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Here's Why You Should Retain Realty Income in Your Portfolio Now
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Realty Income (O - Free Report) is well-poised to benefit from its focus on leasing to service, non-discretionary and low-price-based retailers. Also, accretive buyouts, backed by a healthy balance sheet position, bode well for growth. However, substantial exposure to single-tenant assets raises risks associated with tenant default. Rising e-commerce adoption and high interest rates add to its concerns.
Last August, this retail real estate investment trust (REIT) reported its second-quarter 2024 adjusted funds from operations (FFO) per share of $1.06, which surpassed the Zacks Consensus Estimate of $1.05. Results displayed better-than-anticipated top-line growth. The company benefited from expansionary effects and a healthy pipeline of opportunities globally.
Shares of Realty Income have risen 16.9% over the past three months compared with the industry's 13.7% growth. Analysts seem bullish on this Zacks Rank #3 (Hold) company, with the Zacks Consensus Estimate for its 2024 FFO per share revised upward marginally over the past month to $4.22.
What’s Aiding Realty Income?
Realty Income has a diversified portfolio with respect to the tenant, industry, geography and property type. As of June 30, 2024, around 36% of its annualized contractual rent came from properties leased to its investment-grade clients. Also, this retail REIT derived 91% of its annualized retail contractual rental revenues from the tenants with a service, non-discretionary, low-price-point component to their business as of the same date. Such businesses are less susceptible to economic recessions and competition from Internet retailing. Hence, these businesses ensure stable revenue generation for the company.
Realty Income is focused on external growth through the exploration of accretive acquisition opportunities and developments. During the second quarter of 2024, the company invested $805.8 million at an initial weighted average cash yield of 7.9%. In January 2024, it completed its all-stock merger transaction with Spirit Realty Capital, Inc., adding to its size, scale and diversification and enabling it to expand its scope for future growth. The company expects its 2024 investment volume to reach $3 billion. This is backed by an improving investment environment, mainly in Europe.
Realty Income remains committed to improving its balance sheet strength and boosting its liquidity. This retail REIT exited the second quarter with $3.79 billion of liquidity. It has a well-laddered debt-maturity schedule, with a weighted average maturity of 5.6 years. A well-laddered debt maturity schedule and ample liquidity enable it to procure debt financing at attractive costs.
Realty Income remains committed to solid dividend payouts, which are attractive to REIT shareholders. In June 2024, the company announced a marginal hike in the common stock monthly cash dividend to 26.30 cents per share, indicating its 126th dividend increase since its NYSE listing in 1994. The company has consistently increased its dividend 23 times in the past five years. This retail REIT has witnessed compound annual dividend growth of 4.3% since 1994. Given the company’s healthy financial position and a lower debt-to-equity ratio compared with the industry, the latest dividend rate is likely to be sustainable in the forthcoming period.
Image Source: Zacks Investment Research
What’s Hurting Realty Income?
The market is witnessing a shift in retail shopping from brick-and-mortar stores to Internet sales. Given its convenience, online shopping is likely to remain a popular choice among customers. Consequently, this is expected to adversely impact the market share for brick-and-mortar stores.
Realty Income has substantial exposure to single-tenant assets. Of the company’s 15,450 properties in its portfolio, as of June 30, 2024, 15,154 (representing 98.1%) are single-client properties, while the remaining are multi-client properties. However, single-tenant leases involve specific and significant risks associated with tenant default.
The Zacks Consensus Estimate for Brixmor Property Group’s current-year FFO per share has been raised marginally over the past month to $2.13.
The Zacks Consensus Estimate for Phillips Edison & Company’s current-year FFO per share has moved northward marginally over the past two months to $2.42.
Note: Anything related to earnings presented in this write-up represents funds from operations (FFO), a widely used metric to gauge the performance of REITs.
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Here's Why You Should Retain Realty Income in Your Portfolio Now
Realty Income (O - Free Report) is well-poised to benefit from its focus on leasing to service, non-discretionary and low-price-based retailers. Also, accretive buyouts, backed by a healthy balance sheet position, bode well for growth. However, substantial exposure to single-tenant assets raises risks associated with tenant default. Rising e-commerce adoption and high interest rates add to its concerns.
Last August, this retail real estate investment trust (REIT) reported its second-quarter 2024 adjusted funds from operations (FFO) per share of $1.06, which surpassed the Zacks Consensus Estimate of $1.05. Results displayed better-than-anticipated top-line growth. The company benefited from expansionary effects and a healthy pipeline of opportunities globally.
Shares of Realty Income have risen 16.9% over the past three months compared with the industry's 13.7% growth. Analysts seem bullish on this Zacks Rank #3 (Hold) company, with the Zacks Consensus Estimate for its 2024 FFO per share revised upward marginally over the past month to $4.22.
What’s Aiding Realty Income?
Realty Income has a diversified portfolio with respect to the tenant, industry, geography and property type. As of June 30, 2024, around 36% of its annualized contractual rent came from properties leased to its investment-grade clients. Also, this retail REIT derived 91% of its annualized retail contractual rental revenues from the tenants with a service, non-discretionary, low-price-point component to their business as of the same date. Such businesses are less susceptible to economic recessions and competition from Internet retailing. Hence, these businesses ensure stable revenue generation for the company.
Realty Income is focused on external growth through the exploration of accretive acquisition opportunities and developments. During the second quarter of 2024, the company invested $805.8 million at an initial weighted average cash yield of 7.9%. In January 2024, it completed its all-stock merger transaction with Spirit Realty Capital, Inc., adding to its size, scale and diversification and enabling it to expand its scope for future growth. The company expects its 2024 investment volume to reach $3 billion. This is backed by an improving investment environment, mainly in Europe.
Realty Income remains committed to improving its balance sheet strength and boosting its liquidity. This retail REIT exited the second quarter with $3.79 billion of liquidity. It has a well-laddered debt-maturity schedule, with a weighted average maturity of 5.6 years. A well-laddered debt maturity schedule and ample liquidity enable it to procure debt financing at attractive costs.
Realty Income remains committed to solid dividend payouts, which are attractive to REIT shareholders. In June 2024, the company announced a marginal hike in the common stock monthly cash dividend to 26.30 cents per share, indicating its 126th dividend increase since its NYSE listing in 1994. The company has consistently increased its dividend 23 times in the past five years. This retail REIT has witnessed compound annual dividend growth of 4.3% since 1994. Given the company’s healthy financial position and a lower debt-to-equity ratio compared with the industry, the latest dividend rate is likely to be sustainable in the forthcoming period.
Image Source: Zacks Investment Research
What’s Hurting Realty Income?
The market is witnessing a shift in retail shopping from brick-and-mortar stores to Internet sales. Given its convenience, online shopping is likely to remain a popular choice among customers. Consequently, this is expected to adversely impact the market share for brick-and-mortar stores.
Realty Income has substantial exposure to single-tenant assets. Of the company’s 15,450 properties in its portfolio, as of June 30, 2024, 15,154 (representing 98.1%) are single-client properties, while the remaining are multi-client properties. However, single-tenant leases involve specific and significant risks associated with tenant default.
Stocks to Consider
Some better-ranked companies from the retail REIT sector are Brixmor Property Group (BRX - Free Report) and Phillips Edison & Company (PECO - Free Report) , each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for Brixmor Property Group’s current-year FFO per share has been raised marginally over the past month to $2.13.
The Zacks Consensus Estimate for Phillips Edison & Company’s current-year FFO per share has moved northward marginally over the past two months to $2.42.
Note: Anything related to earnings presented in this write-up represents funds from operations (FFO), a widely used metric to gauge the performance of REITs.