Shopping Centers Today International

APR 2016

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

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THE PUBLICLY TRADED REIT Just before the economy sank into re- cession, 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. Strad- dling the country was a good plan for REITs back then. Post-recession, though, as analysts started zeroing in on the quality of portfolios, REITs began focusing on specific markets and winnowing out underperform- ing properties. Soon after going public in 2012, Retail Properties of America announced plans to nar- row its field to just 10 or 15 mar- kets. "We have made tremendous progress since we announced our long-term strategy," said Steven P. Grimes, president and CEO of Re- tail Properties of America. "We have exited 21 markets and are gaining concentration in the markets we've identified. We are looking to make the map cleaner but still retain a na- tional 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 California, 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 areas 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 aggres- sively pursued key properties within the Washington-Baltimore corridor, accumulating 3 million square feet of space. Today the company's retail portfo- lio contains approximately 180 shop- ping 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 ac- quires properties in the desired ones — and this while trying to stay roughly the same size. In 2014 and 2015 Retail Proper- ties of America completed some $1 billion in acquisitions and disposi- tions. Last year the firm was a net seller, disposing some $500 mil- lion of shopping centers at a slight margin while also acquiring proper- ties, to the tune of some $464 mil- lion. Grimes says he does not expect the company will be as active this year, with deal totals probably fall- ing somewhere in the $700 million to $900 million range. "We are ag- nostic as to the types of centers we own," said Grimes. "We have pur- chased 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 enclosed malls." Retail Properties of America looks for assets with densification and re- development opportunities. Last year the company purchased a small shop- ping center in Tysons Corner, Va., which had tenants in play. It had a huge parking field that could be de- veloped into nearly 1 million square feet of mixed-use space. "We were successful in finding those opportu- nities in 2015," said Grimes, "and, hopefully, we will find those same op- portunities in 2016." THE NON-PUBLICLY TRADED REIT Jeffrey S. Edison, a principal and the CEO of Cincinnati-based Phil- lips Edison & Co., remembers the first shopping center his company ac- quired: a grocery-anchored property in Danville, Va. Today the company owns and operates roughly 300 shop- ping centers across 34 states, through multiple investment vehicles, includ- ing two public, nontraded REITs. Phillips Edison focuses on grocery- j e f f r e y e d i s o n A p r i l 2 0 1 6 / S C T 49

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