REITs flood preferred market; Chesapeake Lodging's new issue frees up, greenshoe exercised

By Stephanie N. Rotondo

Phoenix, July 11 - There was a major focus on new issues in the preferred market on Wednesday, a trader said.

"Everyone's crazy about the new issues," he said. "REITs abound."

Chesapeake Lodging Trust's newly priced 7.75% series A cumulative redeemable preferred shares freed to trade during the session.

The deal priced Tuesday, coming upsized and below original price talk.

Meanwhile, Vornado Realty Trust priced a $300 million offering of 5.7% series K cumulative redeemable perpetual preferreds.

The deal was initially expected to be about $100 million. Price talk was originally around 5.875%, a trader said. But it was later revised to 5.7%.

Generally, the secondary market was faring well also during Wednesday trading.

"The secondary is screaming, what with all these calls and a lot of cash lying on the table," a trader said. Investors are now waiting for banks to start entering the new issue arena, he added.

Chesapeake frees up

Chesapeake Lodging Trust's new 7.75% series A cumulative redeemable preferreds freed from the syndicate Wednesday, according to a trader. The deal priced Tuesday.

Additionally, the company said its 600,000-share over-allotment option was already exercised in full, bringing the total issuance to $125 million from $110 million.

A trader said there was a $25.10 bid for paper at midday.

"It went very, very well," another trader said, quoting the securities at $25.05 bid, $25.15 offered after the close.

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.

Vornado upsizes, breaks par

Vornado Realty brought $300 million of 5.7% series K cumulative redeemable perpetual preferreds on Wednesday. The deal priced after the close.

A trader noted that there was "no selling group," seeing the preferreds at $25.05 ahead of pricing.

"It did very well," another trader said. "It sold out very quickly."

The trader quoted the paper at $25.04 bid, $25.07 offered, adding that the issue had hit a high around $25.08.

He further remarked that accounts liked the name and that it was believed that "they are going to start calling a lot of Vornados."

Bank of America Merrill Lynch, Citigroup Global Markets Inc., UBS Securities LLC, Wells Fargo and Morgan Stanley & Co. LLC are the joint bookrunning managers. The co-managers are Deutsche Bank Securities Inc., JPMorgan, Barclays Capital Inc. and Credit Suisse Securities (USA) LLC.

Proceeds from the sale will be contributed to the trust's operating partnership in exchange for preferred units. The operating partnership will then use the funds for general business purposes, which may include the redemption or repurchase of other preferred stock and units.

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

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