RCA in the commercial property press:

Massive REIT Stock Offerings May Signal Future Deals

Retail Traffic reports: Simon Property Group, an Indianapolis-based REIT with the largest retail portfolio in the country at 246 million square feet, was the first to announce a stock offering on March 19, concurrent with a debt offering. By March 25, the firm closed on the sale of 17.25 million common shares, priced at $31.50 per share, and $650 million of its 10.35 percent senior unsecured notes, for a total of approximately $1.2 billion. Speaking at New York University’s annual REIT symposium on Apr. 2, Steven Roth, chairman and CEO of Vornado Realty Trust, a New York City-based diversified REIT which has also commenced a stock offering recently, said the stronger players in the REIT sector would soon start raising equity in order to buy quality assets.

Since then, five additional retail REITs have announced stock offerings, including Kimco Realty Corp., Regency Centers Corp., Weingarten Realty Investors, Acadia Realty Trust and Equity One, Inc. The trend was further spurred by a price recovery in the REIT sector—in the past month, REIT shares have risen by 30 percent to 60 percent, according to Morningstar. In March, the NAREIT Equity REIT Index registered a 3.05 percent increase in REIT prices after a 21.28 percent drop in February. Fearing the rally might not last, REIT executives might feel they have a short window of opportunity to improve their balance sheets, says Rich Moore, an analyst with RBC Capital Markets.

"There is real fear about this credit environment," Moore notes. "I think it tells you how bad things are when you have so many REITs making the same play. When they all do it, something’s not right."

Nevertheless, most analysts agree some of the money might be deployed toward acquisitions of choice assets, given that in April prices on commercial properties were down 17 percent year-over-year, according to Real Capital Analytics, a New York City-based research firm. Retail prices were down more than 25 percent from 2007 peaks. Many observers predict that the peak-to-trough drop-off in retail property prices will total approximately 45 percent.

Subscribers: for more on recent REIT activity, see "REIT Offerings Provide an Opening for Capital," in RCA's April 2009 issue of Capital Trends Monthly.