REITs jump in to primary arena with new deal from Chesapeake, add-ons from Colony, NorthStar

By Stephanie N. Rotondo

Phoenix, July 10 - The preferred stock market "bounced around all day," a market source said Tuesday.

"It was mostly up until the final hour, then it headed down and then it headed back up," he said.

Overall, the market ended the day up modestly from the day before.

The primary market began kicking up. Chesapeake Lodging Trust announced plans for a new issue, and Colony Financial Inc. said it was reopening its 8.5% series A cumulative redeemable perpetual preferreds.

Annapolis, Md.-based Chesapeake said in a regulatory filing that it was selling series A cumulative redeemable preferreds. A trader said the deal was expected to be about $75 million and was talked around 7.875%.

"It'll probably price today," he said at midday.

After the bell, the deal did price, coming upsized at $110 million with a 7.75% dividend.

Meanwhile, Santa Monica, Calif.-based Colony Financial said it would price an add-on to its 8.5% series A preferreds. That deal also priced after the close, with $100 million additional preferreds being sold.

Colony's add-on follows a reopening of NorthStar Realty Finance Corp.'s 8.25% series B cumulative redeemable perpetual preferred stock, which came late Monday. On Tuesday, the issue was among the most actively traded of the day.

In the secondary, Fifth Third Bancorp announced a second redemption of trust preferreds. This time, the company said it was calling all $862.5 million of its 7.25% trust preferreds issued by Fifth Third Capital Trust VI.

The issue fell to end around the call price.

Chesapeake prices new deal

Chesapeake Lodging Trust priced a $110 million offering of 7.75% series A cumulative redeemable preferred shares on Tuesday.

The deal came upsized and below original price talk.

The issue was doing well ahead of pricing, a trader said, seeing a gray market quote for paper at par bid, $25.10 offered.

"At that level, that would be pretty cheap," a market source said of the levels. "So that makes sense."

Wells Fargo Securities LLC, J.P. Morgan Securities LLC and RBC Capital Markets LLC are the joint bookrunners. The co-managers are Robert W. Baird & Co. Inc. and Deutsche Bank Securities Inc.

Proceeds will be contributed to the trust's operating partnership in exchange for series A preferred stock units. The operating partnership will then use the funds to repay outstanding amounts under a revolving credit facility and for other general corporate purposes.

Colony brings add-on

Colony Financial issued $100 million additional shares of its 8.5% series A cumulative redeemable perpetual preferred stock.

The company originally issued $145 million of the preferreds in March.

The preferreds were sold at $25.685 each, and the underwriters received an 80.65-cent discount per share.

The public offering price was a 0.5% discount to Monday's closing share price of $25.80. The issue (NYSE: CLNYPA) closed Tuesday's session at $25.76.

Barclays Capital Inc., Bank of America Merrill Lynch, Morgan Stanley & Co. LLC and UBS Securities LLC are the joint bookrunning managers. RBC and Stifel, Nicolaus & Co. Inc. are the co-managers.

Proceeds will be used to pay down the company's revolving credit facility. Any remaining funds will be used to acquire target assets and for working capital and general corporate purposes.

NorthStar active, flat

NorthStar's newly priced add-on was meantime flat on the day, a market source said.

The 8.25% series B cumulative redeemable perpetual preferred stock (NYSE: NRFPB) closed at $22.90 in well above average trading volume.

The company sold an additional $70 million in the add-on. NorthStar initially sold $155 million of the preferreds on Feb. 7, 2007. Another $35 million were issued on May 24, 2007. NorthStar sold an additional $40 million preferreds on March 21 and registered on June 12 to sell up to $62.5 million of the preferreds in an at-the-market offering.

In the latest reopening, the preferreds were sold at $22.95 per share.

NorthStar is a New York-based real estate investment trust.

Fifth Third's second call

Cincinnati-based bank Fifth Third announced a second redemption of trust preferreds late Monday.

The company said it will redeem all $862.5 million of Fifth Third Capital Trust VI's 7.25% trust preferreds (NYSE: FTBPB).

The issue closed down 19 cents at $25.42, in line with the Aug. 8 call price of $25.422917.

The call will be funded with available cash.

On July 2, the bank announced that it will redeem $575 million of Fifth Third Capital Trust V's 7.25% trust preferreds (NYSE: FTBPA).

That issue closed out the day up a penny at $25.41. The redemption will occur on Aug. 15.

Both redemptions are taking place in response to the Federal Reserve's new capital treatment rules, which will disqualify certain kinds of TrUPs from being classified as tier 1 capital. Because of the new regulations, many banks - including Citigroup Inc. and Bank of America Corp. - have seized the opportunity to redeem the preferred shares under the guise of a "regulatory capital treatment event," which allows for early calls without penalty.

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