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CONSISTENT OPERATIONS IN A
CHALLENGING ECONOMIC ENVIRONMENT
In December of 2001, The National Bureau of Economic Research announced that the economy
had officially entered into a recession the previous March. Also in December, many Wall
Street experts (who until recently had not known we were in a recession) were predicting
the recession was about to end. If the economic outlook was perplexing to economists and
pundits, in contrast, it was crystal clear to more than one million Americans who lost
their jobs last year.
So what happened last year? Our view is that the economy is experiencing a normal cyclical
contraction made worse by several unique circumstances. A "feeding frenzy" for growth investments
was fed by easy capital provided by eager investors. This capital glut led to a bubble of
over-production and the eventual crash of technology and internet-related company stock
prices. These events, combined with the events of September 11, 2001, led many companies
to scale back production, shrink inventories and lay off employees in an attempt to bolster
earnings. For those companies with solid businesses and operating strategies designed for
profitability in both good and bad times, 2001 was a successful year. For companies with
only "bull market business plans", these events led to an early demise at the expense of
their shareholders’ dreams of wealth and a comfortable investment for the future. An
appropriate summary of the year may be a quote from famed investor, Warren Buffett, "You only
find out who is swimming naked when the tide goes out."
Realty Income is subject to the same economic forces as other companies. However, we believe
it is not an accident that we continue to do well in a recessionary environment. The Monthly
Dividend Company’s objective has always been to operate its business so that it can deliver
fairly consistent results, in a variety of business conditions, without taking excessive risks.
We seek to accomplish this by:
- Continuing to build a diversified real estate portfolio of retail properties
- Buying properties leased to retailers in "basic human needs" businesses offering
consumers goods and services at low price points
- Maintaining a conservative balance sheet
- Carrying zero (0) mortgage debt
- Generating predictable lease revenue that supports monthly dividends
Following this strategy has given our investors over 30 years of dependable monthly
dividends generated by a real estate portfolio that has consistently performed.
It is somewhat ironic that during difficult times in the economy or financial markets, Realty
Income tends to perform well in comparison to many other companies. Conversely, during boom
times, we tend to look a little stodgy and may be seen as a less exciting investment. The
truth is that the Company’s performance has been relatively consistent throughout its 33
years of existence. The average occupancy in our portfolio has remained very high at 98%,
our cash flow has steadily grown over the years and we have paid 377 consecutive monthly
dividends. It has always been our objective to maintain a business strategy that would stand
the test of time, markets, economic environments and investment fads.
We are pleased to be able to report solid performance again in 2001.
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