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Dilutive REIT Offerings Impact FFO Guidance and Dividends
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2009 will be remembered as the year of the
dilutive stock offering, as REIT managements hurried to take advantage
of the "equity window" offered by the April May 2009 rally to
sell stock at far below the level of their previous stock offerings. Most
of the deals were announced and completed within a matter of days, with
many priced at a discount of
(8%)-(15%) to the previous day's closing
price. Duke Realty was one of the first to sell such a deal, raising
$575 million from a 64 million share offering that added more than 40%
to total shares outstanding. ProLogis Trust followed with
a $1.2 billion offering, increasing total shares outstanding by 65%. Other
dilutive REIT offerings included Kilroy Realty increasing shares
outstanding by 27%, Brandywine Realty 34%, Camden Property Trust
13%, Regency Centers 14%, Kimco Realty 39%, Weingarten
Realty 30% and Cogdell Spencer 74%. Decision to sell stock on
such terms indicates pressure to add balance sheet liquidity at a time
when demand for rental space is clearly softening in response to consumer
spending decline. Access to new debt financing is still difficult to obtain,
preventing acquisition transactions and forcing cutbacks of development
projects.
Soon after these dilutive stock offerings
came announcements of FFO guidance reductions and, predictably, dividend
cuts as well. ProLogis Trust reduced FFO guidance to indicate
2009 decline of more than (55%),
with dividends reduced by (40%).
Duke Realty now sees FFO down more than (25%),
with dividends reduced (32%).
Kilroy Realty reduced dividends by (40%),
Brandywine Realty Trust by
(67%), Camden Property Trust by
(36%),
Kimco Realty by (86%),
Regency Centers by (36%),
Weingarten Realty by
(52%), and Cogdell Spencer by
(51%).
These dividend reductions reduced yields to more normal levels of 5%-8%
from the unsustainable levels of 9%-15% we saw in March and April, 2009.
Still, investors are unlikely to forgive REIT managements for destroying
their portfolio income with so little warning.
REIT investors may take years to recover
from the devastation to their incomes. Most investors do not blame managements
for stock price declines, particularly at a time when most other stocks
are down as well. Dividend reduction, however, causes rancor. We expect
to see higher management turnover in response to these extraordinary events.
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