Shopping Centers Today

OCT 2018

Shopping Centers Today is the news magazine of the International Council of Shopping Centers (ICSC)

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climbing, according to Stein. A contributing factor was the REIT's 2017 merger with the 122-property Equity One. That move created a combined entity with some $16 billion in market cap, and it ramped up the density and demographics of the Regency portfolio. "It enhanced our presence in key markets like Southeast Florida, New York and Boston," said Stein. "It also added to our existing presence in Atlanta, the Bay Area and Los Angeles." Meanwhile, strategic acquisitions, dispositions and de- velopment, and redevelopment projects continue to bolster performance, Stein says. At the end of the second quarter, progress was under way on 21 development and redevel- opment projects valued at some $348 million in total, according to Regency's quarterly earnings report. One ground- up project is Regency's $71 million Chimney Rock center, which opened LQ0DUFKLQDIÀXHQW%ULGJHZDWHU1- where the average home value within a three-mile radius is $416,680. That property is 97 percent leased and the tenants include The Container Store, Nordstrom Rack, and Whole Foods. Regency is also embarking on VHYHUDOXUEDQLQ¿OOUHGHYHORSPHQWV Those include plans to turn some historic buildings near the entrance to Harvard University into an integrated, UHWDLORI¿FHÀDJVKLSVDLG0DF&KDQGOHUH[HFXWLYHYLFH president of investments, on Regency's second-quarter earnings call. The average home value in that trade area is $750,815. With entitlements in hand, Regency aims to begin construction on the project, called The Abbot, by year-end. Other urban projects set to commence over this next year are the redevelopment of a 1960s-era building at Market Common Clarendon, in Arlington, Va., and the transformation of Westwood Shopping Center, in Bethesda, Md. Taken together, these projects represent an investment of about $170 million, Chandler says. +LVWRULFDOO\WKH\HDUROG¿UPKDVVSHQWOHVVWKDQ 25 percent of its annual development and redevelopment budget on redevelopment projects, Stein says. Today that number ranges from 25 percent to 50 percent. "Since the downturn, we have developed well over $1 billion of new developments and redevelopments," he said. "We have started, delivered and created well over half a billion dol- lars of value." GROWING Phillips Edison is scaling up in a major way. A year ago the Cincinnati-based developer acquired two entities it con- trolled, to form an internally managed, publicly registered, nontraded REIT valued at some $4 billion. This move cre- ated a portfolio of 235 grocery-anchored properties across 32 states, with a third-party asset-management business, valued at upwards of $2 billion in the aggregate. 7KHQ3KLOOLSV(GLVRQZHQWHYHQELJJHU,Q-XO\WKH¿UP announced plans to expand its portfolio to 321 properties, through a 100 percent stock-for-stock merger with another grocery-focused REIT for which it provides third-party asset-management services. If this deal closes in the fourth quarter, as planned, the combined portfolio — 36.6 million square feet across 33 states — will represent a total enter- prise value of some $6.3 billion, the company says. With higher average base rents, household incomes and population den- sities, this larger portfolio is expected to give Phillips Edison greater access to capital for additional strategic invest- PHQWVWKH¿UPDQWLFLSDWHVZLOOGULYH growth, according to Chairman and &(2-HIIUH\6(GLVRQ7KLVDOVRKHOSV move the private REIT a bit closer to a key objective: going public. "One of the target goals for the company is to provide liquidity for our shareholders at the time when we can get an appropri- ate valuation for the company," Edison said. Phillips Edison is adding to its holdings in other ways as well. The company purchased a total of 23 shopping centers last year and has continued to acquire properties in 2018, Ed- ison says. "We're still actively looking for grocery-anchored shopping centers across the country," he said. Other value-boosting strategies include adding density to existing centers, acquiring additional properties around those assets, and repositioning and redeveloping distressed acquisitions, says Edison. "We believe we will have ample FDSLWDOWRIXQGWKRVHW\SHVRISURMHFWVZKHQZHFDQ¿QG them, and where the returns justify the risks," he said. With respect to trends, Edison naturally pays close at- tention to the strategic moves that such anchors as Kroger, Publix and Walmart are now making. By ramping up their investments in technology as well as sinking millions of dollars into their best stores, these chains are taking the ¿JKWGLUHFWO\WRWKHLURQOLQHDQGEULFNDQGPRUWDUFRP- petitors alike, Edison says. He cites the failed U.S. rollout of Fresh & Easy, which Britain's Tesco launched in 2007, only to end up scuttling by 2013, and the scaled-back U.S. expansion of German grocer Lidl, which has struggled to woo U.S. consumers. "Sometimes there can be a lack of understanding about how competitive our grocery business really is," Edison said. "If you come in with a new concept, they're not going to stand still." Q JEFFREY EDISON O C T O B E R 2 0 1 8 / S C T 39

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