Description

Philips International Realty is a late-stage liquidation of a retail REIT. The liquidation began in late 2000 and management’s initial payout guidance was $18.25 per share. To date, a total of $15.25 has been distributed, leaving $3 by management’s initial guidance. The remaining properties held by the company consisted of 4 KM’s, three of which were in Ca. and one in Ky.

The company recently announced the sale of the Sacramento, Ca K-mart for $5.9MM and an impending (Oct 22nd) 50ct liquidating distribution. It also announced that the NYSE will likely cease listing PHR subsequent to this payout. This impending delisting has generated a lot of sellers who don’t want to own a BB or PS stock, and recently drove the stock to $1.75. This means that post-dividend/post-delisting, based on management's past guidance, you are paying $1.25 for a likely $2.50 payout, in the late stages of liquidation.

That’s all well and good, you are saying, but isn’t it likely that the three remaining properties are the dregs of the portfolio and therefore the likelihood of mgmt hitting that $2.50 target are slim? Possible, but not ncecessarily likely, I think. One of the reasons for the steep discount is a vestige of the selloff when KM declared bankruptcy. A lot of PHR shareholders didn’t want to stick around and see which leases were rejected, etc etc. The impending NYSE delist has brought out further sellers.

OK, that explains the “discount”, but how likely is the $2.50 remaining value to be realized? To answer that, we look at the structure of a deal in which insiders (the “Related Limited Ptrs”) bought four shopping center properties in Hialeah, Fla and PHR’s interest in one redevelopment site on Third Ave in NYC. As part of the consideration for the properties, the Related Limited Ptrs redeemed their entire equity interest in OP’s, valuing them at $18.25/O.P. (or the same as shareholders were deemed likely to receive). Upon final wind-down of PHR, the ultimate purchase price for these properties will be adjusted up or down, depending upon the total amount paid out to shareholders. If PHR comes in below $18.25, then the insiders have to pay up, since the ultimate value of the units they redeemed turned out to be less than planned originally.

So, mgmt has great interest in realizing the carrying values for the properties that remain. This can be seen in the last two sales, one in McHenry IL, and the Sacramento, Ca. ppty, which were both above book value. Additionally, KM is current on all remaining leases, so, prior to the Sacramento sale, PHR generated 3+cts/qtr in net income. The company has at least one very interested buyer for each of the remaining Ca. KM’s.

All in all, my impressions, based on the company’s actions, and from talking to Louis Petra at PHR, are that they are very motivated to wrap this thing up with the best prices possible as quickly as possible; and, they have done a good job of selling pptys and making distributions to shareholders. I think the upcoming dividend/delisting event will provide a price and liquidity opportunity for value investors willing to buy and hold for a possible 100% return. My time frame is that this is likely to be wrapped up within the next 12 months.

Catalyst

1)Upcoming concurrent dividend and NYSE delist.
2)Management $$ incentive to acheive target value for shareholders.
3)History of realizing book value or better.