REITBull

Putting the REIT Maturity Crunch into Perspective

It's important to note that these are revolving lines of credit that are usually issued by a syndicate of banks (not just one such as Merrill). The line does not close by paying the balance off. For example, a REIT could have $1 billion outstanding on its $3 billion line of credit. Let's say Merrill underwrites an equity offering to raise $1 billion. Merrill would receive seperate fees for underwriting the offering and the REIT would receive the $1 billion from the funds raised and pay off the outstanding balance. From Merrill's perspective, they will no longer be receiving interest payments if there is no balance outstanding on the line, so I do not agree that this is the scam that people are making it out to be. The REIT can draw down the line again in the future and Merrill and the other syndicates will be required to fund the draws.

Simon Property Group has $3 billion on their line of credit in addition to $1 billion in cash (thanks to the recent equity offerings). Having this amount of availabilty on their line allows them to use the $1 billion in cash to make opportunistic purchases or retire outstanding debt. This will allow them to grow FFO in the long term and will outweigh any short term dilution.

On May 13 09:01 AM dcb wrote:

> So you pay down this line of credit so you can tap it again?
> Does this mean the money being raised by Merrill (lets say) by underwriting
> is going back to the credit line at merrill? wouldn't that be some
> kind of conflict of interest? I raise equity and dilliute shareholders
> to pay myself back?
>
> Please explain?

Putting the REIT Maturity Crunch into Perspective

"Amusingly, the REITs which face staggering near-term maturities are still unable to access the debt capital markets (with one or two notable exceptions), yet have raised well over $10 billion in equity to date (which they have used almost exclusively to pay down the cheapest form of capital: secured credit facilities: why?) leaving one to truly wonder just what is the big picture here really all about (aside from ML pocketing dilution cash)."

The "big picture" here is to leave their credit facilities open. If a REIT cannot refinance an upcoming debt maturity, they will tap the credit facility to avoid a maturity default. This leaves the REIT more time and flexibility to find financing or sell assests if needed. SPG has about $3 billion of availability on on their credit facility. Many others have over $1 billion available.