UPDATE: REITs Offer Stock/Cash Dividend Combo To Preserve Cash
2009年1月16日 - 9:02AM
Dow Jones News
In an effort to keep as much cash in their coffers as possible,
real-estate investment trusts are moving to offer dividends
comprised partly of company stock in the wake of a revised rule on
the matter by the Internal Revenue Service.
Vornado Realty Trust (VNO) and Sunstone Hotel Investors Inc.
(SHO) both announced revised dividend policies late Wednesday that
combine stocks and cash. And it's likely to kick start a trend as
REITs struggle to preserve cash amid a continuing credit crunch and
steep stock declines.
Paul Adornato, an analyst at BMO Capital Markets, noted the IRS
recently increased the percentage that a REIT can pay its dividend
in stock to 90% from 80%. "Before this (financial) crisis erupted,
I did not recall seeing any REITs that have taken advantage of
this." "The current liquidity crisis may have caused industry folks
to go back and read the fine print on the REIT legislation,"
Adornato said, adding the dividend structure has more appeal in the
current environment.
However, Ronald Kuykendall, a spokesman for the National
Association of Real Estate Investment Trusts, said since 2001, the
IRS has issued a number of so-called private letter rulings to
individual REITs permitting them to pay dividends in a combination
of cash and stock, with the stock component comprising as much as
80% of the total dividend. He noted the private letter rulings
applied only to the companies that requested them.
Last October, NAREIT initiated discussions with the IRS
resulting in recent guidance that allows all REITs to distribute
2009 dividends in a cash/stock combo, with the stock component
accounting for as much as 90% of the total dividend, Kuykendall
said.
Since late October, numerous REITs opted to cut or suspend their
dividends, as a broader market meltdown drained liquidity and
hindered debt refinancing.
REITs were established in the 1960s to give individuals an easy
way to invest in income-producing real estate. The companies, which
typically focus on distinct areas of real estate, such as offices,
retail properties or apartments, must pay at least 90% of their
taxable income out as dividends.
"This could be troubling for a lot retail investors," who may
not understand the tax implications of the stock/cash dividend
distribution, said David Shapiro, an analyst at BGB Securities. He
said investors still have to pay taxes on the stock portion of the
dividend.
NAREIT's Kuykendall noted, however, that if shareholders needed
all cash for tax payments or any other purposes, they could simply
sell the stock.
Vornado Realty said it will retain about $390 million this year
by distributing 60% of its dividends in stock and 40% in cash. The
company said its next quarterly dividend in the amount of 95 cents
a share will be paid March 12.
As of the end of the third quarter, Vornado had $1.5 billion of
cash and $2.6 billion of untapped revolving credit facilities.
Vornado has $400 million of refinancing needs in 2009 and a further
$1.1 billion in 2010. "The only difference between the new VNO
dividend policy and a 'real' dividend cut...is that VNO
shareholders will now have more pieces of paper representing
ownership of the same economic pie," wrote Green Street Advisors
Analyst Michael Knott in a report. He said the shift in dividend
strategy will add 25% to the company's cash balance and further
strengthen a large and relatively secure balance sheet. "The change
in common dividend policy is surprising in light of the 5.6%
increase announced in October '08," Knott wrote. He noted that
investors are concerned about the outlook for Vornado's New York
office and retail properties. Meanwhile, Sunstone Hotel announced
its dividend will consist of approximately $7.3 million in cash and
about 5 million shares of the company's common stock. "This is a
trend we would expect to hear from other lodging REITs going
forward," said C. Patrick Scholes, a lodging analyst at FBR Capital
Markets. "If they pay stock, they don't have to pay cash and cash
is king." Scholes said the lodging REITs should still be profitable
in 2009 and noted that investors have the option to sell those new
shares and convert them into cash. BMO's Adornato said that any
company needing to shore up its balance sheet would have more
incentive to pay more of its dividend in the form of stock rather
than cash.
Vornado's share price closed up 1% to $51.25 Thursday and fell
roughly 30% last year. Sunstone's gained 8% to $5.58 mid-afternoon
and lost about 66% in 2008. Such declines occurred amid a rather
brutal year for the REIT sector overall, which posted a negative
total return of 38% last year.
"The Vornado announcement...really forces the industry to do
some soul searching to determine what its (appeal) will be," he
said, noting that Vornado was the first major REIT to pay part of
its regular dividend in the form of common stock.
"The notion that REITs are lock solid income vehicles may be
challenged."
-By A.D. Pruitt, Dow Jones Newswires, 201-938-2269,
angela.pruitt@dowjones.com
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