I own O and have been studying up on some aspects of REITs. I was curious: do they generally repurchase shares, or is the bias toward issuing them to keep buying properties? In particular, unless I am missing this, in the last couple annual reports, it seems as if O has only increased its share count significantly. Is that good, bad? O is considered a beginner’s buy by many pundits, a core holding; but I do wonder about the increase of share count. Thanks in advance…
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I don’t know beans about REITs, and nothing about O that I didn’t read in your message, but I have a general observation or two you might consider.
First, if a company is expanding its share count you hope that it is raising money in the process.
Second, real estate is a very capital intensive business. Expanding requires more capital, period. That can be the profits from what you already have, or by selling shares, but unlike a company that makes widgets there is not much chance of doing it by making widgets more efficiently. You have to raise cash.
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They rarely buy back shares because the only way for them to get cash to expand is either through rent or selling shares. If their share count is increasing you should see more cash on their balance sheet.
I would be surprised if O is raising cash by selling shares right now though. Their share price is not at an elevated price and their CEO is supposedly one of the best in the business. While O is around 10 years old, their CEO has been around the block. I haven’t specifically looked at O because it’s dividend was never that high but it is starting to look interesting.
There is a lot to know about Reits and if you want to learn more you can read Ralph Blocks book. (He has passed but the last book has some great information)
Also you can sometimes get some answers on this board.
Andy
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Ok now I understand what they are doing but I haven’t dug into it. But it seems strange O is investing in the Bellagio, I thought they ran strip malls.
Andy
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It is not uncommon for a company to buy the physical plant (or part of) and then lease it to the operator. This apparently spreads risk, finances resort expansion, and has favorable tax advantages. If its important read the fine print carefully but probably ok.
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Right if you look into most of the properties on the Las Vegas Strip they are owned by REITS. VICI bought the Venetian. I would want to see 3 NNN leases with at least a 1 percent escalator. But I am not sure how this would work with Blackstone owning the property, you might not be able to see how the lease is set up.
Andy
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It also gives a quick payday to the management, which then brags about how much cash flow they’ve generated (by doing nothing), but saddles the business with a rent payment forever .
A reverse mortgage can make some sense for people who need cash at the end of their life, but a corporation (theoretically) lives forever. Vegas is a notoriously boom and bust city, during recessions the conventions downsize, the moms & pops stay home, and the city suffers. Unemployment goes up above national averages as (service) people are let go.
It’s then that the rent payment becomes an albatross because it’s not something you can do anything about; if you own the property you can just pay yourself a little less.
Many fortunes have been won and lost in Las Vegas, and not just at the slot machines. Icahn made a billion this way in Vegas, and on another deal that I don’t specifically remember (but will edit/update here when I do.)
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While I am not invested in O @esxokm, I do hold a couple of Reits. One is IIPR and here is their spreadsheet.
I track them in Excel and if you would like a blank copy to track your Reits, with the calculations, I could figure out how to get it to you. Maybe dropbox?
Andy
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My apologies for responding to the thread just now. What I usually do is check out all the responses at an earlier time - which I did in this case - and then eventually get to writing out my response. Oftentimes I am late with that, so sorry.
Andy, I have never used Dropbox, is that a case of just clicking a link and then getting a file, like Goog drive? If so I can do that. Or, if it is still possible to respond via email on these boards, I could receive an attachment. I appreciate that offer.
The thread brought up the investment in Vegas…someone at Seeking Alpha has a bearish take on that. I don’t know if the Fool likes links to a competitor, but you can find it easy enough. A complicated article, but something to think about.
The sale-leaseback strategy mentioned is something I am a little familiar with. Always found that tactic interesting. It sometimes can mean a company is having issues (I remember DWA had to sell its headquarters like that) or simply it is par for the course (like drugstores getting cash back after building new locations).
Thanks for the book suggestion.
Really appreciate all this…
No problem esxokm, this is not a really complicated file but it allows me to track ffo and affo, which is important with reits. If you can’t get it to work let me know and we can find another way. It is a 97-2003 format excel file. It has some rows that have simple math calculations. Hopefully this works.
Anyone should be able to access.
Andy
Andy, thank you, just downloaded it now! Very much appreciate it. I will be looking at it later tonight and will be adding data this weekend. Just glancing at it now, I can tell it is going to be a great tool.
Thank you esxokm, hopefully all the calculations came out also. I do not know how O reports but the reits I follow report Affo and FFO. AFFO is more conservative so if you have enough to cover the dividend in the 80 percent range you should be good. Although all reits have to pay out 90% of net income but they value them either on AFFO or FFO.
Andy
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