REITs get boost, not scorn, for selling cheap shares

Here’s more evidence we’re in strange times: Indianapolis’ real estate investment trusts have been issuing hundreds of millions
of dollars of stock at woefully low prices—and getting a pat on the back from their shareholders for doing so.

It’s all part of the companies’ quest to ensure they have adequate liquidity to weather what many experts fear will be the
worst commercial real estate slump since the early 1990s.

Normally, Wall Street would blast firms for issuing a deluge of new shares when their stocks are down sharply, since doing
so has the effect of diluting the ownership stakes of existing shareholders.

But Duke Realty Corp. and Simon Property Group Inc., Indianapolis’ big publicly traded REITs, have done it just the same,
and investors have responded by propelling their shares higher.

Take office-and-industrial developer Duke, which raised $575 million in mid-April by selling stock at $7.65.

That was 72 percent off the shares’ 52-week high. Even so, on a conference call with analysts, Duke Chief Financial Officer
Christie Kelly cast the stock sale as something of a coup.

"All of you know that, despite the constrained capital market, the window opened during the past 30 days for REITs and other
strong public companies to issue common equity," she said.

A month earlier, shopping mall operator Simon Property Group raised $543 million by selling shares at $31.50—70 percent off
their 52-week high. It also issued $650 million in notes yielding a hefty 10.75 percent, a higher rate than the company has
been paying on other debt.

On May 6, Simon rolled out another stock offering, raising nearly $1 billion.

For the most part, analysts endorse Simon’s strategy, saying the cash infusion helps ensure it will have the flexibility to
meet this year’s $1 billion in debt maturities and the $3 billion it’s facing in 2010.

"Although the common share and debt issuances will result in a drag on earnings, we believe pursuing a strong balance sheet
trumps dilution concerns in this difficult credit environment," Raymond James analyst RJ Milligan said in a report.

Shares of Simon and Duke have risen since the March and April offerings, in part because of the overall market rally. Simon’s
stock is up 60 percent from the offering price, to $53.50. Duke’s has risen 27 percent, to $9.70.

Things haven’t worked out so well for investors in an offering by Kite Realty Group Trust, Indianapolis’ other REIT. The retail
developer came to market in October—before the worst of the market plunge—raising $50 million.

The price, $10.55 a share, was nearly 50 percent below the 52-week high. But it turns out buyers didn’t get a bargain. Shares
have swooned since, and now trade for just $4.55.

It’s too soon to tell whether investors in Simon and Duke are out of the woods. The additional capital helps, to be sure,
but the companies still are vulnerable to the weakening fundamentals of their core businesses.

Simon saw sales per square foot in its malls drop 7.3 percent in the first quarter compared with a year earlier. And while
it owns an impressive array of market-dominant properties, such as the Fashion Mall at Keystone, it also has its share of also-rans,
such as Washington Square.

Weaker malls are especially susceptible to slipping into a tailspin in tough times, according to Steven Roth, CEO of Vornado
Realty Trust, a New York-based owner of office and retail properties.

"In many malls, in many markets, the loss of an anchor now spells a very long-term empty and dead mall wing," he wrote in
the company’s annual report.

"B and C malls will suffer declining sales and difficulty replacing failed tenants and refinancing their loans."

Dow CEO vacillates

Back in February, Dow Chemical Co. CEO Andrew Liveris expressed concern the Michigan company’s financial strain might force
it to sell Dow AgroSciences, its prized Indianapolis-based subsidiary.

Then, in March, after Dow regained its financial footing, Liveris said: "We’ve designed a structure where we can control our
destiny, rather than be forced to fire sale. More critically, we can retain key assets like Dow AgroSciences."

But once you throw a company into play, it’s difficult to call off the suitors. Liveris seemed to acknowledge as much during
a conference call April 30, the day the company announced it was considering selling the business in whole or in part, or
spinning it off through an initial public offering.

"This business is strategic to Dow, but given the current market for assets in the agricultural space, we have launched a
rigorous evaluation process," he told analysts on the call.

Liveris said one of the options for the business, which employs 1,100 in Indianapolis, is to retain full ownership. He said
Dow would decide how to proceed within 90 days.