The latest results from Realty Income Corp. appear to contradict prevailing wisdom that the retail sector is slowing.
The Escondido real estate investment trust that invests in retail stores reported stellar numbers for its fourth quarter and year end. Given the negative news surrounding the national economy, most would expect a REIT that invests entirely in retail space, including a high concentration in restaurants and theaters, would see revenues and earnings declining.
Not so. For the quarter, Realty Income’s revenue rose 16.8 percent to $80.6 million. For the year, revenue was $296.5 million, up 24 percent from 2006.
In a key metric for REITs, funds from operations, or distributions to shareholders, Realty Income had 22 percent higher than what it did in 2006 to $189.7 million, or $1.89 per share.
“Because of these strong financial results we were able to increase the amount of the monthly dividend five times during 2007,” said Tom Lewis, chief executive officer for Realty Income.
“As a result, dividends paid per common share increased 8.6 percent during 2007, as compared to 2006,” Lewis added.
While there are signs this economy is slowing down and is certainly having negative impacts on consumer spending, and consequently to the cash flowing to retailers, Realty Income said it’s not anticipating reduced revenue or earnings this year.
On the contrary, Lewis predicted FFO on a per share basis should range from $1.94 to $2 in 2008, or an increase of 2.6 percent to 5.8 percent compared with its FFO of last year.
So what’s Realty Income’s secret sauce? Very simply, its business is based on rental rates locked in for multiple years, not based upon a tenant’s annual sales.
Gary London, president of the London Group Realty Advisors, a San Diego real estate consultant, said the REIT’s profits have little to do with where consumer spending is heading during the short term.
“If consumer spending is down for a quarter or two quarters or even a year, that won’t impact the performance of their current portfolio,” London said. “Even though we are seeing some retailers fail, we’re also seeing replacements moving in just as quickly.”
More to the point, London said should there be a downturn in some industries, or other geographic areas, the company could benefit by acquiring distressed or underperforming properties.
Last year, Realty Income invested $533.7 million in acquiring 357 new properties for its portfolio, which now stands at 2,270 properties.
Expect more of the same this year, since the company is sitting on a hefty cash pile of $193 million, supplemented by a $300 million line of credit.
Realty Income investors reacted positively to the news, and drove up shares, traded under O on the New York Stock Exchange, by nearly a full point in a two-day span to $23.67, following the Feb. 13 fourth-quarter report. The stock has ranged from $20.27 to $30.70 during the past 52 weeks.
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Aldila Declares Special Dividend:
Speaking of dividends, Aldila Inc., the Poway maker of golf shafts, declared a special cash dividend Feb. 11 of $5 per share to be paid March 10 to shareholders of record as of Feb. 25.
Aldila gave no reason for the dividend payout, but said it was using a credit line from Key Bank of Ohio plus funds it received from selling its 50 percent interest in another company, Carbon Fiber Technology, to cover the payout.
In addition, Aldila’s board said it would continue to pay quarterly dividends as long as the company has a positive financial performance.
It has paid at least a nickel per share since June 2004, and has paid a 15 cent quarterly dividend since September 2005.
Since May 2004, Aldila has paid about $46.2 million in dividends.
Following the news, shares of Aldila jumped $2.14, or nearly 15 percent, to $16.47 on Feb. 12. As of Feb. 15, shares, traded under ALDA on Nasdaq, were at $17.28, the highest it’s been since November. Its 52-week range is $13.26 to $19.70.
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Patriot’s Pohl Resigns:
David Pohl, chairman of Patriot Scientific Corp., a Carlsbad firm that co-owns a portfolio of technology patents, has resigned. Pohl is a former CEO of Patriot and led the firm to its landmark agreement with the TPL Group of Cupertino.
The agreement helped increase Patriot revenues by licensing the technology contained in a wide variety of microprocessors with the largest electronics manufacturers in the world, including Sony Electronics, Nikon Inc., Fujitsu Ltd., Casio Computer Co. Ltd. and Hewlett-Packard Co.
Pohl said in his resignation letter that he was retiring to spend more time with his family.
As of Feb. 15, Patriot Scientific shares, traded on the Over the Counter Bulletin Board under PTSC.OB, were at 39 cents. The 52-week range is 34 cents to 94 cents. At the beginning of 2006, shares were just below $2.
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Javo Beverage Co. said its customers will add 4,500 new coffee drink dispensers in the first half of this year, bringing the total to 8,800. Each dispenser generates $3,000 to $6,000 annually. Who’s Your Daddy Inc. said it has created a commemorative can acknowledging the five branches of the military and said it hopes to become a supplier of its energy drinks to 20 military bases. NTN Buzztime Inc. said in a securities filing that an investor group, Trinad Capital, requested that it remove its existing board of directors and fill vacancies with new directors, including two appointed by Trinad. NTN told Trinad there was an established policy available to all shareholders to submit candidates for the board. ViaSat Inc. named Tom Moore senior vice president and president of a subsidiary firm that plans to make high-speed, broadband Internet services more available to U.S. and Canadian customers. Orexigen Therapeutics Inc. said underwriters exercised options to purchase an additional 326,435 shares of common stock in connection with its initial public offering Jan. 23 when it raised a net of nearly $76 million. Invitrogen Corp. said it made a minority investment of an unreported amount in Q Therapeutics, a Salt Lake City biotech firm. E.Digital Corp. reported a net loss of $397,000 for its third quarter ended Dec. 31, bringing its nine-month net loss to $1.15 million on revenue of $4.98 million. Mad Catz Interactive Inc. announced the release of an Xbox 360 HDMI conversion kit, permitting users of the device to connect to a standard HDMI plug.
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