Partner on Gallery revamp could bid for PREIT, report says

Rendering of the future Fashion Outlets of Philadelphia mall. The firm Macerich reportedly wants to acquire PREIT, its project partner.

Pennsylvania Real Estate Investment Trust's partner in the rehab of the Gallery at Market East could move to acquire the Philadelphia mall developer, as shares in the company continue to trade at an apparent discount to the value of its assets, according to investment firm Boenning & Scattergood.

Some investors think Santa Monica, Calif.-based Macerich may bid for ownership of PREIT to achieve full control of the Center City mall project, to be called Fashion Outlets of Philadelphia when it is complete, analysts at the West Conshohocken financial firm said in a report last week.

In addition to control of PREIT's "crown jewel" - its stake in the Gallery project - an acquisition would give Macerich a bigger footprint in the Philadelphia and Washington markets, said the analysts, led by Floris van Dijkum.

PREIT owns Cherry Hill and Willow Grove Park Malls among others locally, as well as the Mall at Prince Georges and Springfield Town Center near Washington.

"Several institutional investors have told us they expect [Macerich] could potentially seize the initiative and make a bid" for PREIT, the analysts wrote. "We expect [Macerich] may not be the only bidder."

Speculation about PREIT's attractiveness as an acquisition target comes as the company's stock price lags the growing value of its portfolio following a multiyear campaign to sell off lesser-performing assets.

PREIT's net asset value, or NAV, stands at $31.55 per share, according to Boenning & Scattergood, compared with its closing price Friday, $20.80.

The investment firm forecast that the value of PREIT's assets would soar even higher, with the revamped Gallery likely beating projections and with further improvements to its other malls.

"We believe that [PREIT] should post some of the most compelling NAV growth in the mall sector over the next two-plus years," Boenning & Scattergood said. "Investors currently don't pay up for this growth."

Macerich spokeswoman Karen Maurer did not return a call seeking comment.

PREIT chief executive officer Joseph Coradino declined through a spokesman to remark on the Boenning & Scattergood report.

At a real estate investment conference this month, Coradino said a merger is something the company's board "would need to consider" if it would enhance shareholder value.

He added in a subsequent interview that no activity that could lead to a merger was in the works.

The Boenning & Scattergood analysts also said in the report that no announcements about tenants at the revamped Gallery are likely until state officials say whether the project will receive the $30 million in redevelopment assistance it is seeking.

Jeff Sheridan, a spokesman for Gov. Wolf, said Thursday that no decision has been made on the grants. PREIT is aiming to complete the project before the end of 2018.