SPG and their ilk fascinate me. Here's a company that has been netting about $500M/yr average, but paying out $1B/yr in divvies. And they've borrowed pretty much every penny that they've paid out in divvies.
finance.yahoo.com
PERIOD ENDING 31-Dec-08 31-Dec-07 31-Dec-06
NetIncome 599,535 491,239 563,840
Dividends Paid (1,104,146) (1,020,674) (954,159)
Sale Stock (2,743) (224,848) (190,448)
Net Borrowings 764,839 1,399,320 1,065,403
People speak of "FFO" on all these REITs, but the fact is, FFO ignores the cost of capital. Accounting says that you can either account for the cost of assets used to generate revenue when you purchase them, or you can capitalize the cost over the estimated lifetime of the asset. To say that net income is irrelevant for REITs ignores the cost of capital. I've said this before, and I'll keep saying it until someone can give me a good reason to think otherwise. I think REITs have had a pass on net income purely because their assets have typically gone up in value rapidly enough to make the up-front cost of capital irrelevant. Real estate ALWAYS goes up, ergo the up-front costs don't matter.
Perhaps they will now. And if that's the case, many of these REITs trade for very large multiples of income.
`BC |
