COPT Eyes $166M From Public Offering

COLUMBIA, MD-Corporate Office Properties Trust has completed its public offering of 6.9 million preferred shares, which will pay an annual dividend of 7.35%. The offering generated net proceeds of approximately $166 million. Book runners for the transaction were Wells Fargo Securities and BofA Merrill Lynch, Pierce, Fenner & Smith. The senior co-managers were Citigroup Global Markets, KeyBanc Capital Markets and Raymond James & Associates.

The transaction was all in a day’s work for the REIT industry, which has been clocking in respectable levels of capital raising thus far in 2012. SNL Real Estate reports that year to date, as of June 1, common equity deals accounted for $8.46 billion of gross capital offerings, senior debt totaled $8.23 billion and preferred equity totaled $4.78 billion. In the prior-year period, common equity offerings totaled $11.52 billion, senior debt reached $8.65 billion and preferred equity accounted for $2.62 billion.

The shifts in capital-raising patterns between 2011 and 2012 are interesting and understandable, Jason Lail, manager of Real Estate Research at SNL, tells GlobeSt.com. “There are a couple of things that might make preferred equity an attractive alternative to common equity,” he says. “One, the median rate for year to date preferred issuances has declined a little over 60 basis points in comparison to the same time last year.” In short, preferred equity has become cheaper for REITs, which require lower dividend payments than they did the same time last year.

Also, while preferred stock isn't debt, it also doesn't have some of the additional costs associated with it that common equity does, such as dividend growth, Lail continues. “Preferreds are also usually callable within five years, so if rates drop further, a REIT can replace existing preferreds at a cheaper rate.”

And finally, Lail states, preferred equity doesn't affect leverage calculations as debt does, and is also not mandatorily redeemable. “So REITs won't be forced to refinance preferred equity at a bad time as they might a looming debt maturity,” he concludes.