REITs Raising Cash

Simon Property Group (SPG) announced this week the sale of 17.2 million shares of common stock at $31.50 per share. In conjunction with the equity sale, SPG sold $650 million of 10.35% notes raising a total of about $1.2 billion.

Earlier this week, AMB Property Corp. (AMB) priced 41.25 million shares, with an option to purchase up to 6.1 million ore at $12.15 per share. The offering is expected to close on May 30th.

Both Simon and AMB are selling equity at heavily depressed prices. AMB is trading near 8-year lows and SPG near 10-year lows. Both companies will use most of the proceeds to pay down debt. Selling equity at low price dilutes current shareholders, but it raises needed cash.

With property values falling, it is harder to raise cash through asset sales or property level debt. The unsecured markets are still frozen or prohibitively expensive.

We are generally positive on the equity sales and think more companies will follow suit, if they can. Companies that have cash and debt availability could be presented with some good buys from distressed sellers over the next year or so. Cap rates are rising at a fast clip which makes property investing more profitable.

Also, we like the idea of paying down debt; REITs will lower leverage and low near-term debt maturities have a better chance of being around when the capital markets stabilize.

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