IPO Preview: Retail Properties Of America

| About: Retail Properties (RPAI)
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Based in Oak Brook, Illinois, Retail Properties of America (NYSE:RPAI) scheduled a $350 million IPO with a market capitalization of $2.5 billion at a price range mid-point of $11 for Thursday, April 5, 2012. Managers, Joint Managers: J.P. Morgan; Citigroup; Deutsche Bank; KeyBanc.

Four IPOs are scheduled for this week. See the full IPO calendar here.


RPAI owns and operates shopping centers, and some office buildings.

Based on 2011's payout, RPAI would have returned 4.9% at the price range mid-point of $11. Compared with other shopping center REITS RPAI's dividend is at the high end, but not by much.

For example: Regency Centers (REG) pays 4.7%; Equity One (EQY) pays 4.4%; Pennsylvania REIT (PEI) pays 4.1%; Macerich (MAC) pays 3.9%; General Growth Prop (GGP) pays 2.4%. Source: Google Finance.

On a YTD basis the above stocks in the shopping center REIT sector are up 10-20%, although PEI is up 40% (see chart).


RPAI is one of the largest owners and operators of shopping centers in the United States. As of December 31, 2011, its retail operating portfolio consisted of 259 properties with 34.6 million square feet of gross leasable area, or GLA.

RPAI's retail operating portfolio is geographically diversified across 35 states and includes power centers, community centers, neighborhood centers and lifestyle centers, as well as single-user retail properties. Power centers are also known as a retail park or stretch mall.

Power centers usually include "an unenclosed shopping center with 250,000 square feet (23,000 m2) to 750,000 square feet (70,000 m2) of gross leasable area[1] that usually contains three or more big box retailers and various smaller retailers (usually located in strip malls) with a common parking area shared among the retailers. It is likely to have more money spent on features and architecture than a traditional big box shopping center."

As of December 31, 2011:

  • Over 90% of RPAI's shopping centers, based on GLA (gross leasable area), were anchored or shadow anchored by a grocer, discount department store, wholesale club or retailer that sells basic household goods or clothing.
  • RPAI's total retail tenant base included 1,500 tenants with 3,200 leases at retail properties. Largest shopping center tenants include Best Buy, TJX Companies, Stop & Shop, Bed Bath & Beyond, Home Depot, PetSmart, Ross Dress for Less, Kohl's, Wal-Mart and Publix.
  • No single retail tenant represented more than 3.3% of RPAI's retail annualized base rent, and the top 20 retail tenants, with 389 locations across our portfolio, represented an aggregate of 36.9% of RPAI's retail annualized base rent

Leasing Activity

During 2011, RPAI signed 189 new leases for 1,616,000 square feet and 333 renewal leases for 2,505,000 square feet, representing a renewal rate of 86.6%.

For new leases, rental rates have generally been below the previous rates and RPAI continued to see demands for rent abatement and capital investment, in the form of tenant improvements and leasing commissions. However, such rental spreads for new leases appear to be stabilizing and rental rates on renewal leases signed during 2011 increased by 4.0% over previous rental rates.

Industry Outlook

Economic growth, measured by GDP, increased gradually through 2011, driven by continued growth in consumer spending, private investment and a deceleration in government cutbacks.

Looking forward, Rosen, a nationally recognized real estate consulting firm, believes that the pace of the economic recovery that began in 2010 and 2011 will accelerate in 2012 with real GDP increasing from an estimated annual growth rate of 1.8% in 2011 to 2.5% in 2012. While Rosen expects GDP growth to slow to 1.5% in 2013, Rosen believes renewed economic growth thereafter will lead to 2.5% and 2.7% real GDP growth in 2014 and 2015, respectively.

Retail Real Estate Market

Although there were a substantial number of retailer bankruptcies during the recession, Rosen believes that the bulk of store closures have already occurred. Store closing announcements decreased sharply in 2011, with store closing announcements by major retailers totaling just 2,877 through the first three quarters of 2011, compared to 6,900, 4,810 and 5,170 announced closures in 2008, 2009 and 2010, respectively, according to the International Council of Shopping Centers.

Rent and Vacancy Rate Trends and Outlook

Market fundamentals weakened between 2006 and 2010 due to store closings, bankruptcies and liquidations, coupled with a large amount of new supply entering the market between 2002 and 2008.

With stronger retailer expansion activity and low levels of construction, the retail vacancy rate decreased to 8.5% in 2011 after peaking at 8.8% in 2010. Rents also improved in 2011, with rents increasing at a faster pace for neighborhood and community centers and regional malls than for power centers. Rents also increased for power centers in the first quarter of 2011 for the first time since the second quarter of 2009. Neighborhood and community centers were the healthiest throughout the downturn because of the relative stability of tenants at these types of centers, such as drug stores and grocery stores.


As of December 31, 2011, RPAI had 265 employees.

Use of Proceeds

RPAI expects to net $320 million from its IPO. The proceeds are allocated as follows:

  • $265 million to repay debt
  • $55 million repurchase a joint venture equity interest from Inland Equity.


RPAI appears reasonably priced, based on last year's payout, price-to-book ratio, and on its percentage leased ratio.

So if a portion of an investor's portfolio is allocated to shopping center REITs, then RPAI should be added as well. IPO buyers looking for a significant increase the first day or so, however, won't get it from RPAI.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Disclaimer: This RPAI IPO report is based on a reading and analysis of RPAI's S-1 filing, which can be found here, and a separate, independent analysis by IPOdesktop.com. There are no unattributed direct quotes in this article.