U.S. equity REITs raised record levels of capital through common equity offerings in 2009, with a year-end total of nearly $24 billion. And the equity-raising activity continues at a brisk pace; year-to-date through June 15, REITs raised another $8.28 billion in common stock offerings.

But with the record levels of equity offerings comes the question of dilution and which REITs saw the biggest impact from their capital-raising activities.

Between the end of the 2009 first quarter and the end of the 2010 first quarter, Hersha Hospitality Trust had the highest increase in shares outstanding during the period at 184.20%. Hersha completed seven common equity offerings during the period for a total of $286.8 million in gross amount offered, including overallotments. The company saw FFO per share fall 500.00% during that time period.

REITs also increased share counts by opting to pay dividends in stock in lieu of cash. Of the top 20 REITs ranked by share count increases, four paid at least one dividend in common stock and cash during the year ended March 31. Additionally, 10 of the top 20 had multiple offerings during that time, and the top 20 completed a total of more than $7 billion in common equity offerings across that time period.

U.S. REITs had a median total debt decrease of only 3.88% between March 31, 2009, and March 31, 2010. On the flip side, FFO per share for equity REITs showed a median decrease of 23.4% over the same time period.

While the industry focus in 2009 seemed to be toward reducing leverage and short-term debt maturities, we are left to wonder if the recapitalization that took place through common equity offerings was a bit too large, and if the continued equity offerings in 2010 are necessary. Will these offerings have a positive long-term effect on valuation for REIT shareholders, or will the dilutive effects of these offerings outweigh the benefits of the capital raised?