EXCLUSIVE: Simon Prop CEO sees new round of REITs

NEW YORK (Reuters) - With the debt markets in the doldrums but the equity markets roaring, the U.S. commercial real estate sector may be ready for a new crop of companies going public, said David Simon the head of Simon Property Group Inc (SPG.N), the largest U.S. real estate investment trust (REIT).

Since the equity markets have embraced newly issued shares by public REITs, it will not be long before private real estate companies that need cash tap the markets with initial public offerings, Simon said.

"They won't be companies that are just thrown together," Simon, chairman and chief executive officer of the company his father started in 1960, told Reuters in an interview at the company's 14-story Indianapolis headquarters.

"They'll be companies that, over a period of time, have put together a good portfolio that needs to get a better balance sheet."

Suffering from a drought of available credit, most of the U.S. commercial real estate industry is still fighting the worst downturn since the early 1990s, when a slew of private real estate companies, including Simon, went public.

Mortgage default rates continue to rise as owners of shopping centers, hotels, office buildings, warehouses and apartment buildings find few sources to refinance debt. Meanwhile, the U.S. recession has trampled occupancy and rental rates.

Simon was one of the earliest public companies to start the cycle going, raising more than $1.8 billion by issuing new shares this year. So far, public property REITs have raised more than $15 billion from new share offerings.

Simon stock, which had been as low as $23.88 in March and as high as $104.70 at the height of the real estate boom in October 2007, closed at $64.77 on Friday.

Other IPOs will be by former public companies taken private during the boom years of 2004 through 2007, said Simon, who spent his first five years out of Columbia Business School as an investment banker, first with First Boston and then with Wasserstein Perella & Co.

The current environment for real estate is nearly a repeat of the early 1990s, when no other sources of capital were available and many real estate companies, such as Simon and Taubman Centers Inc (TCO.N) went public in what is referred to as the modern REIT era.

Simon, the largest U.S. REIT with a market capitalization of $21.9 billion, owns or has a stake in 387 malls, outlet centers and other properties in the United States, Asia and Europe. Rebounding quickly from the credit freeze, it has pulled further ahead.

"The fact is, the capital markets restarting as successfully as they have has been a real pleasant surprise; a real unknown that no one could have expected," Simon said.

Simon's closest rival, General Growth Properties Inc GGWPQ.PK, became the poster child for binge borrowing in April, when it filed Chapter 11 bankruptcy.

Although Simon's business is also taking lumps, its balance sheet is buffed. Through equity and debt offerings and new mortgages, Simon has cash on hand of $3.8 billion, or $11 per share, and access to $3 billion more under its corporate credit facility.

Many investors and analyst are betting that Simon eventually buys some or all of the General Growth's 200-plus malls. Simon has remained reticent about the speculation.

"It's a very important company in our industry," he said. "We continue to monitor and study it closely. Beyond that, there's nothing I can add."

Still, Simon is very well aware that there are very few companies that offer competition for acquisitions.

"From my standpoint, there's not many people that are going to compete with us," he said. "We're busy looking at opportunities. We feel that the balance sheet can do something. In addition, there's been lots of ... (interest) to do something with us from well-heeled partners."

In addition to malls, Simon also owns Chelsea Outlet Centers, which have expanded from the United States to Japan and South Korea and is likely to move into Malaysia.

A move into China is a ways off as China posses too many risks, especially when viewed against a cheaper U.S. investment.

"When I look at the returns and the risk there versus the U.S., it's hard to compute," he said. "I'd rather be right now in the U.S."

The consumer-led U.S. recession has hit retailers hard and the number of bankruptcies is the highest since the early 1990s, Simon said.

Moreover, retailers who sold their credit card businesses to banks are now suffering because banks are reducing credit to shoppers. So far, the back-to-school season has been lackluster, with "decent traffic," but sales continue to be lower than a year earlier, albeit the decline is less steep.

"It's clear that we're not by any stretch of the imagination past a concerned consumer and a cautious consumer," Simon added.

(Reporting by Ilaina Jonas; editing by Gerald E. McCormick and Andre Grenon)