In the corridors of the country's most powerful retail real estate companies, as recession scorches the capital markets, chief executives are making wrenching decisions to quench their thirst for cash and assure their companies' survival.

Pressure from weakening fundamentals and tanking stock prices is forcing retail real estate investment trusts (REITs) to take drastic steps with long-term consequences, such as selling prized assets or raising equity in the company.

For instance, Kimco Realty Corp., a shopping center REIT whose stock lost 81% of its value over the past year, is selling 70 million shares to pay off a fraction of its $7.5 billion of debt and has raised $750 million, according to New York-based Fitch Ratings. Kimco, based in New Hyde Park, N.Y., announced the offering in late April, a month after Indianapolis-based Simon Property Group sold 15 million shares. Simon raised $550 million, Fitch says.

“The industry as a whole desperately needs equity capital,” says William Morrill, managing director of CB Richard Ellis Global Real Estate Securities. “Survival is the key here,” he says. REIT managers witnessed a sobering example of the dangers of a credit-deprived market in April, as the nation's second largest regional mall owner, Chicago-based General Growth Properties (NYSE: GGP), filed for Chapter 11 bankruptcy after it was unable to refinance its $27.3 billion debt and creditors would not defer loan payments.

But even for healthier REITs, raising cash has its pitfalls. The problem with unloading millions of shares in the current recession is that the short-term cash gain can prove expensive to a company in the long run. Shares are selling at far below their 52-week highs, and issuing equity gives buyers more power in company decisions.

But cash-strapped REITs with debts coming due are biting the bullet. “It pains them to do it, and it's diluting [stock values and equity stakes] so they are losing shareholders, but survival is more important than dilution at this point,” says Morrill.

Besides selling assets, other steps the retail REITs are taking to raise or conserve funds include forming joint ventures with credit partners, cutting dividends or paying dividends in stock rather than cash, renewing tenant leases early to keep income flowing, and paring operating expenses. Many companies have put development projects on hold — or abandoned them altogether.

Unloading malls

“Heading into the downturn we sold six malls out of 25,” says Marshall Loeb, president and chief operating officer of Glimcher Realty Trust, a shopping center REIT based in Columbus, Ohio. The last sale closed early this year. Glimcher projects net operating income to fall 3% in 2009 and its mall occupancy rate to decline 2.5%. The REIT is considering joint ventures and selling more assets in order to raise much-needed capital.

“Many REITs are net sellers in this kind of market,” says Keven Lindemann, director of the real estate group at SNL Financial, based in Charlottesville, Va. They're trying to shore up their balance sheets, he says.

Developers Diversified Realty (NYSE: DDR), based in Beachwood, Ohio, which has been beset by liquidity problems, sold 29 properties in the first quarter through mid-March, says Lindemann. “They bought 11 properties, but that's a net decline.” Kimco sold 19 properties and bought 14, while Regency sold 26 properties and bought only two. “That's a pretty significant decline,” he says.

Simon Property Group, the largest retail landlord in the U.S. with 246 million sq. ft., sold one property and bought none, Lindemann notes. Many analysts believe Simon is storing up cash to make large opportunistic buys of distressed portfolios in the near future.

REIT stocks have been sinking by 50% to 80%, in many cases. Glimcher's stock plunged from a 52-week high of $13.46 to $2.52 on April 23. “You empathize with all your investors,” Loeb says. Still, the stock prices have had little effect on operations, Loeb adds. The REIT's shopping center portfolio finished the year 94% leased.

A number of tenants have approached the mall owner recently for concessions in rent or lease terms, but Loeb's no pushover. “In most cases you end up not making adjustments to the lease. We have their occupancy costs, too, and a lot of times we think they're at a healthy number and they're okay.”

He may offer a tradeoff, perhaps a one-year rent reduction in return for the tenant's agreement to catch up the following year. “If they're really a critical tenant to the center and we think they need help, yes, we will work with them.”

Loeb is pinching pennies, generating revenue even as he slashes expenses. His company structured a solar roof project to earn half-a-penny a share from it, and earns royalties from setting up Wi-Fi at a shopping center food court.

REITs are burdened with debt and fear they won't be able to refinance mortgages if banks don't free up cash soon. Their problems, in many cases, have beencompounded by rapid expansion in the five-year boom period preceding the collapse of Wall Street investment banks.

Now commercial development has ground to a near-halt and income is jeopardized by skittish consumers afraid to spend amid massive job losses — 663,000 payroll positions eliminated in March alone. So REITs are forced to hunt for cash to pay their maturing debts.