Inland Pleased With Top Tenant's Progress

OAK BROOK, IL-Inland Real Estate Corp. is getting more comfortable with its largest tenant, which accounts for less than 7% of the retail REIT's rental income. Chief operating officer Mark E. Zalatoris told the Wachovia Real Estate Securities Conference recently the company is pleased with the Dominick's grocery chain's less homogenized look, allowed by parent company Safeway Inc.

The Pleasanton, CA-based grocer bought the Northlake-based Dominick's Finer Foods 116-store chain in November 1998 for $1.2 billion. Safeway Inc. put the chain, now numbering 113 stores after 12 under-performers were closed this year, on the market in December 2002 as a result of a labor dispute.

However, Safeway Inc. decided a year ago to keep the chain after a deal fell through. Dominick's has operated in the red for the last three years as sales have declined, according to Safeway, which says it needs concessions in its local labor agreements to keep the chain viable. Nonetheless, Zalatoris commends R. Randall Onstead Jr., who took over as Dominick's president in November 2003, and his successor in September, Bruce Everette, for improving the chain's local presence.

"We think they're making progress," Zalatoris says. "I think in the long run, they will come out of it."

Although No. 2 in the local grocery market behind Boise, ID-based Albertson Inc.'s Jewel chain, the 11 Dominick's stores leasing 748,584 sf account for nearly $9 million a year in rent, according to Inland Real Estate Corp.'s most recent earnings report, or 6.62% of its total. Discounter Cub Foods has 10 locations totaling 627,772 sf, paying $6.5 million a year, or 4.8% of the total. Jewel is next, with eight stores totaling 504,971 sf paying $4.84 million, or 3.58% of the total revenue.

While lease rates have increased 5% on renewals, they are risen 4% on new deals, Zalatoris says, pointing to Cincinnati-based Kroger's Food-4-Less chain picking up space by the Eagle chain vacating three sites at a lower rate.