Is a REIT the Answer for The Pantry?

Activist pushes for retailer to consider real-estate trust

Lone Star Value Management founder and CEO Jeffrey Eberwein

Jeffrey Eberwein

NEW YORK -- The activist investor group that is pushing for a turnaround at convenience store operator The Pantry/Kangaroo Express believes all options should be on the table, but one member is especially keen on exploring the possibility of creating a real estate investment trust, or REIT, according to a report in The Street.

That member of the group, Lone Star Value Management’s founder and CEO Jeffrey Eberwein, expanded on a Feb. 3 proxy statement filed by activist group Concerned Pantry Shareholders, telling the newspaper, “We think there’s a lot of real-estate value here.”

Lone Star and JCP Investment Management  formed Concerned Pantry Shareholders on Jan. 23 with the goal of electing new board members who would be more proactive in improving what they believe is the company’s underperformance. The group has put forth three board nominees.

Eberwein cites Cary, N.C.-based Pantry’s main competitors, Casey’s General Stores and Susser Holdings, as examples of what a better-performing convenience store chain can achieve in the southeastern United States. “[Susser and Casey’s have] massively outperformed the Pantry, and they trade at much higher multiples,” he said. “It’s dramatic.”

Eberwein has several initiatives in mind that he believes Pantry should pursue, but the company would need more financing firepower, so he thinks it should explore a range of options to improve its finances. “Our team is the type where every option is on the table,” he said. “Maybe someone would want to buy or combine with them.”

Eberwein said he believes Pantry could use its real estate more effectively. He points to its 1,537 convenience stores that operate primarily under its Kangaroo Express brand in the southeastern U.S., to create value for shareholders and generate capital for operational improvements.

“Our team would look into creating a REIT to create value for shareholders,” he said, explaining that an initial public offering of a trust containing Pantry’s real estate assets could provide a better valuation of the company’s assets. Once the IPO established a market value, Pantry could either spin the REIT off for shareholders or continue selling shares and use the proceeds to pay down debt.

A Pantry spokesman declined comment to The Street.