Duke Realty Corp. (NYSE: DRE) is down this morning on news that it filed to sell 23 million share of common stock.  After today’s drop on the news of dilution, the signaled amount is about $275 million being raised.  That is about 10% of its market capitalization today listed as $2.7 billion.  Duke has approximately 721 industrial, office, and retail properties that it listed as being 113.8 million rentable square feet with another 6,400 acres of unencumbered land for development.

Felcor Lodging Lodging Trust Inc. (NYSE: FCH) sold 27.5 million shares in a secondary offering at a price of $5.50 per share to raise approximately $145 million.  This was a $6.43 stock as recently as Monday before the offering was known, and the current market cap before the effects of this offering was listed as only about $368 million.  FelCor is a lodging-REIT which hotels in North America under the brand names Embassy Suites, Doubletree, Hilton, Sheraton/Westin, Holiday Inn, and Crown Plaza.

FelCor sold the shares through J.P. Morgan, Goldman Sachs, BofA Merrill Lynch, Deutsche Bank, Citigroup, FBR Capital Markets, JMP Securities and Keefe Bruyette & Woods.  The REIT intends to use the net proceeds to repay or repurchase certain of its mortgage debt at substantial discounts and for acquisition opportunities that are below replacement cost.

As REITs pay out 90% of their income and as they were under severe duress during the 2008 and early-2209 market tank, it is a safe bet that many more REITs will either come to the market with a hand out for more capital or that they may come back again.  REITS also tend to have much higher dividend yields versus traditional stocks.  As an example of how high the yields are, Duke has a 5.6% dividend yield today.  FelCor has not had a dividend since late-2008 and it recently paid off some debt.

Duke Realty is down over 3% at $12.09 and the 52-week range is $7.45 to $14.35.  FelCor shares are now up 0.5% at $5.62 and its 52-week range is $1.86 to $8.99.

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JON C. OGG

Most of the well-known private equity firms are in the process of raising new capital at levels of more than $10 billion each. According to the FT "The funds are being raised even though the chaos in the debt markets has derailed the traditional private equity strategy of buying companies with a modest slice of equity and loads of debt."

What can Blackstone (NYSE:BX), Apollo, Bain, and their peers be telling institutional pools of money about how they can use their new investments? Valuations may have come down, but the risk of buying almost any company has gone up. An economic slowdown may not spare most sectors.

One investment path that private equity might take is refinancing high debt at fairly healthy companies with bonds which have a lower coupon. Barron’s published a list of firms which might be candidates for a turnaround, if they could get better interest rates on their borrowing. Libbey (NYSE: LBY), FelCor (NYSE:FCH), and Gray Television (NYSE: GTN) made that list. If the private equity operators can get warrants for stock at current prices as part of these transactions, the benefit of lower interest rates should help move shares up and put those warrants well into the money.

Another route for private equity is putting capital into companies which have gotten one round of financing recently and may need another because of deteriorating markets. Merrill Lynch (NYSE: MER), Citigroup, (NYSE: C), and several other large financial institutions have taken capita from sovereign funds. This first tranche should cover most of their needs, but if additional losses force them to raise more capital, terms may get very attractive. The most at-risk money has probably already gone in and auditors have probably picked through and forced disclosure of the most vexing problems at big banks and brokerages.

The old stand-by of straight buy-outs is still around, especially as a falling stock market has brought some shares way down. There is a point where even companies like Sprint (NYSE: S) and Motorola (NYSE: MOT) will have values so low that the amount of risk in taking them private or buying them and breaking them up will actually make reasonable financial sense.

All of this means that private equity firms will move into a position of being "bottom feeders". It does not carry the cache of purchasing companies at at 20% premium during the peak of the market. But, it will have to do.

Douglas A. McIntyre