Standard & Poors announced it is making Indianapolis-based Simon Property Group the fourth real estate investment trust and the first retail-focused REIT to be included in the S&P 500 index. Though a specific date for the inclusion was not announced, analysts from Morgan Stanley and UBS Warburg predict it could occur as early as next week.
Simon, which replaces Newport Beach, Calif.-based Conexant on the index, has publicly indicated in the past that it might use this inclusion to offer common equity more cheaply. Morgan Stanley analyst Matthew Ostrower says such equity is just what the retail industry’s largest REIT needs to cover recently closed deals. "We have previously indicated our belief that Simon needs to issue $200-300 million of equity to ensure that its recently closed Rodamco transaction is leverage neutral and to satisfy the requirements indicated by credit ratings agencies," Ostrower wrote in a report this morning.
The UBS Warburg index group estimates that the addition of Simon will generate demand for approximately 14 million shares. With an average daily trading volume of about 700,000 shares, this represents roughly 20 days worth of Simon trading volume.
"We view this widely anticipated announcement as good news for both Simon and the overall REIT industry," wrote UBS Warburg analyst Stuart Seeley in his report. " We view Simon not only as a ‘successful blue-chip REIT,’ but more broadly as a very solid company with a public market business model and a deep corporate infrastructure that compares favorably to other well-run, publicly-traded entities."