REIT Has Excel-lent Chance of Raising Dividends

NEW YORK ( TheStreet) -- It seems that the West Coast has been a terrific market for launching real estate investment trusts, especially several San Diego-based shopping center REITs. Last week I wrote about Retail Opportunity Investment Corporation ( ROIC), a "sharp shooting" value add REIT that has been making waves. As I explained in an article on The Street:

"ROIC's differentiated model focuses on acquiring properties from distressed or under-capitalized shopping center owners."

Just a few miles away from ROIC's corporate office in San Diego is Excel Trust ( EXL) another uniquely positioned shopping center REIT. Organized on Dec. 15, 2009, Excel went public on April 28, 2010 (almost three years ago) and since that time the strategically-focused retail REIT acquired 32 properties focused on necessity-brand tenants with a value oriented sales model. Excel's tenant roster consists of many leading "best in class" retailers including Publix Super Markets, Lowe's Companies ( LOW), Bed Bath & Beyond ( BBBY), Kohl's ( KSS), Ross Stores ( ROST), and TJX Companies (TJX) TJX Companies ( TJX) .

Excel's investment platform is to locate in hubs that form a lower circle around the U.S. By connecting dots in San Diego, San Francisco Bay, Phoenix, Dallas, Atlanta, and Washington, DC, the "smile states" model forms a demographic footprint representing a broad base of retail tenants with above average sales per square foot.

Differentiated by Experience

Although Excel is a fairly new REIT, the company has considerable experience and a proven track record. Many of the senior associates were assembled during the time in which Chairman Gary Sabin launched Excel Realty Trust (not to be confused with the original Excel Trust, Excel Realty Trust was Sabin's initial vehicle when he started his career in 1978). Sabin's former company, Excel Realty Trust went public in 1993 and had several exceptional years where his company was a top REIT performer (1995 and 1997). After a series of mergers, most of the assets at Excel Realty Trust were rolled into Kimco Realty ( KIM) in 2004.

The new Excel Trust has over three decades of shopping center investment experience as evidenced by the tenured senior management team including founder Sabin, President and COO Spencer Plumb --16 years; CFO and Treasurer Jim Nakagawa -- 19 years; CIO and SVP Mark Burton and SVP and General Counsel Eric Ottesen -- 18 years.

Excel-lent Results

Excel Trust reported that its 2012 adjusted funds from operations for the quarter was $8.5 million, or 20 cents per diluted share and for the year of $28.6 million, or 78 cents per diluted share (5% increase year over year). During 2012 the company acquired $440 million in properties and surpassed the year with $1 billion in total assets owned.

In a recent press release Excel Chairman and CEO Gary Sabin commented:
"2012 was transformational for Excel Trust in several respects. By acquiring $440 million in quality properties, our asset base surpassed $1.1 billion and our portfolio now exceeds 5.5 million square feet. We lowered our cost of debt by improving our credit facility and anticipate beginning discussions with the rating agencies in order to position the Company to access the unsecured debt markets. These are important milestones for the Company and we are well on our way to accomplishing the goals we set at the time of our IPO a little over two and half years ago."

Excel's Board of Directors recently declared a first quarter 2013 cash dividend of 17 cents per share compared to a cash dividend of 16.25 cents per share for the previous quarter, to be paid on April 15 to shareholders of record as of March 29. Excel Trust's common shares are trading at $13.65 and the current dividend yield is 4.98%.

Another option is to consider Excel Trust 8.125% Series ( EXL.PB) stock cumulative and payable quarterly at the rate of 8.125% per annum of its liquidation preference, which is equivalent to $2.03125 per annum per share.

The Excel-lent Target

Excel has a unique investment strategy of acquiring off-market transactions at higher going-in yields (cap rates) with strong net operating income upside. Excel Trust looks like an excel-lent REIT to own. Since mid-November shares have increased by more than 20% while the company returned more than 23% during the same period. The company has a current market capitalization of $639 million and shares are trading at $13.65. My target price is $14.00.

At the time of publication the author held no positions in any of the stocks mentioned.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

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