CINCINNATI—Phillips Edison-ARC Shopping Center REIT Inc. continues to be one of the most active buyers of grocery-anchored shopping centers in the US, and its officials say the underlying fundamentals in the sector should keep it healthy for many years. In the third quarter, the Cincinnati-based trust kept up its quick pace by purchasing 11 centers in 10 states with an aggregate price of $165 million. In the first and second quarters the company had picked up a combined 37 centers across the US with an aggregate price of more than $600 million.
“We're still focused on buying centers with the #1 or #2 grocers in the markets we go into,” Jeff Edison, chairman of the board and chief executive officer, tells GlobeSt.com. “We have a rigid system that we go through to buy these assets.”
The third quarter acquisitions expanded the REIT's presence in California, Colorado, Florida, Georgia, Massachusetts, Michigan, North Carolina, Ohio, South Carolina and Tennessee. Phillips Edison-ARC typically focuses its attention on secondary markets that it predicts will experience solid growth over the next few years. And Edison expects that the very favorable outlook for retail investors in these areas will continue for an extended period.
“There is very little new construction of grocery-anchored shopping centers,” he says. In fact, even though retailers generally report strong demand, new construction of these assets is at a 30-year low. And Edison points out that the GDP has shown consistent if not spectacular growth, unemployment has fallen and home values have increased. “Those three things drive consumer confidence,” and should continue to increase demand at the existing centers and ensure solid returns. “That's the simple equation.”
Edison does not believe this state of affairs will change in the short-term. “We don't see a lot of new construction on the horizon.” Although the strengthening economy has boosted the prospects for many retailers, most seem content to renovate existing centers or spend money on developing an Internet strategy. “That's where we see most of the capital being spent by grocers.”
Before any big transformation can occur in the retail sector, he adds, “You've got to see major, major expansion in the housing market.” The recent rise in US home values may have shrunk consumer debt and increased confidence, but retail developers won't move on new projects until they see new housing sprout up.
Edison says they would love to make buys in what he calls the 24/7 cities, or the hot coastal markets that have brought in so much investment. However, the REIT is cash-flow driven and “when you buy in those cities you're buying at very aggressive cap rates.” Therefore, Phillips Edison-ARC will continue its focus on the nation's secondary cities. “That will change when the market dynamics change.”
The third quarter acquisitions by Phillips Edison-ARC included:
• Lynwood Place, anchored by Kroger in Jackson, TN;
• Foot Hills Center, anchored by Safeway in Lakewood, CO;
• Thompson Valley Towne Center, anchored by King Soopers in Loveland, CO;
• Battle Ridge Pavilion, anchored by Kroger in Marietta, GA;
• Lumina Commons, anchored by Harris Teeter in Wilmington, NC;
• Driftwood Village, anchored by Food 4 Less in Ontario, CA;
• French Golden Gate, anchored by Publix in Bartow, FL;
• Orchard Square, anchored by Kroger in Washington Township, MI;
• Palmetto Pavilion, anchored by Publix in North Charleston, SC;
• Trader Joe's Center, anchored by Trader Joe's in Dublin, OH;
• Five Town Plaza, anchored by Big Y, in Springfield, MA.
The acquisitions resulted in the addition of about 1.3-million-square-feet to the company's portfolio. These acquisitions bring the aggregate purchase price for the entire portfolio to approximately $2.0 billion. The portfolio now includes 131 properties located in 27 states and leased to 38 leading grocery store anchors with a total of about 13.9-million-square-feet of gross leasable area.
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Brian J. Rogal
Brian J. Rogal is a Chicago-based freelance writer with years of experience as an investigative reporter and editor, most notably at The Chicago Reporter, where he concentrated on housing issues. He also has written extensively on alternative energy and the payments card industry for national trade publications.
