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Stocks R / Realty Income Corp.

URL:  https://boards.fool.com/realty-income-12030371.aspx

Subject:  Realty Income Date:  2/23/2000  4:48 AM
Author:  mtnbke Number:  37 of 106

There has been some discussion on this board, very infrequent discussion about the REIT stock O.

I would like to clear up a few things. REITs are remarkably stable by law. The REIT is a special classification allowing the company to not pay corporate income taxes as the mission of the company is to generate income for shareholders. This loophole allows the company to make profits where a taxable company could not.

However REIT regulations require the company to pay something like 95% of all income back out in a dividend to shareholders.

Realty Income stock is perhaps one of the most stable stocks in the market. The majority of its sales figures (rents) are known sixteen years or sixty four quarters into the future. O does exhaustive research concerning new acquisitions and only purchases and leases back to companies with solid books and steady growth.

The company is held hostage to interest rates however. During recent times of low interest rates and economic growth most companies have not had any trouble financing for expansion or development. In fact most companies have grown at record pace able to finance most growth from sales growth. During this cycle REITs like O have found themselves with moolah to acquire properties but with a much narrower market.

As interest rates continue to climb again now that the FED FUNDS Rate is being constantly upped to fight inflation and spank Americans for having too much debt and not enough savings to keep the economy healthy,at least according to the FED, Realty Income and REITs in general should enjoy more favorable lease terms and longer leases. Businesses trying to expand are going to discover that the cost of financing growth has significantly increased. These businesses, or at least the ones that meet RIs requirements will be willing to sell their real estate capitol in a lease back situation to fund expansion. Higher interest rates mean more "sales" or better selection for this company.

However REIT regulations only allow so much of revenue to be reinvested during any period. While ideally the shareholders would like a property acquisition to occur as fast as possible the company can only use so much revenue per period. The greatest percentage (95%) by law must be returned to the shareholders as a dividend in order to continue to be classified as a REIT.

No investor should ever go into a REIT looking for capitol gains. Any REIT that is managed for share price appreciation is taking on an exorbitant amount of debt in order to finance acquisitions. Realty Income for the most part has always been one of the most conservative REITs in the game. However they did recently issue preferred shares and notes. The majority of acquistions are made with FFO.

Investors in O should be concerned with the companies refusal up to now to maintain a DRIP program. A DRIP program allowing shareholders to purchase more shares prevents the shareholder from facing capitol gains liability monthly if the stock is not held in a ROTH or IRA. Some brokerages do allow the dividend to be reinvested for free. As of this time Ameritrade does not because Realty Income has neglected to do the paperwork to make such a thing possible.

Call the Realty Income investor hotline and tell them to make sure they have a DRIP set up with all major brokerages. 1-888-811-2001

Anything else is a dereliction of the duty to shareholders.

Realty Income claims that a DRIP is in the works long term but it has never developed. Demand accountability.



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