Patrick Harden

Ackman Explains Why He's Short REIT Realty Income

I've questioned O's dividend policy in the past of overdistributing its taxable income, but really, the short thesis here is lacking some meat. It's as if Ackman has shorted the best of breed on the theory that the REIT model itself is unsustainable.

All REITs have to continually raise equity if they are successful - it's a circular path. To successfully generate cash flow over the long term, REITs must earn some taxable income. If the REITs earns taxable income, it must pay it out to shareholders. There is little to no remaining operating cash flow to grow the business, so it's time for either debt or equity.

Like most of the commenters, I'm totally puzzled why Ackman going after Realty Income? There are plenty of other junky REITs out there that have gotten ahead of themselves in the dash for trash.