IPO Preview: Schottenstein Realty Trust

Based in Columbus, Ohio, Schottenstein Realty Trust [proposed (SCRT)] is scheduling an $400 million IPO with a market capitalization of $705 million at a price-range mid-point of $15 for Friday May 13, 2011. Our full IPO calendar includes nine others for the week of May 9.

SUMMARY & CONCLUSION -- SCRT is a shopping center REIT that expects to yield 4.3% at the price range mid-point of $15. However, that 4.3% is 126% of the expected cash available for distribution for distribution for the year ending December 31, 2011.

Other shopping center REITS have higher yields. For example: Agree Realty (ADC) yields 7.1%; Inland Real Estate (IRC) yields 6% and Cedar Shopping (CDR) also yields 6%.

Their price to book values are: ADC,1.3; IRC, 2,1; and CDR .8. SCRT’s price to book (mid-range) is 1.5, higher than ADC and CDR, lower than IRC. In the last six months, those three shopping center REITS have had a stock price change of: ACD -18%; IRC, 0% and CDR – 11%.

There appears to be no rush get SCRT on the IPO.

SCRT Valuation Metrics

BUSINESS -- As of September 30, 2010, on a pro forma basis, SCRT owned interests in 156 operating properties in 27 states with approximately 21.6 million square feet of GLA, which were 92.4% occupied.

CASH DISTRIBUTIONS -- SCRT's expected annualized range of 4.3% at $15, the price range mid-point. However, that would be 126% of the cash available for distribution for the year ending December 31, 2011 (S-1 page 56).

USE OF PROCEEDS -- which are expected to be $364 million.

• $190.1 million to acquire equity interests in certain of the existing entities and joint venture properties;
• $126.1 million to repay or defease existing third-party and related party indebtedness, including repayment of intercompany debt balances, prepayment penalties, exit fees, swap breakage costs and defeasance costs related to such indebtedness;
• Up to $15.0 million to invest as a limited partner in a real estate related investment fund;
• $5.6 million to acquire an 80% interest in one retail shopping center property; and
• $27.1 million to fund general corporate purposes, including working capital and future acquisitions.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.