Regency Centers Corp. (REG) announced today that the company has priced its 8.7 million share offering at $32.50 per share. The underwriters have been granted an option to buy an additional 1.3 million shares.

REG is following several REITs who have recently announced equity sales. Investors have generally reacted positively to REIT equity sales. Shares of REG are up nearly 4% today.

Although, the sales are dilutive to existing shareholders as many companies are still trading near multi year lows. In addition, new share issues also increases the probability of a dividend cut. REG just announced a 41% decrease in its quarterly dividend.

REITs selling equity at depressed prices highlights one of the flaws in the REIT model. REITs are required to pay out 90% of taxable income in dividends. As such, retained earnings are minimal and companies must use debt or equity to grow. Debt is more expensive and less available in tight credit markets.

In addition, property sales, another source of cash, have slowed considerably in response to problems obtaining credit and falling property prices. The last choice is selling equity, which allows a company to address maturing debt and put money into in process development.

We expect more REITs to sell equity in the coming months; companies want to take out uncertainty brought on by maturing debt and focus on the core business of operating and developing property.

Read the full analyst report on “REG”
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