Since its initial public offering in April, Excel Trust Inc. has built up a nationwide portfolio of retail properties valued at approximately $414 million, targeting mostly strip shopping centers that are well off the beaten path.
Many of their locales — such as Milledgeville, Ga., Shippensburg, Pa., and Brandywine, Md. — may not be household names. But they fit priorities that have guided the real estate investment trust’s management team, led by Chief Executive Officer Gary Sabin, for much of the past three decades.
Rather than staking out a presence in high-profile glamour markets, Sabin said the REIT focuses on properties that have not been listed for sale, but have withstood the test of time. They are anchored by grocery stores or reliable national-chain big-box retailers, and tend to perform well in occupancy and sales in just about any economy.
“The trick is to buy when not everyone is looking to buy,” Sabin said in a recent interview.
Knowing When to Buy
Often the company is able to find an owner willing to sell not because the property is distressed, Sabin said, but because that owner has financial issues tied to other pieces of its portfolio that need to be resolved.
Sabin, 56, also led two predecessor investment companies that were eventually sold off to other firms. The current company was formed in late 2009 and began trading in April as EXL on the New York Stock Exchange, following an IPO that raised more than $200 million.
Excel joined other locally based REITs that have expanded their portfolios and raised new capital during the past year, including Realty Income Corp., BioMed Realty Trust Inc. and, most recently, American Assets Trust Inc.
Except for the Rancho Bernardo office building where it’s based, all of Excel’s holdings are in retail, and all of its shopping centers are outside of San Diego County. While the company is always scouting the local market, Sabin said the REIT’s U.S. portfolio is focused in the Northeast, Southeast, Southwest and Northwest.
Its most recent buys include two Northern California centers, in Stockton and Gilroy. It also agreed to purchase the building that houses an Edwards cinema in San Marcos, which it is leasing back to the movie operator.
Focusing on Dominant Centers
REIT analyst Laura Clark, a senior associate with Green Street Advisors Inc. in Newport Beach, said Excel has managed to establish a niche by sticking with a strategy it has deployed since going public.
“They generally focus on high-quality properties that are the dominant centers in the secondary markets,” Clark said.
Clark said market fundamentals, including low interest rates and rising retail sales, generally favor shopping center investors. As the national retail occupancy rate, currently at 88 percent to 90 percent, hits about 93 percent, rents will generally move upward in favor of landlords.
With significant new retail construction unlikely to start up until 2012, meaning the supply won’t hit the market until around 2014, Clark said owners of existing properties will have an advantage as retailers look to expand.
Excel is scheduled to announce its first full-year financial results in late February. For its third quarter ending Sept. 30, it reported a net loss of $1.1 million attributable to common stockholders.
Its adjusted funds from operations, often reported by REITs to account for amortization, depreciation and other factors affecting real estate, was a positive $1.5 million for the quarter.
Retail Market Improving
Sabin, who is also the company’s chairman, said Excel is generally hinging its future buying activity on its assessment that the retail market is improving. “It will bounce along the bottom, but it will bounce higher,” he said. “The consumer has decided that the world has not ended.”
He said the REIT added about seven staff members in the past year — five at headquarters and the others in Northern California and Atlanta — and will likely add more elsewhere as it expands its holdings in Texas, Arizona, Alabama and Utah.
Sabin said the company, which has 25 employees, fosters a spirit of community involvement among its workers. He is vice chairman of the Cystic Fibrosis Foundation, after three of his children were diagnosed with the genetic disease.
He is also chairman of The Sabin Children’s Foundation, which has sponsored children’s medical programs in Africa, India and the Philippines.
“It’s an example of the idea that if you make money here, you can do some good over there,” Sabin said.