Majority of PREIT board offers resignations after shareholder vote

In a major shake-up for the Philadelphia area’s largest shopping-mall owner, seven Pennsylvania Real Estate Investment Trust (PREIT) directors, including CEO Joseph F. Coradino, offered to resign from the board after a majority of shareholders refused to support them in recent elections.

Although PREIT’s malls are mostly occupied and sales are strong, the company owes creditors almost $1 billion. Debt service costs have strained its financial performance, and its share price has fallen below $1. Last December it was delisted from the New York Stock Exchange.

The shake-up occurred when PREIT held its annual shareholder meeting on June 1, according to a Securities and Exchange Commission filing released Wednesday.

Shareholders include large-money managers led by Vanguard and BlackRock, activists who have been pressing PREIT to improve results, and individual investors. They collectively withheld around one million votes from each of the sitting directors, leaving fewer than 600,000 cast for most of them. Coradino did slightly better than his board colleagues, but still failed to win a majority.

According to the company’s corporate governance guidelines, those who did not win a majority of 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.

Within 90 days of the certification of the board meeting’s results, board leaders will have to decide whether to accept the resignations. According to the SEC documents, the directors ran unopposed but still couldn’t win majorities from those voting.

“The board has been duly elected based on the company’s corporate governance guidelines and has offered their resignations under these same guidelines,” said Heather Crowell, a spokesperson for the company. “Until a final determination has been made, PREIT will not be commenting on the matter.”

Coradino’s offer to resign as board member doesn’t mean he’s necessarily out as CEO.

Two directors who were not up for reelection remain on the board: investors Christopher Swann and Kenneth B. Hart. Swann is the principal of Atlanta-based Cygnus Capital Real Estate Advisors, which focuses on distressed commercial real estate. He and Hart joined the board last year, taking new seats created specially for preferred-share investors after the company failed to pay dividends to them.

In an open letter distributed to shareholders last year, Swann argued that the company’s malls are valuable but that the share price dropped because of the large debt load. He said he could help improve the company’s financial situation.

Neither Swann nor Hart responded to The Inquirer’s request for comment on Thursday.

“I’ve been telling people to sell this for years. The stock is worth very little,” said Robert Costello of $200 million-asset Costello Asset Management in Bucks County and a longtime Philadelphia-area money manager. “This brings the company closer to a sale. The banks that hold their debt could force a deal, if they have a plan B lined up, but banks tend to wait until there is a clear alternative.”

In a May interview with The Inquirer, when asked about a sale or merger of the company Coradino said that PREIT had retained an investment banker, PJT Partners.

Industry observers say that hiring an investment banker is often a precursor to a sale.

“We continue to look at all the possibilities to drive shareholder value,” Coradino said in May. “And we’ll continue to do so as we look toward the end of the year. So that’s still an initiative, a priority for the company.”

The mall industry is troubled, with a handful of strong performers such as King of Prussia or PREIT’s Cherry Hill Mall continuing to succeed while many lesser malls flounder.

The market for purchasing malls is weak, especially in the current difficult financing environment, partly because the sprawling structures are extremely capital intensive. That’s why companies such as PREIT and Macerich, their partner in the Fashion District, are facing staggering debt loads.

“There’s really no buyer of malls,” said Alexander Goldfarb, a commercial real estate analyst with Piper Sandler Investment.

The only mall company that’s thriving, and in a position to make acquisitions, is the owner of King of Prussia: Indianapolis-based Simon Property Group. In mid-2018 PREIT and Simon had similar share prices around $170. Today, a PREIT share is worth 68 cents while Simon is $109.71.

“The only real buyer is Simon, and they have their pick of what they want to do,” said Goldfarb, who said he does not follow PREIT and could not comment on the company. “There’s really no one else right now. That comes back to the amount of capital that’s required and the fact that you have a dominant entity that you’re going to end up competing against.”

In his May interview with The Inquirer, Coradino emphasized the company’s success in remaking malls in Moorestown, N.J., and Prince George County, Md., with a diversity of uses including apartments and medical facilities. The Cherry Hill Mall, meanwhile, does well on the old business model with sales per square foot almost double the national mall average.

Market observers admit that many of PREIT’s fundamentals look sound, but the almost $1 billion coming due at the end of the year weighs it down.

“Their recent earnings were not bad, their occupancy is good,” said Costello. “They do own some dogs they will have to write down.”