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Kelowna's Orchard Park Shopping Centre, which is owned by Primaris Retail REIT
Kelowna's Orchard Park Shopping Centre, which is owned by Primaris Retail REIT

Streetwise

Income trumps all Add to ...

When it comes to new issues in Canada, companies either got income, or they got nothin'.

Yield-hungry investors are stepping up for IPOs and new units from REITS and other stable (read boring) companies that promise dependable dividends. That warm welcome for all things income-oriented is a contrast to the frosty reception given to growth-focused initial public offerings, as a number of domestic tech companies have pulled IPOs.

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The latest successful equity sale in domestic markets came late Monday from Primaris Retail REIT, which raised $85-million. Primaris owns 28 shopping malls and wanted cash to spruce up existing properties, and buy more retail centres. The REIT sold 4.9 million units on Monday for $17.30 each, a 3 per cent discount to where units closed prior to announcement of the offering. RBC Dominion Securities and CIBC World Market led the bought deal.

Primaris is one of several income-spinning companies to successfully tap domestic markets during a period when growth stock offerings, including IPOs from technology companies, are being pulled.

The underlying trend is simple: There is a willingness to buy into cash-spinning companies to gain extra income, at a time when interest rates are bumping along at historic lows. These same investors who are stepping up for REITs are skeptical over a relatively small, unproven public company's ability to prosper when the economy's prospects are murky, at best, so they are steering clear of small cap IPOs.

The same dynamic translated into a successful IPO last Wednesday from TransGlobe Apartment REIT. The company raised $247-million in an offering led by CIBC World Markets. TransGlobe REIT holds 65 buildings, which in turn contain 8,200 apartments, spread across five provinces.

It is worth noting that the Canadian REIT deals sold well at a time when large foreign real estate financings were struggling, and the equity markets was suffering through severe mood swings.

Warehouse operator Americold Realty Trust postponed the largest U.S. initial public offering of 2010 last week, a $660-million (U.S.) debut, when the IPO failed to find buyers, despite slashing the price of the offering.

And in Hong Kong, Swire Properties Ltd. dropped plans to raise as much as $2.7-billion because of what the company described as "the deterioration in market conditions."

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