Phillips Edison-ARC Shopping Center REIT Inc., a public, non-listed REIT focused on grocery-anchored neighborhood shopping centers, plans to vigorously pursue acquisitions throughout 2014 in order to enhance tenant and geographic diversity.
“We’ve got a very robust pipeline. We continue to have a strong capital flow, so we anticipate being active buyers throughout the year,” said Jeff Edison, Phillips Edison-ARC’s CEO, in an interview with REIT.com.
Phillips Edison-ARC Shopping Center REIT is now closed to new investors, and capital for a second REIT, Phillips Edison-ARC Grocery Center REIT II, is currently being raised. Phillips Edison-ARC Shopping Center REIT raised $1.7 billion of equity, Edison noted, which the company anticipates leveraging to about 35 percent.
Looking for First or Second Grocer in Market
Phillips Edison-ARC’s portfolio currently consists of 98 shopping centers anchored by 31 grocers across 23 states.
“We want to buy the number one or number two grocer in the market and we want them to be doing sales that are above average where they are located,” Edison said.
The REIT is also looking for property across the country. “Both tenant and geographic diversity help to reduce the overall incident risk of our portfolio,” Edison emphasized.
Meanwhile, fundamentals in the grocery-anchored shopping center business appear particularly favorable at present, according to Edison. Retailers in Phillip Edison-ARC’s niche markets are expanding, while new construction of grocery-anchored centers is at the lowest level in 30 years, according to Edison. Consumer confidence, meanwhile, is at a six-year high, according to the latest data from the Conference Board.
Competition for Assets
Strong fundamentals are driving competition for assets in the sector, Edison remarked. He noted that 60 percent of the assets that have been bought by Phillips Edison-ARC Shopping Center REIT so far have been off-market deals. In the open market, however, the REIT is facing a strong level of competition from a wide variety of buyers.
“There’s a high level of interest both in the public markets and the international markets to buy grocery-anchored centers in the top 10 to 20 cities in the country; therefore, the prices on those have gone up fairly dramatically,” Edison said.
Phillips Edison Attracted to ARC’s Capital, Best Practices
The history of Phillips Edison-ARC Shopping Center REIT was forged in the wake of the financial crisis when the flow of institutional funds dried up, Edison explained. Not only did Phillips Edison view American Realty Capital (ARC) as a potential source of capital, but the company was also impressed with ARC’s innovative work to create best practices within the non-listed REIT sector, Edison said. Phillips Edison approached ARC, and the Phillips Edison-ARC Shopping Center REIT was incorporated in 2009.
One of the best practices advocated by ARC was to create liquidity for investors as quickly as possible. “We are 100 percent believers in that,” Edison said. While Phillips Edison-ARC Shopping Center REIT has not set a target date for the liquidity event that marks the end of a non-listed REIT’s lifecycle, “We are trying to accelerate that to the best we can, while still maintaining the value for the investors,” he noted.
In general, Edison said he sees a need for more emphasis from non-listed REITs on individual investors. A more investor-friendly environment in the non-listed REIT segment will help boost the sector’s popularity among retail investors looking for alternative investments, Edison predicts.
“The industry needs to evolve to make sure that the investor is treated as the most important part of that investment, not just as an aside,” Edison said.