PREIT – An Underappreciated REIT Play?

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Pennsylvania Real Estate Investment Trust (NYSE: PEI), which also goes by the name PREIT, is a small capitalization REIT in the regional mall sector. The company has restructured its portfolio by disposing of lower productivity malls and attracting higher productivity tenants. Although both sales and rent per square foot have increased, PREIT’s stock remains undervalued as evidenced by its Price-to-FFO ratio of 14.2 compared to its peer group’s ratio of 17.2. Check the peer comparison here.

When one attributes share price appreciation to sales per square foot, PREIT has the greatest growth potential among its undervalued peers. The company’s sales per square foot of $414 is highest among its peers and places it close to the overvalued group of REITs including General Growth Properties (NYSE: GGP), Taubman Centers (NYSE: TCO), Macerich (NYSE: MCO), and Simon Property Group (NYSE: SPG). This group generates sales per square foot of $600 or greater.

fashion outlets

Founded in 1960, PREIT, headquartered in Philadelphia, PA, is one of the first equity REITs formed in the US. The company primarily operates in the Mid-Atlantic region and has ownership interests in 43 retail properties consisting of:

  • 38 operating retail properties
  • 4 development properties
  • 1 property under re-development (Fashion Outlets of Philadelphia).

Recent changes in PREIT’s portfolio impacted several financial metrics in Q1 2015 when compared to Q1 2014:

  • Revenues decreased by 9 percent due to sales of properties and shares in partnerships.
  • Net operating income was flat for a variety of reasons including a reduction in electricity and snow removal costs. The severe winter of 2014 resulted in higher costs relative to 2015.
  • Same-store net operating income increased by 6 percent clearly showing operational strength.
  • Funds available for distribution decreased by 7 percent as a result of tenant improvements, allowances for new acquisitions, and higher recurring capital expenditures.
  • PREIT increased their cash dividend by 5 percent and the dividend payout increased to 70 percent from 63 percent.

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With a dividend yield higher than the group median, PREIT is definitely a stock to be included in the watchlist.


Written by Heli Brecailo

Disclaimer: This newsletter is not engaged in rendering tax, accounting, or other professional advice through this publication. No statement in this issue is to be construed as a recommendation to buy or sell any security or other investment. Please do your own due diligence before making any investment decision. Some information presented in this publication has been obtained from third-party sources considered to be reliable. Sources are not required to make representations as to the accuracy of the information, however, and consequently the publisher cannot guarantee accuracy.

Disclosure: The author has no positions in any shares mentioned, and no plans to initiate any positions within the next 72 hours.​