REIT - July/August 2010

WEIGHING THE PROS AND CONS
FOR
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
QUIVER. BE
JUDICIOUS. AND
UNDERSTAND
THE OBJECTIONS
OF SOME KEY
INSTITUTIONAL
INVESTORS.

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 discarded.

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.