US REITS sell shares to fund property acquisition

US real estate investment trusts are selling shares to finance the purchases of property after using record cash from equity offerings in 2009 to cover dividends and reduce debt.

According to a data compiled by Bloomberg, landlords have sold $1.38 billion of stocks since September 17. They have joined real estate owners like Duke Realty Corp and UDR Inc, which have sold stocks this year to finance acquisitions.

In 2009, REITs completed $21.2 billion in secondary sales, said the National Association of Real Estate Investment Trusts. While last year’s offerings were primarily used for “balance-sheet repair”, money raised this year is used for financing purchases aimed at boosting earnings, said Michael Knott, managing director of California-based research firm Green Street Advisors.

“For the most part, companies are pairing equity raises with external growth opportunities,” said Knott in a telephone interview with Bloomberg. “Over the next few years, our hope would be to see companies elect to fund acquisitions with equity so they could still reduce balance-sheet leverage over time.”

US REITS owning property raised $11.8 billion in secondary offerings this year through Friday, according to a Virginia-based SNL Financial data. The figure is about half of what they raised in whole-2009, when firms were supporting their finances during the economic crisis. Commercial property values fell as much as 44 percent in 2009 from the peak in 2007, said Moody’s Investors Service.

Secondary offerings this year by real estate REITs are the third-highest in SNL data compared to 10 years ago.

The volume of US commercial property deals is starting to pick up after owners were initially reluctant to sell with the decrease in prices. The market for buildings is also picking up, with more buildings available for sale, said Knott.