Credit To Michael Bull host of “America’s Commercial Real Estate Show”
One of the most enjoyable aspects of hosting “America’s Commercial Real Estate Show” is getting the chance to pick the brains of successful people.
In the newest episode of the show, we present the second installment of a two-part series of interviews with the CEOs of successful retail REITs at the recent ICSC RECon 2012 show in Las Vegas. The enlightening interviews conducted by Bull Realty’s Brad Thomas, who covers REITs for outlets such as Forbes and Seeking Alpha, drove home to me what these trusts have in common: diverse tenants, strong balance sheets and a commitment to necessity retail.
Weingarten’s Winning Ways
Weingarten Realty, which owns properties throughout the West and Southeast, derives about 70 percent of its net operating income from grocery-anchored shopping centers, said CEO Drew Alexander. Its roster of grocery tenants “is extremely diversified, with some very good names,” he noted. Tenants include Safeway, Kroger, Publix, Harris Teeter and Whole Foods.
Debt currently accounts for about 40 percent of the firm’s capital structure, but Weingarten is looking to get the rate well into the 30 percent range, which is why the Houston-based company sold its industrial portfolio this spring, Alexander added. The REIT is also looking to shed some of its properties in the Midwest to further deleverage, he said.
Alexander repeatedly noted his optimism about the retail sector: “Our retail occupancy … moved up from year-end through the first quarter, which is fabulous. When retailers go out of business, they typically do it after Christmas, so to move our occupancy up is a wonderful thing.”
American Realty Capital, which went public last year and now has $20 billion of assets, focuses on acquiring single-tenant, net-lease properties with below-market rents and less than 10 years remaining on the leases, said CEO Nicholas S. Schorsch. Tenants include bank branches, drug stores, Dollar General and the General Services Administration.
“We really look forward to being able to bring those rents that may be 30 to 40 percent under market up to market, and that’s a real opportunity for our investors,” Schorsch said.
Weathering the Storm
Because of its emphasis on grocery-anchored centers, Regency Centers was extremely resilient during the recent economic downturn.
“If you had told me that we were going to go through the worst recession of our lifetime and occupancy would only get to 92 percent, I’d say, ‘Where do I sign?’” said CEO Hap Stein.
“Our No. 1 anchors are supermarkets,” he added. “Our No. 1 [tenants] of side-shop space are restaurants. In our view, they are both recession-resistant and, to a certain extent, Internet-resistant.”
Similarly, Kimco Realty has thrived in part because its properties are basically divided between neighborhood shopping centers, featuring tenants like grocery stores and dry cleaners, and power centers, which are typically occupied by large discount retailers, according to the firm’s CEO David Henry.
“All of these tenants are growing today as consumers are either looking for value-oriented products or they’re looking to shop in their neighborhood for services,” he said.
Henry added that the times have forced the New York-based REIT to become more creative in its leasing: “If you’re a start-up business, we’ll give you help in terms of free rent or we’ll put in more equipment than we normally would in your space. We’ll take a chance on new businesses these days, more so than in the past, as a way to increase occupancy and get more income over time.”
The Times They Are a Changin’
Ed Kobel, president and CEO of DeBartolo Development, the only private firm profiled on the show, said the retail industry is in the midst of a fundamental transition. “In the fourth quarter of last year, 17 percent of all sales were off the Internet,” he said. “Some of the experts think that’s going to be 50 percent in five to seven years.”
Consequently, the number of super-regional malls should fall from its current total of 1,500 to about 900 during the next decade, he added.
These companies have been successful despite a tough market.