PRINT THIS STORY:

CHANGE TEXT SIZE:

Sharper retail focus

NEW PLAN ON THE REBOUND

BY ANNA ROBATON

Behind the turnaround: CEO Glenn Rufrano.

Three years ago New Plan Excel Realty Trust, one of the largest shopping center owners in the United States, was a shambles.

Formed in September 1998 by the merger of two REITs — New York City-based New Plan Realty Trust and the smaller Excel Realty Trust — the company was reeling from the union’s aftereffects. Strife at the top led to the resignations in early 1999 of about a half dozen executives from San Diego-based Excel Realty. The casualties included former Excel CEO Gary B. Sabin, the newly appointed, young-blood president of the merged company.

The merger created a company with about $3 billion in assets ($2 billion from New Plan Realty, the rest from Excel), but the departures resurrected concerns among investors over the company’s succession plan. Further, the new entity was left to run an additional $1 billion worth of former Excel Realty assets that it didn’t fully understand.

“The company was getting more and more into the doghouse with investors,” said Ralph Block, a REIT historian and investment adviser in Oakland, Calif., who does not own the stock.

The company’s stock spiraled downward in 1999, from roughly $22 a share at the beginning of the year to about $16 at year-end. In February 2000, when the stock languished at about $13 per share, the company appointed Glenn J. Rufrano president and CEO and charged him with turning the floundering enterprise around.

That was the turning point, Block says.

“They brought in Glenn Rufrano, and they have come full circle.”

Today New Plan is in the final stage of a massive turnaround effort that began in late 2000 with Rufrano’s plan to refocus the company on its core business of owning and managing neighborhood and community centers. Rufrano, 53, and other top executives not only overhauled the company itself, but they also oversaw several big acquisitions of shopping center portfolios.

The firm now has 393 properties in 35 states and total assets of about $3.6 billion. Those properties include 354 neighborhood and community centers, with about 50 million square feet of gross leasable area, and 39 related retail assets, including single-tenant properties and several enclosed malls.

Investors have gobbled up the stock since the turnaround began, though some observers say the company has more hurdles to overcome. In 2001 shares rose nearly 60 percent, and last year they gained almost 9 percent. The stock outperformed the National Association of Real Estate Investment Trusts (NAREIT) equity REIT index, which climbed about 14 percent in 2001 and 4 percent last year. In the first quarter of this year, the stock rose almost 5 percent to $19.59 per share.

New Plan has sold its noncore assets and is focusing on its retail portfolio, which now includes 354 neighborhood and community centers, as well as a few malls.

“Old corporations, in order to succeed, have to remake themselves. Those who don’t, die,” said Rufrano, a founder and former partner of The O’Connor Group, a New York City-based real estate investment firm. “New Plan over the past three years has remade itself.”

Indeed, New Plan is one of the oldest players in the shopping center industry and one of the oldest REITs in the country. Its predecessor, New Plan Realty Trust, was founded in 1942 by the late Morris B. Newman, father of the company’s current chairman, 76-year-old William Newman, and a pioneer in real estate syndication.

The company started as an accounting firm, but evolved into a vehicle for the elder Newman’s so-called New Plan to enable small investors to become joint owners of large properties by pooling their savings. The firm went public in 1962 and became a REIT 10 years later.

In 1992 it became the first REIT to reach $1 billion in market capitalization. As of February, its market cap had grown to about $1.9 billion, making it the third-largest open-air center REIT, according to NAREIT. Kimco Realty Corp. was the largest, followed by Weingarten Realty Investors.

“The Newman family wanted to make investment in commercial real estate available to smaller, everyday investors without their having to go out and buy their own shopping centers,” said REIT historian Block. “That was consistent with the intent of Congress when it passed the 1960 legislation establishing the REIT industry.”

New Plan Realty Trust’s merger with Excel Realty gave it a West Coast presence and also addressed concerns over who would eventually take over from Newman and from Arnold Laubich, who held both the president and CEO titles post-merger following Sabin’s departure. (Laubich retired after Rufrano took over.)

But the union had skeptics from the beginning. Wall Street analysts expressed concern over the potential difficulties associated with bringing together firms with such different cultures and offices on opposite coasts. New Plan Realty was considered to be more conservative than Excel Realty.

New Plan officials have been vague about what exactly troubled the merger. Rufrano says the managements of the two companies “did not get along,” but declines to elaborate.

In April 1999 the company filed a press release with the Securities and Exchange Commission saying that some former Excel executives had been “dividing their time” between New Plan Excel and Excel Legacy Corp., a San Diego-based real estate trading and development company spun off from Excel Realty Trust before the merger. The “dual responsibility” proved “unwieldy” and “more complicated” than New Plan had anticipated, according to the release, which described the parting with the Excel executives as “amicable.”

Under the Rufrano turnaround plan, the company immediately began to sell off its so-called noncore assets, beginning in 2001 with the sale of 53 garden apartment communities for $380 million. In 2002 it began to exit the outlet center business, selling five of six properties. Roseland, N.J.-based Chelsea Property Group bought four of those for about $193 million, the fifth went to a local buyer, and the remaining one, Factory Merchants Barstow (Calif.), is still on the block.

By the end of last year, the company had raised more than $900 million from the sale of noncore properties, using the proceeds to help acquire about $1.2 billion in community and neighborhood centers. That has helped it maintain a moderate level of debt relative to other REITs.

The biggest acquisition closed in March 2002, when New Plan paid $650 million to buy 105 centers (14 of which were part of a joint venture with a domestic pension fund) from Houston-based CenterAmerica Property Trust. Earlier in the year, it had netted $121 million from a stock offering, which helped fund the CenterAmerica transaction. Late last year the company made another big acquisition: 58 centers from Equity Investment Group, a private REIT based in Fort Wayne, Ind., for $437 million.

Middletown (N.J.) Plaza is among the many centers that New Plan Excel has acquired and renovated.

Explaining his strategy, Rufrano said the acquisitions have boosted New Plan’s holdings in high-density markets where household income is on the rise, including Detroit, Dallas and Houston, as well as cities on the east and west coasts of Florida. The firm has shied away from competing for acquisitions of centers that are fully leased, choosing instead to concentrate on properties with the potential to grow in value through efforts to boost their occupancy levels and expand existing tenants.

“I can’t find any other REIT that is so broadly diversified geographically — the whole country never goes down the tubes together,” said Charles Allmon, editor of investment newsletter Growth Stock Outlook and an investment adviser who owns the stock for private account clients.

“They haven’t been as flashy as some REITs” in promoting themselves on Wall Street, Allmon said, “but they aren’t leveraged to the hilt, either.”

Rufrano’s turnaround strategy also allocated millions to the renovation and redevelopment of existing centers. Last year New Plan completed a two-year, $25 million project to renovate a number of its centers, some of which were badly in need of upgrades.

It spent $38 million on redevelopment last year and is forking out $60 million this year to expand and upgrade dozens of centers.

Meanwhile, the company has remade itself at the corporate level. It has brought in a number of new top executives while reducing its workforce by half, from 750 in early 2000 to about 370 today. Most of the cuts were the result of the company’s decision to exit the more labor-intensive outlet center and apartment businesses.

It has also decentralized its management, creating a system of six regional offices, supported by a number of satellite offices, to handle leasing, property management and construction.

In an effort to get more institutions to buy its stock, the company has improved its reporting of financial and other business information and created a board with a majority of outside directors. Today about 35 percent of its stock is owned by institutions, including mutual and pension funds, up from 15 percent in early 2000. Institutions, including foreign investors, have also joined with the company to invest on several deals.

Despite New Plan’s strides, the rapid rise of its stock over the past couple of years makes some experts nervous. Standard & Poor’s REIT equity analyst Raymond Mathis downgraded the stock to a “sell” in January, partly because of concerns over the future of some of the company’s anchor tenants, especially Kmart Corp., which emerged from Chapter 11 last month. Kmart was its second-largest tenant in terms of annualized base rent at the end of last year. Indeed, New Plan’s exposure to Kmart (as of January the chain constituted 4.2 percent of its total annual base rent) was second only to Kimco’s.

Mathis, who reiterated the sell recommendation in March, said he is also concerned that in recent quarters the company’s dividend has exceeded its cash available for distribution, a measure of cash flow.

Rufrano says the company’s restructuring has at times diluted its cash flow, but the process is complete, with the exception of the planned sale of additional noncore assets. He said he expects continued growth in funds from operations to better position the company to cover its dividend. On a per-share-diluted basis, 2001 FFO was flat at $1.85. Last year FFO climbed to $1.88, and the company expects that to rise to between $1.90 and $1.96 for 2003.

Regarding Kmart, Rufrano says he is confident that New Plan can re-lease any closed Kmart stores for at least the same rent — an average of $4.20 per square foot. During bankruptcy proceedings the retailer rejected 13 of its New Plan center leases and affirmed 29.

Ultimately, Rufrano says, he hopes to restore the shine the company had in the 1980s, when there were far fewer REITs.

“In the ’80s New Plan was considered the premier company to invest in,” he said. “I would like, five years from now, for people to say, ‘This is a company with a good track record on dividends [and] cash flow growth, and there are no surprises. Therefore, we will give them a premium valuation.’”

© 2008 ICSC. All rights reserved. | Terms and Conditions | Privacy Policy | Contact ICSC | ICSC Home |