November 12, 2018 / 9:07 PM / a month ago

Northwestern in JVs with strip mall REIT, future deals likely

NEW YORK (Reuters) - Northwestern Mutual has partnered with Phillips Edison & Co Inc, a real estate investment trust, in two joint ventures involving 20 grocery-anchored shopping centers with a total value of about $415 million, the companies said Monday.

The transactions focus on strip malls, whose food and services are considered less vulnerable to competition from e-commerce than general merchandise stores in malls.

The deals likely foretell future investments by Northwestern, an insurer and financial services provider.

Tom Zale, responsible for mortgage and real estate investment at Northwestern, said the company reinvested capital after the company exited its exposure to an unnamed “high-quality, single-asset” retail investment earlier this year.

“This really was a redeployment for us of retail exposure into a diversified grocery-anchored portfolio in assets where we really liked the greater characteristics,” he said.

Zale said he hoped the partnership with Phillips Edison will lead to future investments, though he said there are no current commitments.

Northwestern obtained an 85 percent interest in a portfolio of 17 grocery-anchored shopping centers valued at $368 million. It also obtained a 90 percent interest in three other centers valued at $46.5 million.

Northwestern did not disclose how much it invested. Phillips Edison said, however, it will use the proceeds to reduce debt, fund redevelopment projects and expand its shopping center portfolio, which consists of 342 centers it manages and 235 it directly owns.

Phillips Edison, a privately held REIT whose shares are illiquid, is seeking shareholder approval later this week to consolidate its structure into a single entity.

Jeff Edison, chairman and chief executive of the firm, said the company is seeking a “liquidity event” and has considered an exchange listing, but shopping center assets are trading at a 20 percent or more discount relative to their net asset value.

Shares of Phillips Edison could be priced below their true value, Edison told stockholders last week.

Phillips Edison is comparable in size to Weingarten Realty Investors (WRI.N), a REIT with 185 properties as of Sept. 30, Edison said. Kimco Realty Corp (KIM.N) and Brixmor Property Group Inc (BRX.N) are larger REITs.

GRAPHIC-Strip malls REITs underperform - tmsnrt.rs/2QD8NXV

The share price of all three shopping center REITs are down about 11 percent to 12 percent this year, while the overall S&P 500 real estate sector .SPLRCR is up about 1.6 percent over that time.

Reporting by Herbert Lash; Editing by Steve Orlofsky

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