would probably occur on a property-by-property basis.

“There’s really no buyer of malls [right now],” Alexander Goldfarb, a commercial real estate analyst with Piper Sandler Investment, told The Inquirer last week.

(This story has been updated from an earlier versions. It adds comments from ISS Corporate Solutions, which advises investors in public companies; and it clarifies the director status of Kenneth B. Hart and Christopher Swann, who were not part of the recent board election at which other directors received minorities of shareholder votes.)