SNH, an affiliate of the RMR group, usually issues shares to build its financial strength, which is a platform for expansion. This usually precedes additional acquisitions of approx. double the amount of the offering(remainder financied by debt).
So they are issuing more equity, and then going to buy back shares financed by increased debt? I would think that at current interest rates it makes a helluva lot more since to growth through added debt and not equity offerings. I'm not considering selling my holdings in SNH, but I just don't understand why they always do this. Anyone care to explain the rationale?
Having higher percentages of equity capital relative to debt enables a company to have: more financial flexibility and capacity; facilitates the raising and cost of debt capital. The RMR affiliates do this at some point usually to enable expansion or acquisitions using their unsecured lines of credit. It puts them in a powerful negotiating position in acqusitions when they are often the only ones to make acquisitions without any financing contingencies. Whats more, higher equity capital maintains or increases its credit rating, hence the cost of capital, borrowed money is cheaper.