...this is really strange. First off, why are they doing an offering here, when Stuart has repeatedly said that he didn't want to part with stock at these levels? This calls into question the credibility/reliability of management.
Well, the fact they closed it in a day speaks to the demand for the issue. The offering was a success, and the dilution will ultimately depend on how the money is put to work. If they can continue some of the distressed type deals and turn those properties around, they should earn returns well in excess of capital costs. If they simply plow the money back into 8-cap deals, it will be dilutive given the cost of equity here, by my estimates removing approximately $1 in share value. In addition, if this provides the ability to further leverage the company beyond the 45% target debt/total assets, it could also prove accretive, though I'm not sure management wants to head down this path. The range of possible outcomes is large. Only time will tell.
Being directly involved in the distressed properties they have aquired, their plan is simple. Renovate the property, lease below market and don't pay their vendors inside of 180 days net, then leverage it to the hilt, and buy more. First rule of business,"never use your own money".
One last thing...I know a portfolio manager at a multi-billion $ REIT fund. His initial reaction when ROIC first came public (after meeting with management) was "how are they going to get a secondary done" (implicating that they couldn't grow the portfolio)....well, there you have it.
i agree with your comments and really like the warrants for the best leverage.
if you believe that stuart tanz can do the same as he did at pan pacific----then consider the warrants. the dont expire until oct 2014.
if we just have a decent market and roic only advances 10% in each of the next 3 years....the common would be just over $15, and the warrants would have an intrinsic value of at least $3.
you can buy them today for about .70 and have an upside of 4 times on your money. along the way you could also sell out of the money options to even enhance your return.
Pretty common strategy for ROICs and BDCs. Since the have to return 90% of their income to shareholders, they have only two ways of acquiring more spending money: borrow or do an equity offering.
Presumably they want to clean up their balance sheet a little and raise more money for investments.
We should see a sizeable drop tomorrow. I had quite a bit of success trading equity offering announcements in BDCs and REITS.
Take a look at the AGNC chart. Public offerings in Mid March and early November (see high volume days) offered excellent short-term buying opportunities.
ROIC's in my long-term account. Love Stuart. He knows what he's doing. Don't worry about it. :)
I understand that...just thought they'd wait till they were closer to using up the rest of their investment capacity, and until the FFO run rate became more evident in the share price. Who knows, maybe they'll tender for the warrants with the extra cash...