REIT Follow-On Offerings: Overnight vs Marketed

Introduction

For most public companies a follow-on equity offering is an occasional event. For a REIT it is closer to a routine, recurring tool, because the structure forces it. A REIT that must distribute most of its taxable income retains very little cash to fund growth, so when it buys a building or repays a maturing loan, it generally has to raise the equity externally. The question is rarely whether to issue but how, and the answer comes down to two execution paths that trade speed and certainty against price. An overnight deal puts the shares out in a matter of hours with a bank standing behind them, while a fully marketed deal spends a short window building demand before pricing. Knowing when each one is used, and why, is core REIT capital-markets literacy.

The driver is the 90% distribution requirement. Because a REIT pays out the bulk of its earnings as dividends to maintain its tax status, it cannot retain profits the way an ordinary company does, and retained earnings are the cheapest source of growth capital. A REIT funding an acquisition therefore reaches for some mix of new equity and new debt, and the equity portion almost always means a follow-on. This is why REITs are among the most frequent issuers of secondary equity in the entire market, and why their treasurers maintain standing relationships with multiple equity desks.

The discipline that governs the decision is the relationship between the issue price and NAV. Issuing stock above net asset value is accretive: the REIT sells shares for more than the per-share value of the assets they represent and can buy properties that add value. Issuing below NAV is dilutive, handing new buyers a claim on the portfolio for less than it is worth.

The fastest route to market is the overnight deal, which covers the bought deal and the accelerated bookbuild. The defining feature is that one or more banks commit to take the shares onto their own book, often after the market closes, and the deal is priced and allocated before trading reopens. The issuer gets near-instant execution and price certainty, while the underwriter assumes the risk of reselling the block into the market.

Bought deal

In a bought deal the underwriter agrees to purchase the entire offering from the issuer at a fixed price and then resells it to investors, taking on the full risk that the shares trade down before placement. The issuer locks in proceeds immediately, paying for that certainty through the discount the bank demands.

Pricing is struck at a discount to the last closing price or recent volume-weighted average, typically in the 2% to 8% range depending on the size of the raise and the volatility of the stock. The larger and less liquid the block relative to the stock's average daily volume, the deeper the discount the bank requires to take the risk. The overnight format suits time-sensitive needs: a REIT that has signed an acquisition, faces a near-term debt maturity, or wants to capitalize on a strong run in its share price can lock in equity before conditions change. The bought deal is especially entrenched in the Canadian market, where it is the default structure for REIT and broader equity follow-ons, a useful contrast to the more varied US toolkit.

A fully marketed follow-on inverts the trade-off. Instead of a bank committing upfront, the underwriters file a preliminary prospectus, take the offering to investors over a short marketing window, and build a book of demand before the price is set.

Fully marketed follow-on

A fully marketed follow-on is a secondary offering in which underwriters market the deal to investors over a defined period, often one to three days with management participation, gauging demand before pricing rather than committing to a fixed price in advance. It trades execution speed for better price discovery on larger raises.

Pricing on a marketed deal typically lands at a 3% to 8% discount to the closing price on the day it prices, with the marketing process intended to maximize the clearing price and broaden the buyer base. The mechanics mirror the marketed follow-on process run by any equity desk, and the underlying logic of why companies tap the market after listing is covered in the equity capital markets guide's piece on raising follow-on equity. The cost of the marketed route is market exposure: the share price can move against the issuer during the marketing window, and the announcement itself often pressures the stock. Marketed deals are generally reserved for larger raises, where the size simply cannot be placed overnight without an unacceptably deep discount, or where the issuer wants to introduce its story to a wider set of investors.

To manage the leakage risk, underwriters often wall-cross a handful of large institutions before launch, confidentially sounding out demand so the deal arrives with anchor orders already soft-circled. That pre-marketing tightens the eventual discount and reduces the chance of a failed launch, but it also widens the circle of people who know a deal is coming, which is precisely why the process is tightly controlled and the marketing window is kept short.

The decision is a function of size, urgency, volatility, and how well the equity story is already understood. A modest raise in a well-followed, liquid REIT is a natural overnight deal; a large raise that would overwhelm the order book overnight is a natural marketed deal. Both sit alongside the at-the-market program, a third route that drips equity into the market continuously rather than in a single block, and which has grown so large that public REITs raised a record $8.4 billion through ATM programs in a single quarter. The full mechanics of that continuous tool are covered in the ATM programs article.

A fourth route has lately blurred the line between these formats: the negotiated block trade executed through the ATM. Rather than dribbling shares out daily, the issuer agrees a single sizable block with a bank under its existing ATM facility, capturing much of the speed and certainty of an overnight deal at the ATM's lower commission and without launching a separate marketed transaction. The format has grown common enough to sit beside the traditional overnight and marketed deals as a standard tool, and it is part of why ATM capacity across the sector has expanded so quickly. What unites all four is the same judgment, executed through whichever mechanism places the needed size at the smallest cost to existing holders.

Across every one of these routes, a REIT's access to equity is never abstract: it is governed by where the stock trades relative to NAV, by how liquid the shares are, and by how urgently the capital is needed. A treasurer who issues accretively into strength and refuses to issue at a discount is doing the single most important job in REIT capital allocation, and the choice of overnight, marketed, block, or ATM execution is simply how that judgment gets implemented in the market.