WEIGHING THE PROS AND CONS
MARK O. DECKER, JR.
We are often asked about the at-the- market, or “atM,” equity product: Can you do it? should we do it? What will investors and analyststhink? In recent years, many companies embraced
atM offerings as a tool to access capital and enhance liquidity.
this trend represented a meaningful departure from the years
leading up to the global liquidity freeze that began in the fall of
2007 and accelerated through 2008. Until then, the atM product was only used in a handful of instances and was discouraged
by institutional investors, who wanted a “vote” as to whether
companies deserved capital and on what terms.
Companies have been granted leniency over the past two-and-a-half years, as it became clear that liquidity was paramount.
Liquidity and the ability of reIt
management teams to manage the
price and timing of issuance amid
incredibly volatile markets have
spawned a dramatic increase in the
use of the atM product.
today, the drums are beating
again for companies to refrain
from this method of accessing
capital. We are happy to hear this
criticism. It signals that investors
are moving away from questioning the very survival of public
commercial real estate companies
and re-focusing on the wisdom
of the capital allocation decisions
and overall quality of individual
reIt management teams and
KEEP THE ATM
ARROW IN YOUR
OF SOME KEY
their portfolios. that is great news and indicates a dramatic
turn in the health of the markets and investor outlook.
We agree with atM critics that, for significant capital
needs, nothing beats the efficiency, visibility and increased
trading liquidity that comes with traditional equity offerings.
nevertheless, the atM offering is a tool that should not be
Capital is the lifeblood of the real estate business, and it is
the ready access to capital throughout the past 18 months that
has set public real estate companies apart from their private
peers. We believe the access and cost of capital enjoyed by
public companies is a durable competitive advantage that will
foment a wave of private-to-public activity, taking the form of
portfolio sales and IPos for the foreseeable future.
our advice to public reIts: keep the atM arrow in your
quiver. Be judicious. and understand the objections of some
key institutional investors.
Within limits based on float, atM offerings provide
control in terms of price and timing. they are extremely
efficient—around a 2 percent “all-in” discount, versus somewhere between 6 percent and 12 percent for regular offerings.
Like other products unique to the public markets, raising
capital through atMs creates an advantage over other market
participants. they also present a great financing alternative
to match incremental capital uses, such as one-off asset purchases, repaying small loan balances or development draws.
In the end, atM programs provide financial flexibility that
can be a big positive for an issuing company. F