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Thursday, 05 September 2019

REITs Take Advantage of Super-Low Rates; Issue Gobs of Notes

Simon Property Group, among the largest REITs in the country, yesterday issued a whopping $3.5 billion of unsecured notes, which in a normal year would account for more than 10 percent of such issuance by all REITs. It wasn't the only REIT taking advantage of low rates and strong investor demand.

Commercial Real Estate Direct Staff Report

Simon Property Group, among the largest REITs in the country, yesterday issued a whopping $3.5 billion of unsecured notes, which in a normal year would account for more than 10 percent of such issuance by all REITs.

The Indianapolis mall owner was taking advantage of rock-bottom interest rates and healthy investor demand for REIT bonds. It wasn't the only REIT selling this week - three others sold bonds and one other was in the market. All told, $5.2 billion was in the process of being or had been sold. That amounts to nearly 20 percent of the total issuance in a typical year for the REIT sector.

REIT

Ticker

Date

Amt $mln

Term Yrs

Coupon%

Rating Mdy

Rating S&P

Alexandria Real Estate Equities Inc.

ARE

9/3/2019

400.00

10

2.75

Baa1

BBB+

Kilroy Realty Corp.

KRC

9/3/2019

500.00

10

3.05

Baa2

BBB

Simon Property Group

SPG

9/4/2019

1,250.00

30

3.25

A2

A

Simon Property Group

SPG

9/4/2019

1,250.00

10

2.45

A2

A

Simon Property Group

SPG

9/4/2019

1,000.00

5

2.00

A2

A

Highwoods Properties

HIW

9/4/2019

400.00

10

3.05

Baa2

BBB

Healthcare Trust of America

HTA

PEND

350.00

7

3.50

Baa2

BBB


Alexandria Real Estate Equities Inc. on Tuesday had set a record-low coupon for a REIT 10-year bond issue when it sold $400 million of 10-year notes with a 2.75 percent coupon, pricing them at 2.767 percent, or 130 basis points more than Treasurys.

Simon blew that record out of the water with the 2.45 percent coupon on a $1.25 billion issue of 10-year notes. The company's unsecured credit ratings of A2 by Moody's and A by S&P are a couple of notches higher than Alexandria's Baa1/BBB+ ratings. Its notes priced at 98.93 percent of par to yield 2.572 percent, or 110 bps more than Treasurys, a clear indication that investor demand was extremely healthy.

Simon also sold $1.25 billion of 30-year bonds with a 3.25 percent coupon and $1 billion of five-year notes with a 2 percent coupon. The long bonds priced to yield 3.271 percent, or 130 bps more than Treasurys, while the notes priced to yield 2.021 percent, or 70 bps more than Treasurys.

Separately, last week an affiliate of Prologis sold $2 billion of euro-denominated notes through three tranches, with seven-, 10- and 30-year terms and 0.25 percent, 0.625 percent and 1.5 percent coupons, respectively.

The REITs, like other companies, were taking advantage of super-low Treasury yields, which serve as the benchmark for other debt instruments. The 10-year Treasury's yield remained at 1.47 percent yesterday. While not a record low - that's 1.36 percent, reached two years ago - some expect it to decline further.

The companies generally are using proceeds from their bond offerings to pay down debt and fund developments.

Simon, for instance, said it would retire notes with higher coupons that come due next year through 2022. It also might pay down amounts outstanding under a commercial paper program.

Meanwhile, issuance among REITs isn't done. Healthcare Trust of America Inc. is planning to issue seven-year bonds with a 3.5 percent coupon and 10-year bonds with a lower coupon, given its Baa2 rating from Moody's and BBB rating from S&P.

It's using proceeds to redeem $300 million of notes that don't come due until 2021, but pay a coupon of 3.375 percent. It also might pay down some of the $400 million of notes that are outstanding and don't come due until 2022. Those pay a coupon of 2.95 percent.

Comments? E-mail Orest Mandzy, or call him at (267) 327-4281.





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Data Digest

 

CMBS DELINQUENCY VOLUME

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CMBS SPECIAL SERVICING VOLUME

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Top Bookrunners Domestic, Private-Label CMBS - 2017
Investment Bank #Deals Vol$mln MktShr%
Goldman Sachs 17.59 11,819.34 13.68
JPMorgan Securities 14.52 10,968.11 12.70
Citigroup 12.04 10,012.71 11.59
Wells Fargo Securities 14.02 9,936.06 11.50
Deutsche Bank 12.55 9,879.74 11.44

 

RCA CPPI

 

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CMBS 2.0 Spreads

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Top CMBS Loan Contributors - 2017
Lender #Loans Vol$mln MktShr%
Goldman Sachs 146.89 11,719.34 13.63
JPMorgan Chase Bank 117.68 10,114.14 11.76
Deutsche Bank 198.48 9,689.97 11.27
Morgan Stanley 166.18 8,539.78 9.93
Citigroup 199.05 8,088.24 9.41

 

 

 

REITCafe

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