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Excel Doesn’t Let Buying Opportunities Slip Under Its Radar

Excel Trust Inc.’s growth strategy for 2013 includes standing by the acquisition priorities that helped it significantly expand its business base since becoming a public company in April 2010.

Company President Spencer Plumb said the San Diego-based real estate investment trust made approximately $440 million in acquisitions during 2012, its largest single-year tally since going public, and has set a goal of at least $200 million for 2013.

The company is focused primarily on high-performing, grocery-anchored strip shopping centers, and many of its acquisitions have been in places well off the beaten path among retail investors. Its most recent center buy was in Tracy, in California’s Central Valley, and its portfolio spans places like Missoula in Montana, and the South Carolina city of Simpsonville.

“Simpsonville is not the kind of place where a lot of REITs would be looking for investments,” Plumb said. “But there is a BMW plant in that market that is doing very well, and the household incomes there are very good.”

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“We believe there are a lot of attractive properties still available out there,” he said.

Off-Market Transactions

The company generally seeks out off-market transactions, involving properties not formally listed for sale, vetting opportunities with the help of its property managers and acquisition representatives stationed throughout the U.S. Led by founder and Chairman Gary Sabin, Excel Trust describes its prime target markets as the “smile states” — regions that if linked together on a map would form a smile outline, taking in the West Coast, Southwest, Southeast and East Coast.

Plumb said Excel has found retail properties across the nation that now have an average household income of $98,000 within a three-mile radius, up from the low $80,000 range three years ago. The company’s property portfolio since early 2010 has grown from a value of $50 million to its current $1.1 billion, and its market capitalization has grown similarly, to its current level of just under $650 million.

Its reported 2012 revenue of $87.1 million places it at No. 43 on San Diego Business Journal’s list of the largest locally based public companies.

According to a recent report on the strip-center retail sector by the equity research firm Green Street Advisors Inc. in Newport Beach, which does not track Excel Trust specifically, the pace of the U.S. economic recovery continues to be slow, but strong enough to drive demand for existing strip-center properties.

This trend is spurred in part by relatively sparse construction of new retail centers in most major U.S. markets. Many national retailers continue to expand their store counts, which is helping strip centers fill spaces and causing rents to rise nationally.

Green Street analysts noted that buyers have recently begun investing more in nongateway assets, and demand may push prices higher for Class B locations that traditionally get less attention from investors. However, the mom-and-pop businesses that occupy many of those centers are still struggling in the current economy.

A Positive Sign for Demand

“Home prices are finally showing signs of life, an early positive sign for strip center demand,” Green Street said. “But the recovery is years from providing home-equity capital to wannabe small business owners.”

Plumb said the gradual recovery in the U.S. homebuilding market is helping Excel find retail projects that were owned by private developers but stalled during the housing downturn. Some of those projects, he said, can be revived by well-capitalized investors in places where housing is rebounding, including some hard-hit markets in Northern California, Nevada, Arizona and Texas.

Excel Trust completed a $117 million stock offering in November, and is weighing its options in the debt and equity markets to fund future acquisitions. Plumb said the company continues to keep its debt to a minimum — the portfolio was approximately 36 percent leveraged at the end of 2012 — and is applying to rating agencies to have its debt rated investment quality, which would give it greater access to bond markets for further investments.

In San Diego County, Excel Trust is working with Chicago-based GEM Realty Capital Inc. to redevelop La Costa Towne Center in Carlsbad, which Excel purchased in early 2012 for approximately $23.5 million. Plans are in the works to add a multifamily element that would turn the retail center into more of a mixed-use property, a concept that Excel is considering for some of its other U.S. holdings.

“Our main focus is still going to be on grocery-anchored centers, and we will be involved in those mixed-use projects primarily in cases where the main component is still retail,” Plumb said.

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