Raising Cash at Corporate Office Properties (OFC)

We have been highlighting how some of the commercial office and retail REITs are having a hard time as their need to raise cash comes at a high price. The current environment is driving up borrowing costs as their capital needs continue and tenants run into trouble.  Corporate Office Properties Trust Inc. (NYSE: OFC) has just announced that it will sell 2,000,000 shares of common stock in a secondary offering.  At today’s close of $40.02 that is barely $80 million.  Its market cap is $1.91 billion.  These shares do fall under an existing shelf registration.

But the size of the underwriting group looks massive for such a smalloffering.  The joint book-runners are Raymond James and Banc of AmericaSecurities; J.P. Morgan Securities, Robert W. Baird & Co., RBCCapital Markets, and Stifel Nicolaus & Company are the seniorco-managers and co-managers are listed as BMO Capital Markets andMorgan Keegan. 

Yep, eight underwriters for $80 million in proceeds. The underwritershave an option to sell up to 300,000 shares for 30-days to coverover-allotments.  That is the size of an underwriting group you mightexpect if this was a $400 million offering in normal times.  At leastthe REIT might be buying off any of the analyst downgrades from thesefirms for a few weeks.

Corporate Office plans to use the proceedsto fund development costs and other investing activities, and forgeneral corporate purposes.  It will initially use the funds to repay amounts outstanding under its unsecured revolving credit facility.

Shares closed up 1.5% today at $40.02 and ts 52-week trading range is$25.43 to $45.39.  Shares are down 2.5% after the close at $38.99 basedupon the sale.

• As we pointed out yesterday… "Can Office & Retail REITs Stave Off The Economy? (GGP, KRC, DDR, SLG)"

Jon C. Ogg
September 23, 2008