Could the lawsuit lead to a dilution of existing shareholders if additional shares are issued as part of a settlement?
Answer
Yes – a settlement that requires the company to issue new shares to satisfy the claim could dilute existing shareholders. When a REIT issues additional stock, each holder’s percentage ownership falls, which in turn reduces earnings per share (or net‑income per FFO) and the book‑value per share that underlies the dividend‑paying model most REIT investors use. The magnitude of the dilution will depend on how many “make‑good” shares are created relative to the current float (≈ 30 M RTL shares outstanding). If the settlement calls for, say, a 5‑10 % increase in the share count, the impact on EPS and dividend coverage would be modest; a larger issuance (≥ 20 %) would be more material and could pressure the price and yield.
From a market‑dynamic perspective, the news has already injected a negative bias (sentiment –70) and RTL has been trading near its recent technical support around $12.30‑$12.50 on relatively light volume. Until the settlement terms are disclosed, the stock is likely to remain oversold (RSI in the low‑30s) and could see a short‑term bounce if the settlement is cash‑based rather than share‑based. However, the risk of dilution remains a head‑line catalyst that may keep downside pressure alive, especially if the settlement expands the share pool beyond a few percent.
Actionable insight – keep a close watch on any court filings or company press releases over the next 2‑4 weeks. If the settlement specifies a share‑issuance that would raise the float by more than 5 %, consider trimming exposure or positioning defensively (e.g., buying protective puts or reducing size). If the settlement is cash‑settled or involves a minimal share issuance, the dilution risk is limited and RTL could be a buy‑the‑dip opportunity given its solid REIT fundamentals (stable occupancy, diversified tenant base) and an attractive dividend yield relative to peers. In short, the dilution question hinges on the settlement structure; monitor the legal developments and adjust your position accordingly.