The team at The Motley Fool have long been vocal campaigners for equal (or fairer at least) rights between large and small shareholders. All too often listed companies raise equity through institutional investors with little or no regard to retail investors, diluting small shareholders in the quest for quick cash.
The latest company to take this action is real estate investment trust National Storage REIT (ASX: NSR). I wrote about National Storage's big yield and income potential in February but didn't mention that a number of brokers believed the company had limited growth options due to its stretched balance sheet.
The omission has been costly as National Storage today announced a $57.5 million capital raising to institutional and professional investors in select jurisdictions. The tender price of $1.48 per share represents approximately a 4.5% discount to the last closing price and a 4.2% discount to the 5-day volume weighted average price.
National Storage will issue 38.8 million new shares, nearly 10% of today's 245 million shares outstanding.
Poor Form
Despite the raising being a good idea to reduce existing debt to provide National Storage with financial flexibility to pursue acquisition opportunities, it comes with a kick in the guts to retail shareholders. At the end of the last financial year, small shareholders (<$15,000 worth of shares) made up 487 of the 1,370 shareholders and the top 20 shareholders held over 80% of shares outstanding.
A better way to run the raising would have been a renounceable rights issue to avoid dilution. Today's actions probably don't constitute a reason to sell but should make investors think long and hard about which investors management have in mind.
National Storage's actions are similar to companies we've slammed in the past for their unfair approach to retail investors, including Vocus Communications Limited (ASX: VOC), Paladin Energy Ltd (ASX: PDN) and Cash Converters International Ltd (ASX: CCV).
