Shopping Centers Today is the news magazine of the International Council of Shopping Centers (ICSC)
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44 S C T / A p r i l 2 0 1 6 The Publicly Traded reiT Just before the economy sank into recession, Oak Brook, Ill.–based Retail Properties of America looked like an up-and-coming retail real estate giant, with properties in some 80 markets and across 37 states. Straddling the country was a good plan for REITs back then. Post-recession, though, as ana- lysts started zeroing in on the quality of portfolios, REITs began focusing on specific markets and win- nowing out underperforming properties. Soon after going public in 2012, Retail Properties of America announced plans to narrow its field to just 10 or 15 markets. "We have m a d e t r e m e n d o u s progress since we an- nounced our long- term strategy," said S t e v e n P . G r i m e s , president and CEO of Retail Properties of America. "We have exited 21 markets and are gaining concentra- tion in the markets we've identified. We are looking to make the map cleaner but still retain a national focus. That is the best way to drive value for our shareholders." Retail Properties of America's target market is not everyone's. The company is exiting Califor- nia, which boasts some of the country's best retail markets, but it likes Atlanta, Chicago, New York City, Phoenix and Seattle, as well as the Texas cit- ies of Austin, Dallas, Houston and San Antonio, and the Washington-Baltimore corridor. "We look for a demographic profile where there are dense ar- eas of population growth of at least 5 percent over the next five years," said Grimes. "We also look for good industry, good income and high barriers to entry. The markets we identified thus far have those characteristics." In just the past few years, Retail Properties of America has aggressively pursued key properties within the Washington-Baltimore corridor, accu- mulating 3 million square feet of space. Today the company's retail portfolio contains approximately 180 shopping centers across some 60 markets, with 60 percent of its annual base rents in those target markets. The process is slow, says Grimes, because the firm must sell off properties in the undesirable markets even as it acquires proper- ties in the desired ones — and this while trying to stay roughly the same size. In 2014 and 2015 Retail Properties of America completed some $1 billion in acquisitions and dis- positions. Last year the firm was a net seller, dis- posing some $500 million of shopping centers at a slight margin while also acquiring properties, to the tune of some $464 million. Grimes says he does not expect the company will be as active this year, with deal totals probably falling somewhere in the $700 million to $900 million range. "We are agnos- tic as to the types of centers we own," said Grimes. "We have purchased neighborhood [or] commu- nity centers in the Seattle market, lifestyle centers in the D.C. market and power centers in the New York market. The only thing we don't own is en- closed malls." Retail Properties of America looks for assets with densification and redevelopment opportunities. Last year the company purchased a small shopping center in Tysons Corner, Va., which had tenants in play. It had a huge parking field that could be developed into nearly 1 million square feet of mixed-use space. "We were successful in finding those opportunities in 2015," said Grimes, "and, hopefully, we will find those same opportunities in 2016." "We have purchased neighborhood [or] community centers in the Seattle market, lifestyle centers in the D.C. market and power centers in New York."