Sinclair Broadcast Group, unable to expand its roster of television stations, disclosed yesterday that it has spent $35.1 million to acquire and invest in commercial real estate in Maryland and elsewhere.
David D. Smith, chief executive of the Hunt Valley broadcaster, told analysts yesterday that the real estate deals fit the company's strategy of finding high-return opportunities outside television.
The company has seen returns as high as 20 percent on some of its ventures, he said.
But the move puzzled some analysts, who questioned whether shareholders of a broadcasting company want their management investing in real estate.
Disclosure of the investments overshadowed an announcement of better-than-expected quarterly results and a dividend increase.
"You could be giving a higher dividend, and shareholders can certainly buy REITs [real estate investment trusts] and real estate management company stocks instead of relying on a television broadcaster to make money in the real estate business," said Bear Stearns analyst Victor Miller during a conference call.
The real estate deals are the company's latest ventures outside its core business as the nation's largest independent owner of TV stations.
In May, the company bought a Baltimore commercial signage company for $16 million. And the company holds equity interests in other companies, including an information technology business in Baltimore.
Sinclair, which insists television is still its priority, said it has made bids on television properties but failed to land them because of the industry's competitive environment.
"Despite our efforts to add to and build duopolies in a number of our markets, in this day and age, the value of television to other broadcasters or to private equity players has been greater than the prices we've been willing to pay," Smith told analysts.
Sinclair reported third-quarter net income of $9.9 million, or 11 cents per share, beating Wall Street estimates of 8 cents. That compares with $22.6 million, or 25 cents per share, for the third quarter of 2006. Sinclair had a $12.4 million income tax gain in the quarter last year.
Moreover, the company increased its annual dividend to 70 cents per share, up from 60 cents.
Shares declined 1 percent, or 12 cents, to close at $12.04 on Nasdaq yesterday.
Sinclair, which owns or operates 58 television stations, is invested in various businesses, including Baltimore's G1440, an information technology firm; Acrodyne, a producer of television transmitters in Hunt Valley; private equity firm Sterling Venture Partners in Baltimore; and venture capital fund Allegiance Capital Limited Partnership in Cockeysville.
Triangle Sign & Service, the company's most recent acquisition, manufactures signs for retailers, airports and sports complexes, including Boston's Fenway Park.
Before selling its stake in 2005, Sinclair also owned a piece of a Smith company that owned an auto leasing company and Mid-Atlantic dealerships.
While the automotive business made some sense for Sinclair because the industry is the largest base of advertising for its TV stations, Bear Stearns' Miller questioned the company's logic in getting into other businesses.
In response, Smith said, "The logic here is much simpler: It's what could we do to drive free cash flow and raise dividends. No more, no less."
The company's spending on real estate included $9.1 million on a commercial warehouse in Baltimore; $17.1 million for an office building in Baltimore; $5.2 million on developmental land in Chapel Hill, N.C., and $3.7 million for developmental land in Annapolis.
"We're not pretending to be a real estate company," Chief Operating Officer David B. Amy said in an interview yesterday. "We're dealing with people who are experts in real estate, based on their track record of success. Their knowledge of how to make money is part of our process and due diligence as far as making those investment decisions."
Sinclair said it is developing a team that will focus on its real estate and other non-television businesses. So far there are three employees working on such ventures, the company said.
Sinclair said its third-quarter earnings declined because of a sluggish advertising environment. Net broadcast revenues were $149.4 million, down less than 1 percent from the $150.3 million for the third quarter last year.
Total revenue rose 6 percent to $176.7 million. So-called retransmission fees from cable companies offset lower advertising sales.
National advertising declined 13.2 percent because of lower political ad revenue in a non-election year.