REITs Lag Behind Broader Equities; Investors Make Room For Simon Deal

Real-estate stocks sat out the gains achieved in the broader equities markets Thursday as investors made way for a $1.5-billion debt offering from Simon Property Group Inc. (SPG), the nation's largest real-estate investment trust by market capitalization.

The MSCI US Reit Index was almost down almost 1% while the S&P 500 Index was up about 1% near the market's close. Among the largest REITs, Simon Property ended up a penny at $138.24 after being down for most of the trading session. Boston Properties Inc. (BXP) dropped 1.1% to $101.91 and Kimco Realty Corp. (KIM) declined 1% to $18.18.

Some analysts attributed the declines to investors selling out of some REITs to have cash to buy into Simon's three-part debt deal that was launched this session. The Indianapolis company is raising the debt to fund or repay loans partly used for the acquisition of a 28.7% equity interest in Klepierre (KLPEF, LI.FR), a publicly traded French REIT.

The company also issued about 7 million shares which can be dilutive to existing stock.

"We rarely see property deals," in the corporate bond market, said David Harris, an analyst with Imperial Capital. "I think that caused a few people to sell their positions to take up that offer. Otherwise, the stock would have traded with the market."

James Sullivan, an analyst at Cowen & Co., said that in addition to the Simon deal, REITs have been underperforming broader equities recently as more companies become fully valued. "REITs have lost some of their momentum," he said, noting the sector has usually outperformed during the last two years.

In a sign of waning demand, the National Association of Real Estate Investment Trusts' FTSE NAREIT All Equity REITs Index fell 0.91% in February, compared with a 4.32% gain for the S&P 500.

Sullivan added that he sees investors shifting to other sectors and out of REITs.

-By A.D. Pruitt, Dow Jones Newswires; 212-416-2197; [e-mail]