Take the acquisition in late January of Houston-based CenterAmerica Property Trust by New York-based New Plan Excel Realty Trust. The $654 million deal added 92 community and neighborhood shopping centers to New Plan's portfolio. The publicly traded REIT now holds a total of 42 million sq. ft. and is the second-largest owner of community and neighborhood shopping centers in the country, behind Kimco Realty Corp. of New Hyde Park, N.Y.
Other recent deals include:
The merger of Excel Legacy Corp. and Price Enterprises, both of San Diego, to form Price Legacy Corp. The new venture is in the process of acquiring a portfolio of strip centers in Florida that will raise the combined value of its assets to about $1.2 billion.
Roseland, N.J.-based Chelsea Property Group's acquisition of 31 outlets from Cary, N.C.-based Konover Property Trust, for $180 million. The deal allowed Konover to extract itself from the outlet business and to focus on its portfolio of neighborhood and community centers.
North Miami Beach, Fla.-based Equity One Inc.'s acquisition of United Investors Realty Trust of Houston and Centrefund Realty Corp. The deal brought Equity One's portfolio to a total of 84 strip centers valued at $700 million.
One factor driving this trend is the growing appeal of smaller-format centers — particularly grocery-anchored centers — to publicly traded REITs. New Plan's acquisition of CenterAmerica is a good example. “New Plan sold its apartment business and needed to re-deploy that money,” explains Merrill Lynch analyst Steve Sakwa. “Clearly, New Plan wanted to have a higher percentage of its assets in grocery-anchored neighborhood shopping centers.”
In a sluggish economy, grocery-anchored centers are about the nearest thing going to a safe bet. “They're just viewed as a safe harbor in a difficult time,” says Jeffrey Donnelly, a vice president with Wachovia Securities in Boston.
Donnelly says there's no doubt owners of smaller-format centers are steadily consolidating. But don't expect that trend to match the pace or scope of consolidation among mall-owning publicly traded REITs. According to the National Research Bureau, there are 31,217 neighborhood and community centers in the United States, compared to 2,998 regional and super-regional malls. “I'd say, generally speaking, the majority of the Class-A regional malls are owned by the publicly traded companies,” Sakwa says. “It would seem unlikely that the neighborhood shopping center sector would ever get to that level of penetration. There are so many more centers and so many more private players in the neighborhood center business.”
Although mergers and acquisitions continue in both sectors, some companies are growing, not by acquiring other companies, but through individual deals. Daniel Hurwitz, executive vice president of Cleveland-based Developers Diversified Realty Corp. (DDR), calls this phenomenon a “consolidation of assets.” Hurwitz is quite familiar with the process: from the end of 2000 through the beginning of 2001, DDR acquired 10 properties from San Diego-based Burnham Pacific Properties Inc., expanding DDR's portfolio to 150 retail centers in 42 states.
Chelsea Property Group's September 2001 acquisition of 31 outlets from Konover Property Trust is another example. The deal strengthened Chelsea's position in the outlet sector, but the fate of Konover now appears questionable. “The company is trying to become less of a factory outlet center,” says David Fick at Legg Mason Capital Markets in Baltimore. “Konover is now looking at either being bought or going on as a shopping center company.” At the time Chelsea announced the deal, Konover owned 148 neighborhood and outlet centers.
Whether through property deals or outright acquisitions, consolidation will continue to be commonplace, says Doron Valero, president and CEO at Equity One. “There is so much economy of scale in consolidation, whether from the management perspective of obtaining better pricing for services or getting funds at a lower cost,” Valero says. “It makes a lot of sense to consolidate as long as you don't lose your ‘hands-on’ mentality and your ability to maintain a relationship with tenants.”
Steve Bergsman is a Mesa, Ariz.-based writer.