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Phillips Edison Seizes on Growth Opportunities

With a portfolio of more than 240 properties, Cincinnati-based Phillips Edison & Co. has become a major acquirer of grocery-anchored shopping centers. The company, which mainly looks for redevelopment candidates in solid markets, has continued to add to its sizable portfolio in 2009 by acquiring another two centers earlier this year, including the Target-anchored Bridgewater Falls 600,000 square foot regional shopping center in Fairfield Township, Ohio. John Bessey, chief investment officer at Phillips Edison, tells Site Optimizer how the company has continued to grow despite an economy that has led to a more opaque and cautious real estate environment.

Site Optimizer: I know you have a history of doubling your portfolio every three years. Where are you in terms of that goal for the past three years? Is that still feasible, given the economic environment?

Bessey: We’ve doubled the size of our portfolio every 3 years and have continued that pattern since 1992. Despite the current environment and relatively few acquisitions …we’ve been getting back on track.

SO: What's the environment been like for shopping centers in 2009 in your experience? Are there a lot of potential acquisitions out there right now and how difficult has it been to get a deal done?

Bessey: We all know from the past year that the debt market has been tightening. From the equity viewpoint, they have had a hard time posing tenant risk and asset value risk. Until recently, only short-term money has been available.

SO: In 2008, you secured a $500 million credit facility. How has that additional facility contributed to or changed your expansion and acquisition plans?

Bessey: It gives us the capital we need to make these acquisitions and offers a competitive advantage. We have equity in place and we have debt in place so we don’t have to go chase the debt. That’s a position many of our competitors are not in.

SO: Phillips Edison seems to be one of the few companies still acquiring shopping centers given the economy these days. How have you been able to continue to grow your portfolio when others have struggled?

Bessey: Basically, we have the capital. We have many high net worth individuals as well as institutional investors who have continued to make contributions to Phillips Edison. We offer a fully integrated operating platform…as well as an experienced team of associates. We’ve incorporated new leasing strategies and cost cutting…That has allowed us to make up for many issues in the market.

SO: What are some of those new leasing and cost-cutting strategies?

Bessey: Focusing on the property level. Re-bidding our contracts on a 30-45 day basis for landscaping and maintenance. Looking for a 3-bid system to assure ourselves we’re getting the best price.

SO: The company seems to be very attracted to grocery anchors. What about the grocery business makes it a good shopping center anchor?

Bessey: The retailers in those centers are the most stable retail segment we’re seeing currently. Everybody needs food. These centers offer everyday services. Although grocery centers were affected by the expansion of Wal-Mart….they learned to compete. We’ve seen same-store sales increases…as consumers have traded down to try to save money.

SO: I know you also look for centers with "turnaround potential." What makes a center have that potential? Basically what are the factors that contribute to a successful turnaround for a struggling center?

Bessey: Turnaround potential can include vacancies, short-term anchor leases, physical plan issues, re-merchandises. All those factor in to contribute to successfully turning around the center. Resolving property management issues, re-merchandising the tenant mix …improving the lighting in the parking lot to improve the safety and aesthetics of the center.

SO: What's ahead for 2010? Do you see any changes in the environment that will impact the company's acquisition goals?

Bessey: There are a number of opportunities out there that we’re reviewing but there haven’t been a huge amount of quality assets. We believe that our patience will be rewarded as we continue to source and offer shopping centers that meet our qualifications throughout the country. One of the uncertainties in the marketplace is the banks still need to realize losses … I think what they’re looking to do is time their losses as they sell assets. We think they’re going to start to realize those losses.

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