Trader Talk

How companies are using secondary offerings to buy assets

I noted last week that this week is the biggest of the year for IPOs. Fourteen are expected to price, and more than $2 billion is expected to be raised.

But one space that has escaped market watchers' attention is the secondary market, which dwarfs the IPO market.

For example, there were 10 secondaries announced last night. Think about that: 10.

And here's what's important: Much of the proceeds are being used to buy things.

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That's right—to buy things. Companies. Hotels. Pipelines. Retirement centers.

Not surprisingly, many are in the energy and real estate fields.

"These are people with very deep interests in their field, and they know when assets in the their fields are cheap," David Menlo of told me. He added that it is generally cheaper to buy than to grow organically.

"To buy a pipeline, for example, is a tremendous capital expenditure. Building new hotels, or senior citizen centers, is more of a risk than buying what's already there because you have a track record with the existing properties. There's verifiable cash flows."

Image Source: Freeport LNG Development

Here are four companies that announced secondaries overnight, and what they are doing with the money:

1) Sotherly Hotels a lodging REIT, is selling three million shares for hotel acquisitions, specifically to buy the remaining interest in the Crown Plaza Hollywood Beach Resort.

2) GasLog Partners, which operates Liquified Natural Gas (LNG) carriers, is selling 7.5 million shares priced at $23.90 and will use the proceeds to acquire additional LNG carriers.

3) New Senior Investment Group, which operates senior housing properties, is selling 17.5 million to shares to acquire additional senior living properties.

4) Whitestone REIT, which owns community centers, is selling 3.75 million shares to acquire more community centers, and to pay down debt.

The bottom line: There's been plenty of complaints that corporations are spending too much money on buybacks and not investing in anything. If you at least follow secondaries, that is not the case.