3 REITs Nudged by Major Shareholder to Boost Stock Value

With the share values of Glimcher Realty Trust, Cedar Shopping Centers Inc. and One Liberty Properties Inc. hovering well below expectations, ROCA Real Estate Securities Fund L.P., a major stockholder in all three REITs has called on the companies’ CEOs to explore major changes. In a letter to Glimcher chairman & CEO Michael Glimcher, ROCA noted that, after relying on its Net Asset Values assessments, as well as those of three leading analysts, the Columbus, Ohio-based retail REIT’s shares should be trading at $29.42 per share to $31.47. However, such is not the case; company shares closed yesterday at $13.31. “We do ground up valuations of the companies and analyze each real estate asset and put the value into the balance sheet,” ROCA managing member Harold Hofer, told CPN today of the company’s assessment process. “The analysis is real estate driven. We take the per-property value and, working up from that basis, figure out what the company is worth.”Pointing to the possibility that the public market may not understand Glimcher since, as ROCA surmised, it is actually two different businesses, ROCA advised that Glimcher should sell the part of its portfolio that does not fit the Market Dominant property designation. Those assets recommended for disposition are valued at half that of the Market Dominant assets. ROCA also indicated that the company’s underperformance may also be due to the market’s lack of confidence in management. Port Washington, N.Y.-headquartered Cedar is not faring much better than Glimcher on the stock exchange. ROCA’s correspondence to Cedar chairman & CEO Leo Ullman also recommended that the retail REIT pursue strategic alternatives to increase shareholder value, noting that calculations by ROCA and seven analysts put the company’s NAV at more than $14.50 per share. Cedar shares closed at $10.73 yesterday. ROCA suggested that, as with Glimcher, the market may not understand the company and that it, too, is operating as two separate businesses; one business being the ownership and management of a group of Class B properties in non-growth markets, and the other, a platform involving a strong pipeline of development and redevelopment options. The recommended remedy: focus on the pipeline. One Liberty, with a net leased portfolio of mostly retail, office and industrial properties, did not execute a single transaction in 2007, and ROCA was quick to highlight that fact in its letter to company president & CEO Patrick Callan. According to ROCA and investment banking firm Ferris Baker Watts, One Liberty’s NAV is about 30 percent more than the Great Neck, N.Y.-based REIT’s 30-day trailing average closing share price. Additionally, the company’s general and administrative expenses accounted for 17 percent of revenues in 2007, a 1 to 2 percent increase each year since 2004. ROCA noted that the portfolio administration costs should not exceed 2 percent of revenues and public company expenses should not go beyond 3 to 5 percent of revenues. ROCA’s suggestions for company improvement included decreasing overhead to 7 percent of revenues over the first three months of the year, and increasing the current dividend from $.36 per share per quarter to $.43 per share. ROCA’s specific recommendations for Glimcher, Cedar and One Liberty were accompanied by the suggestion that they engage in a strategic review of alternatives with the assistance of an investment banker. Stock prices for all three REITs opened today above respective closing prices yesterday, the day ROCA publicized its distribution of the letters.In general the real estate market is doing well, but companies are hardly immune to sagging stock prices. “The market has changed and we adjusted the valuations appropriately,” Hofer explained of ROCA’s calculations of the value of each company. “Share prices have fallen more than real estate values have; the market has overreacted.” But a correction may very well be on the horizon. “We’re banking on it,” he said. “I think there are signs already.” He cited Post Properties’ unsolicited offer earlier this week from Williams Realty Advisors L.L.C. and Cadim to acquire the apartment REIT and take it private for $2 billion; and he referenced news of a potential offer for Cedar that emerged this week. As per an SEC filing, Inland American Real Estate Inc., owner of a 9.8 percent stake in Cedar, is seeking a waiver of the 9.8 percent maximum ownership limitation, and is also “considering seeking control of the company through various courses of action.” The SEC filing and ROCA’s doling out of correspondences urging changes to increase shareholder value occurred almost simultaneously. However, according to Hofer, “the timing of the Inland news and our letters was coincidental.”Glimcher owns, manages and develops regional and super-regional malls and community shopping center across the United States. The company’s portfolio of 28 owned and/or managed properties encompasses approximately 23.5 million square feet in 14 states. Cedar owns, operates and develops supermarket-anchored shopping centers. Its 118 owned and operated properties total over 12 million square feet in nine states in the Mid-Atlantic and New England. Based in Newport Beach, Calif., ROCA Real Estate Securities is a private investment vehicle that engages in investing publicly traded securities.