By Gabrielle Coppola
Aug. 7 (Bloomberg) — Simon Property Group Inc., the biggest U.S. shopping-mall owner, led $1.25 billion of real estate company bond sales this week, raising cash for possible acquisitions as credit markets eased.
The real estate investment trust doubled the size of a previously planned debt offering to $500 million by reopening its 6.75 percent notes due in 2014. Duke Realty Corp., an owner of industrial, office and retail properties, added $250 million of 10-year bonds to its planned $250 million sale of 5.5-year notes. Both REITs are based in Indianapolis.
Property companies are taking advantage of opening credit and equity markets this year to refinance debt as maturities loom and raise funds for potential acquisitions from competitors weakened by the recession. The rally in corporate credit has driven yields on company debt relative to benchmark rates to the lowest since July 2008.
“It’s monkey-see, monkey-do,” said Gregory Habeeb, who manages $7.5 billion of fixed-income assets at Calvert Asset Management Co. in Bethesda, Maryland. “It’s a good market right now to borrow money, relative to where it was six months ago.”
The yield on Simon’s new notes was more than two percentage points less than the company paid on the initial offering on May 11, according to data compiled by Bloomberg.
“The window has gone from being tightly shut then to at least being open for the property companies,” said Ritson Ferguson, chief investment officer of ING Clarion Real Estate. “It’s now starting to get to a level of pricing that may look bad relative to 12 to 18 months ago, but it’s still much more encouraging than what we saw back in the depths of the capital crisis.”
Simon Leading Pack
Real estate investment trusts have been hurt by a drop in property prices and a decline in occupancies and rents amid the 21-month long recession. U.S. commercial real estate values fell almost 23 percent through March 31 from the peak in October 2007, Moody’s Investors Service said in May.
Simon Property was the first U.S. REIT to return to credit markets this year after the collapse of Lehman Brothers Holdings Inc. last September froze access to capital and sent borrowing costs to record highs. Simon agreed to a 10.35 percent coupon on $650 million of 10-year bonds on March 20, Bloomberg data show.
The bonds yesterday traded at 121.15 cents on the dollar to yield 7.26 percent, or 350 basis points more than U.S. Treasuries of similar maturity, according to Trace, the bond- price reporting system of the Financial Industry Regulatory Authority.
“Simon represented one of the stronger names and they got it done when I don’t think anybody else could,” Ferguson said.
Simon Property’s new five-year notes priced to yield 275 basis points more than benchmarks, compared with 497.9 basis points when Simon first issued the debt, Bloomberg data show.
The notes are rated A3 by Moody’s Investors Service and A- by Standard & Poor’s, Bloomberg data show. Citigroup Inc., Deutsche Bank AG, Goldman Sachs Group Inc. and UBS AG underwrote the sale announced yesterday.
The lower spread is encouraging other real estate investment trusts to come to market, Habeeb said.
The average yield on corporate bonds narrowed four basis points yesterday to 379 basis points, the lowest since July 2, 2008, when the average corporate bond yielded 377 basis points more than benchmarks, according to Merrill Lynch & Co.’s U.S. Corporate & High-Yield index.
Duke Realty’s additional $250 million of 8.25 percent, 10- year notes priced to yield 463.3 basis points more than benchmarks, and the 7.375 percent debt due in 2015 pays a 479.2 basis-point premium, data compiled by Bloomberg show.
Mack-Cali Realty LP, which owns 295 properties, mostly in the Northeast, sold $250 million of 10-year, 7.75 percent senior unsecured notes Aug. 5 that priced to yield 411.5 basis points more than Treasuries, Bloomberg data show.
This week’s offerings are the first sales of real estate company debt since CB Richard Ellis Group Inc. sold $450 million of 11.625 percent notes on June 15, according to data compiled by Bloomberg.
Simon Property issued $1.75 billion of bonds so far this year, the data show.
Chief Financial Officer Stephen E. Sterrett has expressed interest in properties belonging to Chicago-based General Growth Properties Inc., which filed the largest U.S. real estate bankruptcy April 16. General Growth, the owner of more than 200 regional shopping malls in 44 states, was trying to sell properties including Boston’s Faneuil Hall and New York’s South Street Seaport when it filed for bankruptcy protection.
Les Morris, a Simon Property spokesman, wouldn’t comment on the company’s plans for the money raised.
About 50 publicly traded real estate businesses have raised $15.7 billion through equity sales in the first half, according to the National Association of Real Estate Investment Trusts.
To contact the reporter on this story: Gabrielle Coppola in New York at email@example.com
Last Updated: August 7, 2009 00:00 EDT