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WEINGARTEN TO ENTER CALIFORNIA

By Donna Mitchell

Weingarten Realty Investors (WRI), Houston, will soon catapult itself into the California shopping center market, thanks to the acquisition in January of 19 community centers from San Diego-based Burnham Pacific Properties. As WRI Vice Chairman Martin Debrovner explained, the situation was ideal: All 19 properties are grocery-anchored community centers — the fundamental element in WRI’s retail real estate portfolio. Most of them are located in the Sacramento and Los Angeles metropolitan areas. Aside from the Burnham purchase, WRI’s portfolio comprises nearly 250 properties in 13 states, most of which are shopping centers in Texas.

"California has always been a market that made sense to us, given our growth strategy [to expand] as far west as Phoenix and Las Vegas," Debrovner said. "It gave us the ability to put together a portfolio of 19 properties that are similar in concept in one geographic market. It was the logical progression of growth."

The centers have a total area of approximately 2.5 million square feet, and each has an average size of 130,000 square feet. The price was right, too. Valued at $277.5 million, the deal is expected to close by next month, and included the assumption of $145.5 million in debt. The move prompted Salomon Smith Barney to raise WRI’s funds-from-operation estimates for 2001 by $0.07 per share, and $0.08 per share in 2002. In addition to strong anchors like Pleasanton, Calif.-based Safeway and Compton, Calif.-based Ralphs Grocery Co., the centers include some heavyweight retailers. Minneapolis-based Target Corp. has set up shop in two Bay Area centers; Kmart of Troy, Mich., has a store in a Sacramento center; and Atlanta-based The Home Depot has a store in one of the Los Angeles strip centers.

Debrovner noted that about three of the centers might undergo significant renovations. After searching the tenant rolls for expiring leases, the Houston REIT expects to invest as much as $1.5 million on new facades and landscaping to help lure new, more profitable tenants to the center.

Tending to the tenant mix of those 19 centers was not a priority during the last few years that Burnham Pacific owned the properties, Debrovner noted. "Burnham had been in turmoil for 12, 18 months. Their focus was trying to keep the centers full, and not necessarily maximizing value," he said. But WRI intends to keep close tabs on the tenant mix, eliminating unproductive retailers and doing its homework to find those who can generate sales.

The deal was the result of good timing: Just as WRI was seeking an entry into the California market, Burnham Pacific was holding a liquidation sale of its assets — after failing to find a buyer for the business. Purchasing the centers proved to be a bargain for the Houston developer, when compared with the cost of trying to construct new shopping centers, and introducing the WRI name to a new market. "You’re always the last guy, and there are plenty of people ahead of us with the [broker] relationships," Debrovner said.

Burnham Pacific must sell a remaining 25 centers as part of its liquidation plan. Cleveland-based

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Source: Salomon Smith Barney.

The Retail REIT Index was designed by Salomon Smith Barney for Shopping Centers Today. The index is based on total returns (including dividends) starting at a base of 100 on December 31, 1995. For the period ending Jan. 31, the regional mall index is at 176.62, up 8.0%; the strip center index (including power, neighborhood and community centers) is at 169.40, up 3.3%; and the factory outlet index is at 109.27, up 2.9%. The index is updated monthly.