Just in case you thought there was a shortage of REITs and commercial property, SPG has the answer
More dumb money needed.
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Reuters
EXCLUSIVE-INTERVIEW-Simon Property CEO sees new round of REITs
08.28.09, 3:37 PM ET
United States -
* CEO says has little competition for acquisitions
* Says market ripe for new round of public REITs
By Ilaina Jonas
NEW YORK (Reuters) - With the debt markets in the doldrums but the equity markets roaring, the U.S. commercial real estate sector may be ready for a new round of public companies in what could be a replay of the early 1990s, said the head of Simon Property Group Inc , the largest U.S. real estate investment trust (REIT).
Simon's ability to raise more than $1.8 billion issuing new shares this year helped crack open the equity market for other REITs to launch similar follow-on offerings. So far this year, public property REITs have raised more than $15 billion in new share offerings.
The market's receptiveness is likely to help launch a new round of REITs, as private real estate companies with the need for cash tap the public equity markets by launching initial public offerings of shares, Simon said.
"They won't be companies that are just thrown together," David Simon, chairman and chief executive officer of the company his father started in 1960, told Reuters in an interview Thursday at the company's 14-story Indianapolis headquarters.
"They'll be companies that over a period of time have put together a good portfolio that need to get a better balance sheet."
Other IPOs will be former public companies taken private during the boom years of 2004 through 2007, said Simon, who spent his first five years out of Columbia Business School working as an investment banker, first with First Boston and then with Wasserstein Perella & Co.
Suffering from a drought of available credit, the lion's share of the U.S. commercial real estate industry is still in its most severe downturn since the early 1990s.
Mortgage default rates continue to climb, as owners of shopping centers, hotels, office buildings, warehouses and apartment buildings find few sources to refinance their debt, while the U.S. recession stomps occupancy and rental rates.
The current capital environment for real estate is nearly a repeat of the early 1990s, when no other sources of capital were available and many real estate companies, such as Simon and Taubman Centers Inc, went public in what is referred to as the modern REIT era.
Simon, the largest U.S. REIT, owns or has a stake in 387 malls, outlet centers and other properties in the United States, Asia and Europe. Rebounding quickly from the credit freeze, it has pulled further ahead as the sector's leader, with the ability to crack frozen credit for other companies and raise tons of cash.
"The fact is the capital markets restarting as successfully as they have has been a real pleasant surprise, a real unknown that no once could have expected," Simon said.
Simon's closest rival, General Growth Properties Inc , became the poster child of binge borrowing in April, when it filed Chapter 11 bankruptcy.
Although Simon's business is also taking its lumps, its balance sheet is buffed. Through equity and debt offerings and new mortgages, Simon has cash on hand of $3.8 billion, or $11 per share, and access to $3 billion more under its corporate credit facility.
Many investors and analyst are betting that Simon eventually buys some or all of the General Growth's 200-plus malls. Simon has remained reticent.
"It's a very important company in our industry. We continue to monitor and study it closely. Beyond that, there's nothing I can add," he said.
Still, Simon is very well aware that there are very few companies that offer competition for acquisitions.
"From my standpoint there's not many people that are going to compete with us," he said. "We're busy looking at opportunities. We feel that the balance sheet can do something. In addition, there's been lots of expression to do something with us from well-heeled partners." (Reporting by Ilaina Jonas, editing by Gerald E. McCormick)
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