This will be quite an era to remember for so many reasons; I will look back fondly on these days when companies issue massive equity dilutions and investors scaled buildings to buy the stocks instead of fleeing for the hills as they have done in my previous years in the market. As we've stated before, we "get it" - by diluting shareholders to extinguish debt the risk profile goes down in the near term. But in the medium to long term, all these extra shares create massive overhangs - earnings PER share is how stocks (used to be) valued. (now we use emotion, preferably rampant joy and headcounts of green shoots) One day we will get back to valuations and people bidding stocks to the stratosphere will see that a constant amount of INCOME divided by a massive amount of new stock will lead to far lower Earning PER Share as well as slower EPS growth. But that's a problem for another year apparently.
I present to you Simon Property Group (SPG) which tonight diluted its shareholders for the 2nd time... in 2009 alone! (actually the 2nd time in 2 months!) We see this across the board from Dow Chemical (DOW), US Steel (X) [to name two in the past week alone] but the REITs have been especially egregious employers of this methodology. Next will come the banks as the government has allowed them to short squeeze their way to much higher stock prices. And we'll clap and cheer all the way.
- SPG:US' ))">Simon Property Group Inc., the biggest U.S. shopping mall owner, plans to sell shares to the public for the second time this year, raising more than $800 million that may be used to repay debt or fund acquisitions.
- Simon is capitalizing on renewed investor interest in real estate investment trusts as shareholders anticipate economic recovery. The SPG:US' ))">company’s stock has soared 67 percent since it said March 20 it planned to sell 15 million shares at $31.50.
- “The market has given all REITs an opportunity,” said Alex Goldfarb, an analyst at Sandler O’Neill in New York. “In this day and age, a dollar in the hand is worth more than $2 in the bush.”
- Simon has about $8.4 billion in debt maturing through 2012, according to data compiled by Bloomberg.
- Chief Executive Officer David Simon said in March he planned to “hoard and warehouse capital, I think, so ultimately we can continue to be a leader in this industry, and ultimately take advantage of external opportunities once we see opportunities in the marketplace.”
I have to congratulate Simon Group - the stock, despite two waves of dilution in 2 months, is back to highs of the year and working its way to surpass levels before the fall 2008 crash. That's remarkable. Simply remarkable. One little green line to work through and away we go to the next leg of nirvana.
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