Ian Ritter is national online editor for GlobeSt.com/RETAIL. The story was reported with assistance from Alex Finkelstein.

JACKSONVILLE, FL-Regency Centers Corp. and Macquarie Countrywide Trust's $2.7-billion acquisition of 101 centers from CalPERS and First Washington Realty totaling 13 million sf could lead to a number of future redevelopments in the portfolio, said Mary Fiala, a Regency managing director today during a conference call on the deal. Most of those renovations could take place at the portfolio's centers in Western states.

Fiala also revealed that the deal has a capitalization rate of about 6.3% and the grocery-anchored properties have low exposure to Wal-Mart Supercenters. But she added, "To have a strategy to hide from Wal-Mart is not a strategy. You have to have a strategy that competes. We believe that even if Wal-Mart came, [the portfolio] would compete very effectively."

After the deal's closing in the second quarter, Regency will own or manage 392 retail centers totaling 49 million sf of gross leasable area in 26 states. Australia-based Macquarie Countrywide will own 65% of the 96%-leased properties; Regency, 35%, Regency chairman and CEO Martin E. Stein Jr. says in a prepared statement. Regency will manage the centers.

"The quality of the portfolio, in terms of top markets, grocer strength and especially demographics, augments Regency's already exceptional portfolio," Stein says. "The combination of population density and household income makes the First Washington/CalPERS portfolio one of the highest ranking in terms of buying power."

Stein calls the acquisition "unique and a terrific opportunity to acquire an outstanding portfolio of infill centers with excellent prospects for growth." The acquisition "also allows us to profitably expand into new markets such as the suburbs of New York City and Minneapolis, and to enhance our presence in the key target markets of Chicago, Philadelphia and Washington, DC while substantially growing our joint venture program."

Stein says the acquired portfolio consists of 48% of the centers located in the metropolitan Washington, DC/Baltimore area and Northern and Southern California; 83% of the properties is grocery anchored, with "nearly 80% of those tenants ranked in the top three in terms of market share in their respective markets." The average household income in the portfolio is about $82,000. Population density within three miles of the centers averages more than 110,000 residents.

The transaction has been approved by each partner's board of directors. The venture plans to fund the acquisition through a combination of assumed debt, new debt financing and equity.

Stein says the venture's target leverage will be 60% and the debt will initially be comprised of the assumption of about $900 million of secured property debt and about $800 million of bridge financing provided by affiliates of Wachovia Capital Markets LLC and JP Morgan Chase Bank.

The majority of the existing mortgages are expected to be refinanced within the first six months. Proceeds from the refinancings "will generate enough funds to fully repay the bridge," Stein says.

Regency plans to fund its 35% equity, which is about $400 million, by drawing on its line of credit and with about $275 million of bridge financing provided by Wells Fargo Bank. On a leverage-neutral basis, Regency expects accretion to earnings of 4% to 6% in 2005 and long-term accretion of 2% to 3%.

This is not the first joint-venture deal between Regency and Macquarie. Their last deal was the $399-million acquisition of 25 centers, with the Oregon Public Employees Retirement Fund, from Branch Properties in August. The two companies formed their initial JV in 2001 and currently own 27 centers.

Instant Insights /

GlobeSt.com UPDATE: Regency Could Renovate CalPERS Centers

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