RCA in the commercial property press:

Retail REITs Pursue Stock Offerings in a Darwinian Battle of the Balance Sheets

Retail Traffic reports: In early May, Simon Property Group, the largest regional mall REIT in the country with 246 million square feet of space and a market capitalization of more than $13.7 billion, announced its second round of stock and unsecured debt offerings since the beginning of the year. The offerings included 20 million common shares priced at $50 per share, with an additional 3 million shares set aside for an overallotment option, and $600 million in senior unsecured notes. The REIT already raised $1.2 billion through concurrent stock and debt offerings in late March. With the lowest debt to total market cap ratio in the regional mall sector, at 59.10 percent, only $6.9 billion in debt coming due over the next three years and $3 billion available on its credit line, Simon did not appear under pressure to raise cash to deal with debt maturities. So why would the company decide to dilute shareholder value by issuing shares twice within the space of three months?

One answer is that with REIT stocks up considerably from lows reached earlier in the year, it is the best climate for REITs to raise cash in a while. Moreover, Simon may be gearing up to take advantage of discounted properties coming on the market over the next few years, according to Rich Moore, an analyst with RBC Capital Markets. By the time the current offerings are completed, Simon should have $2.9 billion of cash on hand, in addition to its $3 billion credit line. That will give the firm plenty of potential buying power in coming years. For example, there is already $16.8 billion worth of distressed retail assets the REIT could attempt to pluck, according to estimates from Real Capital Analytics (RCA), a New York City-based research firm. That number is likely to rise as firms face continued difficulties refinancing expiring debt. In RCA's definition, distressed assets include properties that have defaulted on loans, been foreclosed upon or transferred into the hands of special servicers or receivers. Aside from distressed assets, other owners are looking to sell non-core properties from portfolios in efforts to cut costs and raise cash.