Prime Group's No. 1 Stockholder Losing Patience

CHICAGO-Prime Group Realty Trust’s largest single stockholder says management is not moving fast enough to close the gap between the REIT’s stock price and the value of its city and suburban office and retail assets. While sharing Boston-based K Capital Partners, LLC’s disappointment over the stock price, co-president Louis G. Conforti tells GlobeSt.com the management team continues to vigorously pursue a “significant capital event.”

K Capital Partners managing director Abner Kurtin, whose company’s 18% stake in the REIT is worth about $14 million, is dismayed Prime Group Realty Trust stock continues to trade at a 70% discount from book value despite current management’s efforts to clean up the balance sheet and cut debt. “Prime Group suffers this discount because its high leverage, lack of dividend and small market capitalization constrain investor interest in the stock,” Kurtin says in a letter to acting chairman Stephen J. Nardi.

Conforti notes the game plan set when he, Nardi and co-president Jeffrey Patterson assumed control of the company following the April departures of former chairman Michael W. Reschke and president Richard S. Curto includes three steps: clean up the corporate balance sheet, focus on leasing and operations, then explore sales of assets or the entire company.

“We’ve done a step-and-a-half out of three steps,” Conforti tells GlobeSt.com, offering no timetable for the kind of property sales or larger transaction desired by Kurtin.

“There is vigorous pursuit of those capital events,” Conforti says. “We’re chatting about every possibility that gets the most money to the shareholders the quickest…The approach we’re taking is a concerted one. This is not going to be a haphazard effort.”

Attempting to give shareholders a maximum return in a minimum amount of time is a challenge, Conforti says. “There’s a delicate balance between gauging selling the company and selling a portfolio of assets,” he says.

Until the “final trade” is made, the REIT’s stock price, which has been cut in half in the past year, is likely to remain where it is, Conforti says. However, Prime Group stock jumped about 5% since Kurtin’s letter was released by K Cap Partners late Tuesday afternoon.

Prime Group shed a nine-property suburban office package in June to Blackstone Real Estate Advisors, LP for $131 million. More recently, it sold a Knoxville, TN office building for $5.1 million.

While occupancy is down across the REIT’s portfolio, it is faring better than the rest of the market. Prime Group Realty Trust’s 5.9% vacancy rate in its five-building, 4.77-million-sf Downtown portfolio compares to an 11% vacancy rate, according to US Equities Realty’s third-quarter report.

That does not include the $355-million Dearborn Center, where about two-thirds of the 1.6 million sf has been leased as the project nears completion and its anchor tenant, Bank One, moves in.

In the suburbs, where US Equities Realty pegs the direct vacancy rate at 19.3%, Prime Group Realty Group’s vacancy rate is about four percentage points better.