Commercial Real Estate Direct Staff Report

The country's 50 largest equity REITs as of the end of the first quarter faced the maturity of $14.2 billion of debt this year.

That's down from $20.3 billion of maturities at the end of last year and shows that despite the market challenges facing property companies, publicly traded REITs have managed to refinance or extend maturing debt. If you exclude General Growth Properties Inc. from the equation, the top-50 REITs' debt maturities total $10.6 billion.

But they're far from being out of the woods, despite a hospitable stock market that has allowed them to further deleverage by issuing common shares and using those proceeds to pay down debt.

Since late March, 36 REITs have raised a combined $12.8 billion of proceeds, with the bulk of that going toward the payment of debt. The bulk of the stock sales came after the end of the first quarter, so their impact isn't reflected in companies' latest financial reports.

Next year the top-50 REITs, excluding GGP, face $25.1 billion of maturities. And in 2011, they face $39 billion of maturities. GGP's maturities have been omitted because the company, through its bankruptcy, is likely to see most of its maturing loans extended.

The volume of maturing mortgages in the REIT sector is massive - nearly one-third of the top-50 REITs' total debt matures between now and the end of 2011.

As of the end of the first quarter, the 50 largest REITs had a total market capitalization of $378.2 billion. Excluding GGP, they have a market cap of $350 billion and carry $236.6 billion of debt. That's down from $432.9 billion at the end of last year - $404.5 billion, excluding GGP - and is explained by the bear market for REIT stocks during the first quarter.

Since then, however, the market has been kind, even to those companies that issued shares that heavily diluted existing shareholders.

Take Simon Property Group, the country's largest REIT, as an example. Its market cap fell to $34.9 billion at the end of March, from $40.3 billion at the end of last year, partly because of a 34 percent drop in its share price, to $34.64 each from $53.13.

But since then, it has nearly completely recovered that loss in value. Market cap is defined as a company's equity value plus debt, less cash and equivalents.

The company's shares were trading at roughly $50.15 each today. And that's after it had issued a total of 40.25 million additional shares through a pair of stock offerings, in March and May. Those shares represented nearly 16 percent of the company's 255.2 million shares outstanding before the offerings. In other words, investors saw their ownership interest in the company get diluted by 16 percent as a result of the stock offerings.

Despite the dilution, equity investors have bought up Simon's shares. The company was able to raise $1.7 billion of gross proceeds from the offerings, which could be used to tackle some of its $23.6 billion of debt, $1 billion of which comes due this year and $3 billion next year.

Excluding GGP, only two companies face more than $1 billion of maturities this year: Simon and Forest City Enterprises, whose debt is mostly carried by development ventures it operates. Next year, eight companies each face at least $1 billion of maturities. Those are:

Data as of March 31, 2009

Source: Commercial Real Estate Direct, regulatory filings

Each of the companies, except for Starwood Hotels and iStar, have recently raised capital through the sale of stock. Vornado raised $741.5 million of gross proceeds; Forest City, $345.3 million; ProLogis, $1.2 billion; CBL, $400 million, and AMB, $576.4 million. Each earmarked proceeds from their stock offerings to the repayment of debt.

Comments? E-mail Orest Mandzy or call him at (215) 504-2860, Ext. 211.