One buy at a time: Equity One CEO Chaim Katzman has proven to be a savvy shopper, purchasing retail real estate properties and managing them to the tune of $64 million in net income for 2003

South Florida CEO, Sept, 2004 by Mike Seemuth

To draw the investors needed to help him acquire such retail centers, Katzman bought control of a public company in Israel, a corporate shell with no business operations, in 1989. He went on to use the company, called Gazit-Globe (1982) Ltd., as a vehicle to raise capital for property and business acquisitions.

Three years later, in 1992, Katzman formed Equity One as a partially owned subsidiary of Gazit that would operate as a REIT--not a popular choice of corporate structure at the time. "Everybody hated REITs," Katzman says.

REITs are exempt from federal tax as long as they pay out 90 percent of their earnings as dividends to shareholders. Many of them popped up in the 1980s. But their popularity waned, along with the real estate market, during the early 1990s.

Back then, Katzman says, many REITs ran into trouble because they lacked hands-on property management. He says Equity One is part of a new generation of REITs that are property owners and operators. "The old crop of REITs, they were sort of no more than pension funds," he says. "The new crop is self-managed and self-administered."

Equity One grew gradually during the mid-1990s. As Katzman became more active in raising capital and making acquisitions, he hired his right-hand man, Doron Valero, who is now chief operating officer of Equity One, to oversee day-to-day property management.

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"I kept raising money in Israel, and we kept buying properties here," Katzman says, "and that went on until 1998, and then we took the company public." Gazit-Globe retained partial ownership of Equity One after the business was spun off as a stand-alone company.

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Going public provided Equity One with access to US capital markets and hastened its growth. Equity One now owns 188 properties, including 128 supermarket-anchored shopping centers, 10 drug store-anchored shopping centers, 44 other retail-anchored shopping centers, a self-storage facility, an industrial property, and four retail developments.

Investors have hopped onto Katzman's bandwagon, anxious to gain the advantages of shopping-center ownership--mainly cash flow from rent--without the burden of being a landlord, which Equity One bears. In addition, shares of Equity One are easier to acquire and dispose of than shopping centers. "The one big problem with real estate is that it's an illiquid asset," Katzman says.

Corporate credibility has helped, too. As corporate scandals involving fake accounting unfolded in recent years, stocks like Equity One won over investors seeking steady dividend income.

By paying most of its net income as dividends to shareholders, and gradually raising its quarterly dividend, Equity One essentially affirms the quality of its reported earnings, Katzman says. "We take all the mystery away," he says. "You can cook the books; you cannot fake a dividend."

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PERSONAL INVESTMENT

For a man who spends so much time analyzing shopping centers, Katzman has an almost starting aversion to personal shopping. "I don't shop," he says. More of an investor than a consumer, Katzman has no interest in retailing as a business proposition, either. He says he has never made an investment in a retailer.