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REITs Coming Back For More Capital (DRE, FCH)

It seems we have more secondary offerings coming back into the fold now that the markets have stabilized and recovered.  Many real estate investment trusts (REITs) raised vast sums of capital in 2009 and part of 2010 to bolster up their balance sheets.  Today came news of two secondary offerings from REITs: Duke Realty Corp. (NYSE: DRE) has a proposed secondary offering and FelCor Lodging Trust Inc. (NYSE: FCH) priced a secondary offering.

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

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