No. of Recommendations: 13
but how dilutive is it to the share price?

There are lots of ways to measure dilution. A simple way is to divide income, FFO and AFFO by the greater number of shares that are outstanding as a result of the exercise of warrants. This method would, indeed, reduce earnings, FFO and AFFO per share.

But there are many REIT-dedicated investors who believe that the best way to measure a REIT stock's value is by looking at estimated NAV; there are lots of reasons for this, and anyone interesting in checking them out might want to take a look at "Investing in REITs." Green Street claims that REIT stock prices are more correlated with their NAVs, and changes in NAVs, than with any other metric.

If the warrants are all exercised, NAV, which is now in the low-to-mid $11 area, will actually be increased, not diluted, as the exercise price is $12 per share. Of course, that doesn't mean that the stock would go up upon full exercise of the warrants, just that the stock will be more valuable - and it will probably take some time before investors figure that out. Another variable, of course, is how long it takes for ROIC to invest the cash received from the warrant exercise.

There are a lot of moving parts in this warrant conundrum, and I confess to being frustrated by the relatively poor performance of ROIC's stock price over the past 6-12 months; the warrant exercise issue may be substantially responsible. (See, for example,

But frustration is, for me, as far as it gets. I still really like this company, and believe it will perform better than most or all of its peers over the next few years. It would sure be nice, however, if we could get those pesky warrants out of the way. But we may have to wait for October of next year when they expire.

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