Friday, March 19, 2010

Teach your kids "sharing", with the help of a REIT (HRP)

And by "sharing," I mean the benevolent and mandatory sharing that common stockholders undertake to the benefit of their preferred brethren.

Shares of office REIT(Real Estate Investment Trust) HRPT Properties(HRP) are down 2.4% today, after last night's equity offering news. Originally they planned to sell 20million common shares to raise money, but instead they sold 30million. Or maybe 34.5million, if over allotments are exercised by the investment bankers involved in the deal. So there is a potential for the offering to come in 73% higher than expected. Seriously.

The use of these new funds? Various:
NEWTON, Mass.--(BUSINESS WIRE)--HRPT Properties Trust (NYSE: HRP - News) today announced that it has commenced a proposed public offering of 20,000,000 common shares. HRP expects to use the net proceeds to repay amounts outstanding under its $750 million revolving credit facility and fund general business activities, including possible future acquisitions. It is contemplated that the underwriters will also be granted a 30-day option to purchase up to an additional 3,000,000 shares to cover over allotments, if any.

Among some uses not stated will be a cushion to continue paying dividends. Sure, they still pay a dividend on the common stock, of about 12cents per quarter based on recent results. That's an annual dividend of 48cents, for a yield of 6.5% on the common stock. If that sounds rich it probably is, and discounts a further cut to the dividend, already down big from previous levels near 84cents.

Common stockholders should be aware, however, that they are the last in line. The company has three series of preferred shares that demand their dividends as well. When things get tough however, it is common stock that is diluted (sold) to raise money, not preferred. Buyer beware...


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