Capital Shopping Joins Europe REITs’ $3.5 Billion Bond Sales

Capital Shopping Centres Group Plc (CSCG), the U.K.’s largest specialist mall operator, joined four other European real estate investment trusts selling bonds this month, lifting the amount companies raised to almost $3.5 billion.

Capital Shopping sold six-year convertible bonds to raise 300 million pounds ($566 million), the London-based company said in a statement. British Land Co. and Hammerson Plc (HMSO) of the U.K. and France’s Unibail-Rodamco SE (UL) and Klepierre (LI) SA completed bond sales.

Large real estate companies are tapping bond markets as an inexpensive source of funding as banks rein in lending to comply with new capital regulations. Unibail-Rodamco, Europe’s biggest publicly traded property owner, raised 750 million euros on Sept. 11 from the sale of convertible bonds paying 0.75 percent interest.

“There’s a lot of demand from funds wanting convertible bonds backed by good-quality assets generating stable and solid cash flows,” said Robert Duncan, an analyst at Jefferies & Co. “So the companies are locking in five- or six-year money on good terms.”

The proceeds of the sales will allow the REITs to refinance maturing bank loans and fund acquisitions or development projects. Companies are looking for ways to increase income as slowing or contracting European economies curb rental growth prospects, Duncan said.

Convertible Securities

Three of this month’s bond sales by REITs involve securities convertible into shares. The benchmark index for European property stocks, the FTSE EPRA/NAREIT Developed Europe Index, has climbed 16 percent this year.

Capital Shopping, which owns malls including the Trafford Centre in Manchester and Gateshead’s Metrocentre, will pay a coupon of 2.5 percent. The bonds are convertible to shares at 437.52 pence, or 30 percent above their average price before the bond sale.

Capital Shopping said it will balance the company’s increase in borrowing by “actively considering” selling stakes in its large malls, according to the statement.

The proceeds may help lower the debt ratio to 100 percent of the company’s equity from about 135 percent following today’s bond sale, according to Keith Crawford, an analyst at Peel Hunt with a hold rating on the shares.

This would put the company “more in line with the other leaders” in the REITs, he said in a note to investors today.

Capital Shopping declined 14.20 pence, or 4.1 percent, to 332.40 pence in London. That trimmed the company’s market value to 2.88 billion pounds.

To contact the reporter on this story: Simon Packard in London at packard@bloomberg.net

To contact the editor responsible for this story: Ross Larsen in London at rlarsen2@bloomberg.net

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