Disciplined and strategic: CSA’s fastest-growing acquirers
The 27th annual Chain Store Age survey of Fastest-Growing Acquirers features some familiar names, but a diversity of philosophies and experiences when it comes to driving long-term growth.
Top-ranked Kimco Realty Corp. is reaping the benefits of years of fiscal discipline and a back-to-basics focus on its core properties. Second-place Phillips Edison, too, remains dedicated to the grocery-anchored center, even as it has evolved from private to public status. The Inland Real Estate Group of Companies, No. 3 this year, pays in cash — and listens to every possibility. Cole Credit Property Trust IV, another non-traded REIT, focuses on single-tenant and anchored shopping centers around the country. And Vestar acts opportunistically — and is prepared to be cautious in the longer term.
1. Kimco Realty Corp.
Going back to basics has led Kimco Realty to the top of this year’s list, with the New Hyde Park, New York-based company acquiring 7.47 million sq. ft. in 2015.
“We certainly evaluate opportunities as they arrive,” said Ross Cooper, chief investment officer and executive VP.
A number of the deals consisted of Kimco acquiring their joint-venture partners’ interests in properties such as the remaining 80% ownership interest in Montgomery Plaza, a 465,000-sq.-ft. power center in the Dallas/Fort Worth area.
“We don’t have to do a lot of due diligence,” Cooper observed.
Opportunity should continue in 2016 despite rising interest rates, which might eliminate some competition, Cooper said. But the company has amassed a “war chest” that allows it to act quickly.
“The anticipation of interest rates rising has been around,” Cooper said. “We tend to be all-cash buyers, as we’re looking to de-lever our balance sheet.”
In recent years, the company also has sold assets that no longer fit its criteria as it simplifies its ownership structures.
“If anything, we’re more disciplined and structured,” Cooper said. “We’re looking for assets that can generate growth and have redevelopment opportunities where we can create value.”
2. Phillips Edison & Co.
For Cincinnati-based Phillips Edison, which takes the second spot this year with 5.4 million sq. ft. acquired in 2015, neighborhood centers remain its focus.
It’s a philosophy the 25-year-old company has pursued from its founding, first through privately raised funds, and now as a public non-traded REIT.
“Our fundamental strategy is the same,” said Hal Scudder, chief investment officer. “We remain focused on the grocery anchored center, both stabilized and value-add, as long as they are anchored by strong grocers.”
Centers anchored by the leading grocery chains remain insulated from competitors, he explained, and having a national platform allows Phillips Edison to see opportunities around the country — even through the occasional ups and downs of a cyclical industry.
“Rather than call what inning we are in the cycle, we focus on finding good deals, execution and what we do well,” Scudder said.
The initial public offerings of Phillips Edison Grocery Center REIT I in 2014 and REIT II in 2015 raised nearly $3 billion, which should keep the company acquiring for quite some time. In addition, the Phillips Edison Grocery REIT II has formed a joint venture with TPG Real Estate to continue to acquire grocery-anchored centers throughout the United States.
“We are seeing a consistent flow of good opportunities,” Scudder said. “We still have a lot of dry powder.”
3. The Inland Real Estate Group of Companies
How does The Inland Real Estate Group of Cos., which placed third this year by acquiring 4.66 million sq. ft., continue to consistently find properties? By having multiple entities, being omnipresent and answering the phone, said G. Joseph Cosenza, vice chairman, director and one of the four original principals of The Inland Real Estate Group. You can do the math — he did.
“Having as many entities as we do certainly helps,” Cosenza said. “And we go to just about every event throughout the year. It’s like a candy store.”
Because of Inland’s well-deserved reputation for closing — Cosenza says Inland has completed 2,572 purchases over the last 16 years — brokers who are still working on getting listings will call to see if Inland is interested. Traditional methods work, too.
“Of those 2,572 deals, 1,377, or 52%, came from cold calling; 541, or 35%, came from a broker who came to us first. And 654, or 23%, we bid on just like everyone else,” he said.
What they look for sometimes defies current wisdom. While other companies seek Main and Main locations exclusively, Cosenza noted, “You’ll have to compromise, such as one bad entrance. I’d rather have the second-best location because the property itself is my main concern.”
4. Cole Credit Property Trust IV
Focusing on single-tenant retail and anchored shopping centers with long-term net leases was the key to growth for Phoenix-based Cole Credit Property Trust IV, which placed fourth. The public non-listed REIT acquired 3.35 million sq. ft. last year, working through its corporate parent, Phoenix-based VEREIT, a publicly traded full-service real estate company that manages Cole Capital’s investments. Cole Capital is the sponsor of the fund.
“Having a shared service model with VEREIT is beneficial as CCPT IV is able to leverage the large team of real estate professionals who are active in the markets at all times,” said Thomas W. Roberts, executive VP and chief investment officer of VEREIT.
Though CCPT IV closed to new subscriptions in February 2014, the company continues to diversify its holdings by tenant, industry and geography.
“We believe there is enough property in the market that fits our investment criteria,” Roberts said. “Because we have a national footprint, we aren’t tied to one market or geographic area. We have also seen retailers beginning to expand, which creates more product in the marketplace.”
5. Vestar
Sticking to its core criteria while taking advantage of opportunities fed Vestar’s growth in 2015. The privately held Phoenix-based company ranked fifth this year, acquiring just over 2 million sq. ft. in 2015.
Last year’s acquisitions were special situations, said president David Larcher, but fit Vestar’s criteria of open-air projects located in major metropolitan areas in the western United States.
“The projects also have to have the ability to be the dominant center in their trade areas,” Larcher said. “Then we can utilize our expertise in redevelopment, whatever that may involve: leasing, marketing and repositioning.”
As of press time, Vestar was continuing to grow, acquiring James Center in Tacoma, Washington, for $31 million, and The Gateway in Salt Lake City in partnership with Oaktree Capital Management. Still, Larcher warns of tempered expectations for this year.
Interest rates inching up could possibly affect the capital market, and appropriate opportunities are fewer and farther between, he said.
“I don’t anticipate 2016 being as robust