Steep Discount on Health Care REIT Secondary Offering

For starters, shares closed at $78.69 on Monday, and the 52-week trading range is $56.45 to $84.88. Health Care REIT specified in the use of proceeds that it intends to use the net proceeds to repay advances under its primary unsecured credit facility and for general corporate purposes, which includes investing in health care and seniors housing properties.

Goldman Sachs, Barclays, UBS, Wells Fargo, Bank of America Merrill Lynch, KeyBanc Capital Markets and Morgan Stanley were listed as the joint book-running managers for this secondary offering. Health Care REIT also granted the customary overallotment option to these underwriters, which allows them to purchase up to an additional 2.55 million shares for 30 days after the IPO.

Tuesday’s offering was under Health Care REIT’s effective shelf registration statement filed with the U.S. Securities and Exchange Commission (SEC). If its green-shoe option to the underwriters is exercised, then the gross proceeds from the secondary offering will be closer to $1.5 billion — if exercised in full.

Health Care REIT just reported its earnings last week, and shares rose on the news. Then on Monday the REIT announced that its investment pipeline for the first quarter was anticipated to be roughly $2.2 billion.

For a comparison, its market cap was listed as almost $26 billion ahead of the pricing. This 17 million shares also compares to an average daily volume of about 2.3 million shares. The most recent short interest was 13.6 million shares.

Health Care REIT had 1,324 properties located across three countries (United States, United Kingdom and Canada) as of the end of 2014. The REIT also claimed that 87% of its revenue was derived from private pay sources rather than from government payments. It claims that its portfolio and structure is designed to offer growth and resiliency through all economic cycles.

Its shares were down by 2.9% at $76.42 shortly after Tuesday’s open. As a reminder, Health Care REIT has a very large dividend yield of about 4.3% that has to be considered as well.

Shares were trading closer to $76 last Thursday, with a rally Friday and Monday that took shares up to $78.69 before this deal priced. Maybe this looks like a steep discount on the surface, but it only gets shares close to last week’s baseline.