Fear: “This year we’ve guided to being a net seller to the tune of $225 million at the midpoint.” Fear: “This year we’ve guided to being a net seller to the tune of $225 million at the midpoint.”

OAK BROOK, IL—A possible economic slowdown? “ We are ready for it,” says Heath Fear, EVP, CFO and treasurer of locally based Retail Properties of America Inc. (RPAI).

 In an economy many describe as peaking, the industry as a whole could be looking at a replay of the drubbing retail took in the last downturn. Given the careful positioning RPAI has engineered, whether these prediction amount to slight correction or serious slump, Fear is, well, fearless. “Better yet I see it as an opportunity,” he tells GlobeSt.com. “If the world goes on sale again, we want to be acquisitive.”

In many respects, the REIT has been building toward this moment for years.

“Our balance sheet is in much better shape than it was in 2008,” he says. “Our leverage on a net debt to EBITDA is 5.7x compared to 8.3x.” Since 2013 RPAI has made progress toward unencumbering its assets, and in 2014 received investment grade ratings from Moody’s ((P)Baa3) and S&P (BBB).

“We are in the enviable position of having every avenue of capital available to us. We can raise equity, or issue public or private unsecured debt. If those markets are constrained we can tap the secured debt markets or we can sell assets.”

Taken to the extreme, if the capital markets were to seize up entirely, “RPAI itself could fund the business through 2019, without raising another dollar,” Fear says. “It gives me extreme confidence and helps me sleep at night.”

Adding to Fear’s restful nights is a diversified tenant roster, creating a broader rental-income stream. For instance, over the past three years, the REIT reduced its exposure to Sports Authority and the office supply sector by “40%” and “no single tenant represents more than 3% of our ABR.”  Clearly, creditworthiness is a key factor in leasing decisions. “It’s about creating a durable cash flow. All other things being equal and given a choice between two tenants, we’ll take a lower rent from the tenant that shows more long-term viability,” he says.  Despite this discipline, RPAI “enjoyed blended releasing spreads of nearly 9% in 2015.”

“Do we feel good about the balance sheets of most of our tenants?” he asks. “Yes. Do we think most of them could survive a normalized recession? Yes. Have we done a lot over the past three or four years to cull our portfolio of our most vulnerable tenants? Yes.”

The REIT has started, or is about to start, a number of redevelopments, most of them in the Baltimore/Washington, DC corridor.

“Development  is a new competency for RPAI,” says Fear.  ”We recruited top notch development veterans from Macerich and Federal. But we’re being very measured and conservative.”  Plans through the end of the year are “modest” and looking into the medium term “we think an organic redevelopment pipeline for RPAI is a $30-$50M proposition annually.”  With respect to several of the medium term projects RPAI expects to monetize air rights, “so our capital outlay is very low and the amount of risk we’re taking is also mitigated,” he explains.  Additionally, several of RPAI’s redevelopment opportunities represent covered land plays “meaning they generate good cash flow now, so we have the option to wait and see if we don’t feel good about where the environment is going.”

But of course, the big question is whether or not the market is actually peaking. “For lack of a better phrase I would say the economy is puttering along. There’s a mixture of positive and negative economic indicators so it’s hard to predict where we’re going. In the first quarter, fear and volatility was the name of the game.  A stagnate Europe and Japan, oil in a free fall and questionable growth in China.  Feelings of 2008 and ‘09 were creeping in but those feelings have since subsided.”

“But there’s also been a fair amount of positive indicators,” he adds. “Employment is bumping along, there’s been a housing uptick and consumer balance sheets are much better . . . even though we didn’t see the savings at the pump translate to consumer spending. So it’s definitely a market of mixed signals.”

But simply in terms of timing, he says, it “feels late” in terms of what a normal cycle would be. “It’s probably a good time to monetize the assets you want to shed,” he advises. “This year we’ve guided to being a net seller to the tune of $225 million at the midpoint, so we are taking the market cues and accelerating our disposition program.”

 If the economy continues to bump along, so will the RPAI drive to re-develop. If the economic course changes, Fear says the REIT is well-suited to adjust.

“Yes,” he says, “I feel pretty good. If there’s a recession, we’re ready for it.”