Tuesday, April 7, 2009

REIT ProLogis Joins Equity Offering Bandwagon

I am Jack's total lack of surprise: ProLogis has announced it will monetize the recent rally in REITs and will issue 115 million shares (and another 17.25 million green shoe), using the proceeds again to pay down its credit facility. 132.25 million total new shares on 267.6 million existing shares: the dilution is, in the parlance of our times, solid... Where have we seen this before?
DENVER, April 7 /PRNewswire-FirstCall/ -- ProLogis (NYSE: PLD), a leading global provider of distribution facilities, today announced it intends to offer 115 million common shares in a registered public offering. The company also plans to grant the underwriters a 30-day option to purchase up to 17.25 million additional shares to cover overallotments, if any. Merrill Lynch & Co., Citi and Deutsche Bank Securities are acting as joint bookrunners for the proposed offering.

ProLogis intends to use the net proceeds from the sale of the common shares to reduce borrowings under its global line of credit and for general corporate purposes, including the repayment or repurchase of outstanding indebtedness. Certain of the joint bookrunners and their respective affiliates are lenders and agents under the global line of credit and will receive a portion of the proceeds of the offering
And who will lead the underwriting effort if not good REIT friend Merrill Lynch. Amusingly, ML analyst Steven Sakwa has a Buy on the name, so all is good on that front... However 10 points to whoever can guess who the lead arranger on the bank deal (the one that will be paid down by the company) is. Good thing the press release decided to note this potential little conflict of interest. As PLD was about $11 billion of total debt per Bloomberg, it may need to find some more greater fools during the next equity rally to sell to as this offering will be the proverbial drop in the bucket.

Additionally PLD has announced it has reduced debt by $94 million through distressed bond buybacks in "recent weeks" and was negotiating new borrowings in the U.S. for about $344 million. It would be a very ironic outcome if Moody's follows up to this distressed buyback in the same way it reacted to Hovnanian's distressed bond repurchases in the open market, and slams the company with a Limited Default rating.

Lastly, with 14.5 million shares held, Cohen & Steers is likely to have some wise words of encouragement to all those who don't agree that massive dilution is the right way to go. Also pundits: this is one of those good case studies for interview questions that ask on what planet is the cost of debt higher than the cost of equity: after hours stock is up 5% on near 50% dilution. Enjoy.

*** Update

PLD issued an 8-K notifying that as a result of the offering the funds from operations will be reduced by $0.38-$0.40/share and earnings by $0.20-$0.22. Nothing to see here, keep buying stock in AH. Sphere: Related Content
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7 comments:

Anonymous said...

this reminds me of MIR issuing $700 million of equity after enron blew up and people realized the IPPs had too much debt.

The massively diltutive equity offering was seen as putting a floor on the stock price and curing their leverage problem.

they went bankrupt 9 months later.

Ferrari321 said...

FYI Sakwa already resigned so that rating is probably old / meaningless

Anonymous said...

Hey, you got your stock dilution in my SRS!!

Hey, you got your SRS in my stock dilution!!!

Mmmmmm....two great tastes perfect together.

TraderMark said...

Jeez, you are too quick

Was going to go with "They're back...!" theme myself

http://www.fundmymutualfund.com/2009/04/prologis-pld-with-massive-115m-shares.html

I will eagerly await on your site for the flow of upgrades tomorrow. Now we await the natural 2:1 reverse split that has to be coming soon (100% dilutive offering by some lame REIT)

5U said...

This kind of dilution reminds me of the equity/convert raising tech sloths lvlt, lu, nt, slr, flex, samn did last recession.

Mountain of cash. Bad balance sheet. Maturities pushed out through opportunistic capital raising. Too much capacity and declining pricing.

5U said...

It will be fun to watch once these guys begin burning cash.

Can you feel the burn????

Anonymous said...

PLD ended up selling 155 mln shares, with another 22.8mln to cover overallotments. So dilution is more like 65%.