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 john.jannarone@wsj.com
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(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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