Wednesday, April 22, 2009

Looking Up at the Blue Skies Over Commercial Real Estate; $64K Question now is How Long will this Paradoxical Rally of Equity Dilution Last...

Real estate investment trusts have had little to offer investors after credit vanished and commercial real estate began to slump. Is new equity the tonic they've been looking for? With over $5 billion in equity offerings so far in 2009, debt-saddled property trusts are now in better shape. And even though new equity leaves existing shareholders with diluted stakes - normally a reason to sell - the market has rewarded stronger balance sheets with rising share prices. Mysteriously, Vornado Realty Trust drew applause ahead of the act this week. Shares of the trust jumped 17% Tuesday before it announced an equity raise the same evening. Vornado shares subsequently fell 3% Wednesday after the $645 million offer was priced. Other issuers this year have outperformed the MSCI U.S. REIT Index by an average 2.65% the day after pricing a new share issue, according to Green Street Advisors. The outperformance averaged 4.20% in the seven days following an issue. Vornado should raise more cash while it can. The new offer brings gross cash to around $2.2 billion. But some $3.8 billion in unsecured debt will mature by the end of 2013. There is also another $5.3 billion in mortgage debt maturities during that time. Vornado would surely prefer better financing terms. Even after pricing new equity on top of a rally, the shares sold for less than half their price a year ago. But these days, financial markets offer few shortcuts. (John Jannarone is a reporter for Heard on the Street. He can be reached by email at (TALK BACK: We invite readers to send us comments on this or other financial news topics. Please email us at Readers should include their full names, work or home addresses and telephone numbers for verification purposes. We reserve the right to edit and publish your comments along with your name; we reserve the right not to publish reader comments.) Click here to go to Dow Jones NewsPlus, a web front page of today's most important business and market news, analysis and commentary: You can use this link on the day this article is published and the following day. (END) Dow Jones Newswires April 22, 2009 18:23 ET (22:23 GMT) Copyright (c) 2009 Dow Jones & Company, Inc.- - 06 23 PM EDT 04-22-09

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