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The Macerich Company (NYSE: MAC) may be pressured to issue equity to refinance near term maturities possibly including USD 406m due in 2009, two underwriters told dealReporter. However, one of the underwriters said it was his understanding management was opposed to the move and had not even cut its dividend.
Macerich recently filed documentation for its annual shareholders’ meeting requesting an increase in the number of common shares which can be issued from 220m to 325m shares.
Macerich spokespeople did not respond to a request for comment. However, the company said in its recent 10K filing that it expected all 2009 debt maturities to be refinanced, extended and/or paid off from the company’s line of credit. The company has a USD 1.5bn revolving line of credit that matures on 25 April 2010 with a one-year extension option.
Several institutional investors polled said they would have an appetite for Macerich equity and concurred the mall REIT needed to come to the market.
One portfolio manager ranked a Macerich equity raise as quite attractive, in fact, second only to Taubman (NYSE: TCO). A second portfolio manager described Taubman as “battleship like” and said it may not, therefore, be an immediate term equity issuer unless it were to look for acquisitions.
The first portfolio manager said companies which followed Macerich on his list of most desirable mall equity issues were CBL and Associates Properties (NYSE: CBL) Glimcher Realty Trust (NYSE: GRT) and Pennsylvania R.E.I.T. (NYSE: PEI). However, the portfolio manager acknowledged those companies’ portfolios could be a tough sell in the equity markets. But an underwriter said he was skeptical whether institutional investors were simply seeking equity issuances from severely undervalued mall REIT stock. Many of the portfolio managers agreed these mall REITs needed to issue equity in order to survive.
REITs overall have been doing equity offerings in “over the wall transactions” or pre-arranged sales to leading industry investors, according to several portfolio managers. One portfolio manager said “So far the markets seem very receptive. The equity deals are scaring away the shorts a little bit because there is less concern about liquidity risks once a company has taken the painful dilution step.”
A third portfolio manager said these transactions have been enticing investors that have traditionally not been REIT players. “Small-cap, mid-cap and large-cap value managers who have been underweight are seeing this sector start to work and they want to get exposure,” he said.
While some companies have the financial standing to tap the equity markets to refinance debt maturities, more distressed REITs will have little choice but to turn to the secured financing market which is currently offering “painful” rates, an underwriter said.
The two underwriters and an investor said it was their understanding insurance companies were not keen on financing retail assets, especially malls, in exchange for secured financing. One investor and an industry executive said they were hearing that banks both in the US and EU were considering filling the void by offering secured financing to retail REITs at 7.5-mid 8% yields while asking for amortization and points up front.
Two separate retail REIT portfolio managers and underwriters thought that other likely equity issuers might include Highwood’s (NYSE: HIW) and Federal Realty (NYSE: FRT), which on 15 April disclosed an attempted over the wall transaction. One underwriter said Federal might look to the capital markets if there were a sustained rally. Another underwriter indicated that Entertainment Properties Trust (NYSE: EPR) might issue equity to deal with its own upcoming debt maturities.
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