• 715 days Will The ECB Continue To Hike Rates?
  • 715 days Forbes: Aramco Remains Largest Company In The Middle East
  • 717 days Caltech Scientists Succesfully Beam Back Solar Power From Space
  • 1,117 days Could Crypto Overtake Traditional Investment?
  • 1,121 days Americans Still Quitting Jobs At Record Pace
  • 1,123 days FinTech Startups Tapping VC Money for ‘Immigrant Banking’
  • 1,126 days Is The Dollar Too Strong?
  • 1,127 days Big Tech Disappoints Investors on Earnings Calls
  • 1,128 days Fear And Celebration On Twitter as Musk Takes The Reins
  • 1,129 days China Is Quietly Trying To Distance Itself From Russia
  • 1,130 days Tech and Internet Giants’ Earnings In Focus After Netflix’s Stinker
  • 1,134 days Crypto Investors Won Big In 2021
  • 1,134 days The ‘Metaverse’ Economy Could be Worth $13 Trillion By 2030
  • 1,135 days Food Prices Are Skyrocketing As Putin’s War Persists
  • 1,137 days Pentagon Resignations Illustrate Our ‘Commercial’ Defense Dilemma
  • 1,137 days US Banks Shrug off Nearly $15 Billion In Russian Write-Offs
  • 1,141 days Cannabis Stocks in Holding Pattern Despite Positive Momentum
  • 1,141 days Is Musk A Bastion Of Free Speech Or Will His Absolutist Stance Backfire?
  • 1,141 days Two ETFs That Could Hedge Against Extreme Market Volatility
  • 1,144 days Are NFTs About To Take Over Gaming?
  1. Home
  2. Markets
  3. Other

Real Estate and REIT Short Ideas?

I recently received this heads up via email:

Reggie, I just got out of the Great Investors Best Ideas conference in Dallas and thought you'd like Bill Ackman's short. He actually said there's almost no way this stock can go up, because every time it hits $26 or so they issue more shares.

Realty Income (O). His thesis is that O has a problem with very poor credit quality tenants, most with junk ratings and most tenants are very "crappy discretionary retailers". O is very levered to occupancy and doubled their asset base in 2005-2007 at the worst time possible.

The stock is mostly retail investors as the company markets itself as the "monthly dividend company". Realty Income trades at a mid 7% cap rate when the private market value is 10%-11% cap rate, or about a 40% premium. Also the company serially raises equity, and the vesting program for stock is that the older you are the quicker your stock vests, which is unusual. Basically Ackman thinks the company is sucking in unsophisticated retail investors with the "monthly dividend" that is going to have to be cut, and selling the retail investors the shares they grant themselves.

Bill Ackman is the guy that I originally got the monoline short idea from. Even though that was a five year ordeal for him, it turned out that he was right on the money. I found he has been less accurate in his real estate ideas though. I believe he has overly-optimistic valuations on the real estate in Target and GGP, just as Lampert had with Sears. That definitely doesn't mean he is wrong here, though. I am just reflecting upon what I have found that I agreed with him on in the past and what I didn't.

For those who want to know what my team has dug up on "O", you can download the 7 page summary here: Realty Income Preliminary Review 2009-10-08

 

Back to homepage

Leave a comment

Leave a comment