First Potomac Realty Trust recently priced an equity offering of 6.5 million shares at $14.70 per share as part of its effort to infuse capital and repay debt. The offering was upsized from the original number of 6 million shares to 6.5 million shares.
In a bid to cover over-allotments, the company provided a 30-day option to underwriters for purchasing an additional 975,000 shares at the same price (less the underwriting discount). The transaction is expected to close by May 24, 2013.
This real estate investment trust (REIT) expects to generate net proceeds of roughly $91.1 million from the transaction, excluding the underwriting discount and estimated offering costs. The net proceeds will be utilized mainly for paying off the outstanding debt under secured term loans and part of the outstanding debt under its unsecured revolving credit facility. First Potomac also intends to use the amount for general corporate purposes.
A consortium of banking giants supported First Potomac in the equity offering. Wells Fargo Securities of Wells Fargo & Company and KeyBanc Capital Markets of KeyCorp acted as joint book-running managers. On the other hand, Morgan Stanley , BMO Capital Markets, PNC Capital Markets LLC, RBC Capital Markets and Raymond Jamesacted as co-lead managers.
Though this public offering will result in share dilution for First Potomac, the payment of debt is encouraging as it will reduce interest expenses. Moreover, it will help in achieving financial flexibility and will position it favorably for investment opportunities and acquisitions, which will consequently go a long way in enhancing top-line growth.
Notably, as of Mar 31, 2013, First Potomac had cash and cash equivalents of $17.8 million, up from $9.4 million as of Dec 31, 2012. Also, the company had outstanding debt of $954.9 million, of which $355.4 million was fixed-rate debt and $350.0 million was variable-rate debt (that had been switched to a fixed interest rate) at the end of first quarter 2013. The remaining $249.5 million was variable-rate debt, which comprised one mortgage loan and borrowings under its secured term loans and unsecured revolving credit facility.
Currently, First Potomac carries a Zacks Rank #3 (Hold).