On April 5, the public markets welcomed another real estate investment trust [REIT] to its listings, as Retail Properties of America (RPAI) underwent its initial public offering, raising $254 million by offering 32 million shares at $8/share. The company was listed on the NYSE, and featured JP Morgan, Citigroup and Deutsche Bank as its lead underwriters. It came in below the range of $10/share to $12/share that was originally proposed.
The company is detailed as the third largest shopping center REIT in the United States, with 259 retail properties. As a result, the REIT competes against large competitors found in Macerich (MAC), General Growth Properties (GGP), Simon Properties Group (SPG). Yet with 34.6 million square feet of gross leasable area, the company is more than capable to attract the spectrum of tenants, which include among many others, Best Buy (BBY), Target (TGT) and Home Depot (HD).
Detailed in its S-1 filing, the company asserts that its key competitive strengths lie in the following:
- A large, diversified, high quality retail portfolio. Retail Properties of America operates properties in 35 states with no single metropolitan statistical area exceeding 4.6% of their retail annualized base rent (apart from Dallas-Fort Worth-Arlington, which accounts for 15%). The REIT's shopping centers are located primarily in densely populated areas and have high quality anchor stores that tend to drive consumer traffic on a regular basis.
- A diversified base of value-oriented retail tenants. Concentrating primarily on grocers, drug stores, discount retailers and other basic household good retailers, RPAI boasts a diversified listing of 1,500 tenants with approximately 3,200 leases at their retail properties. The company generally maintains long-term leases with their tenants.
- Demonstrated leasing and property management platform. Citing its active management of covering its leases in light of the large bankruptcies of Mervyns, Linen 'n Things, and Circuit City in 2008, the company was able to lease 2.3 million square feet of the 3.2 million square feet that was made vacant. Of noted interest is that this 2.3 million square feet was leased to existing tenants.
- Capital structure positioned for growth. The company believes it has a conservative leverage structure with less than $649 million of debt maturing during any given year. It retains a weighted average maturity on its debt of about 6 years and uses fixed rate debt.
- Experienced management team with a proven track record. The senior management team averages an impressive 22 years of real estate industry experience between them. The company was also able to navigate the refinance of $3 billion of mortgage indebtedness without access to the public markets in 2009.
With the US real estate market and US economy just beginning to recover in a meaningful way, Retail Properties of America's timing in its offering could not have been much better. Having successfully navigated the Great Recession that severely took its toll in 2009, the REIT appears to be stabilizing nicely as it deleverages its debts. In December 2009, the company held $4 billion in long-term debt and has since dropped this amount to $2.9 billion as of December 2011. With a book value of 11.03, the company currently trades with a price/book ratio of 0.79 at its current price of 8.73. As of April 11, 2012, the company maintained a market capitalization of $1.7 billion. Investors may wish to see what kind of consistent yield the company will provide prior to taking a position.