General Growth’s Debt Problems Unusual for REITs

Recently mall giant General Growth Properties took another few steps in dealing with its problematic debt, which totals about $18.4 billion coming due over the next three and a half years. One step was the paydown of $391 million in short-term debt. The other was another closing in a new loan facility, to the tune of $1.75 billion that Chicago-based General Growth is putting together, with Deustche Bank as the lead lender. Currently, that credit facility totals $1.41 billion. Most observers feel that General Growth will be able to overcome its debt problems in the long run, but also say that as a REIT, it’s problems are unusual. In the years running up to the credit crunch, most REITs were fairly conservative in terms of borrowing. Statistics on REIT borrowing in recent years compiled by SNL Financial L.P. illustrate that fact. As of the second quarter of 2008, REITs averaged a leverage ratio — total debt/total capitalization – of only 44.84 percent, which was about the same as it had been in the third quarter of 2003 (44.65 percent). The ratio had been as low as 36.65 percent in the fourth quarter of 2006. When compared with total assets, REIT debt levels are also a little higher, but not much: as of the 2Q08, REITs averaged a 53.8 percent ratio of total debt/total assets. Moreover, SNL Finanical notes that among REITs’ current debt, an average of 46.38% of it matures after 2012. Moreover, of all REIT debt, only 20.09% of it is variable-rate debt. “There isn’t too much REIT debt maturing over the next two to three years,” Keven Lindeman, director of the real estate group at SNL Financial, told CPN. “A lot of it is five-plus years out. There are cases in which REITs will have to tap the debt market, but most won’t — if the capital markets are choppy for the next six months, it won’t be that much of a problem for REITs.”