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New REIT Brixmor Has a Wide Moat

The deal sports an attractive dividend of 4%


New real estate investment trust (REIT) Brixmor Property Group (BRX), priced 41.25 million shares at $20. And so far in today’s trading, the shares are up about 1.5%. The offering comes on the heels of a spate of other real estate offerings, like the Empire State Realty Trust (ESRT).  For the most part, Wall Street’s enthusiasm remains fairly robust.

Brixmor is the result of Blackstone’s (BX) $9 billion asset purchase from Centro Properties Group in 2011. Since then, the company has undergone a restructuring, which has involved shedding various noncore assets.

“Blackstone has been a great partner for our business,” said Bixmor CEO Michael Carroll (I interviewed him this morning). “Before the acquisition, the company was capital-constrained and overlevered. It couldn’t grow. But with Blackstone, we had the runway to reinvest our cash flows back into the business.”

But it certainly helped that Carroll introduced a focused strategy as well:

Scale:  Carroll has put together the largest pure-play grocery anchor operator. This has certainly made it easier to attract tenants, since grocery stores generate substantial recurring traffic and sales.

In all, the portfolio consists of 522 shopping centers, which total about 87 million square feet.

Quality: Carroll has focused the portfolio on the top 50 markets in the U.S.  Consider that some of the marquee tenants include Walmart (WMT), Kroger (KR), Publix, TJX (TJX) and Ross Stores (ROST).

Organic growth: While acquisitions are important, they are not critical. Keep in mind that a large part of Bixmor’s portfolio has below-market rents. So as time goes by, these will steadily increase.

But perhaps the biggest driver for Bixmor is on the supply side. Since the financial crisis, there has been little construction of new shopping centers. “We think there will not be any meaningful supply until five years,” said Carroll.

OK, then what if the U.S. economy goes into a tailspin in the meantime? Well, Bixmor should be protected. Carroll says his company benefits from “necessity retail.” In other words, people need to go grocery shopping regardless of the economic conditions. In fact, sales often increase during slow times because people generally cut back on going out to eat. “Grocers are a premium asset class today,” said Carroll.

So all in all, Bixmor has all the qualities of a fairly conservative real estate investment. Oh, and it helps that the company generates large cash flows, which allows for an attractive dividend of 4%.

No doubt, this is the kind of deal you generally do not find often in the IPO market.  Then again, Bixmor is the largest retail REIT offering to hit the market in about 20 years.

Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO StrategiesAll About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.

Article printed from InvestorPlace Media, http://investorplace.com/ipo-playbook/brixmor-ipo/.

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