Great article, thanks. I take it as long as net income is negative, there is no obligation to pay any dividend.
The article asks a good question: why are some REITs so generous when they are not obligated to pay anything due to a negative net income, they pay something.
For example, SRG just floated a 7% preferred security to raise 70 to 100m. That is just a little under the dividend and operating partner unit distributions paid from inception to the end of 2017. If they didn't pay me a 2.8% dividend yield over this period, they could have paid me a 7% dividend by NOT taking this loan. Another way to look at it, if new redevelopment is yielding unlevered 10-11%, then every dollar of dividend paid seems a lower return than the company can generate with those funds. I don't get - in this particular situation anyway - why they pay a single penny in dividend when all of their return, debt and equity yields 7 to 10% and they are not obligated to pay anything until their taxable income turns positive.
Think this has been covered, but if there's a norm in REITspace for paying dividends, then the costs of violating the norm may be much higher than following it. If, for example, your no-distribution rationality results in a huge chunk of institutional buyers shunning your equity (for being a "broken" REIT), then the pricing penalty you suffer may be quite a bit larger (especially in a case like this where we -know- that the opportunities are going to require significant extra capital to execute on a favorable timeline).
Is it better to raise $3B over the next decade under the No Shun Condition, or is it better to have to raise $2.7B under the Shun Condition?
Not saying that this is the "correct" decision, but I think it's what is somewhere in the back of one's mind when they're testing the idea that they should exercise Perfect Rationality on what is, in the big picture, a relatively immaterial decision about the company's capitalization.
