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Here's Why You Should Retain Realty Income in Your Portfolio
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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 adds to this retail real estate investment trusts (REITs) concern.
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 provide the company with the financial flexibility to tide over any mayhem and bank on growth scopes.
Realty Income remains committed to solid dividend payouts, which are attractive to REIT shareholders. In September 2024, the company announced a marginal hike in the common stock monthly cash dividend to 26.35 cents per share, indicating its 127th 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.
What’s Hurting Realty Income?
The retail real estate market, including participants like Kimco (KIM - Free Report) and The Macerich Company (MAC - Free Report) , has been witnessing a challenge because of the 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. As of June 30, 2024, out of the company's portfolio of 15,450 properties, 15,154, which account for 98.1%, are single-client properties, with the remainder being multi-client properties.
However, single-tenant leases carry specific and significant risks related to the possibility of tenant default. In the event of a financial failure or payment default by a single tenant, the company's rental revenues from that property, along with the property's overall value, are adversely affected.
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Here's Why You Should Retain Realty Income in Your Portfolio
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 adds to this retail real estate investment trusts (REITs) concern.
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 provide the company with the financial flexibility to tide over any mayhem and bank on growth scopes.
Realty Income remains committed to solid dividend payouts, which are attractive to REIT shareholders. In September 2024, the company announced a marginal hike in the common stock monthly cash dividend to 26.35 cents per share, indicating its 127th 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.
What’s Hurting Realty Income?
The retail real estate market, including participants like Kimco (KIM - Free Report) and The Macerich Company (MAC - Free Report) , has been witnessing a challenge because of the 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. As of June 30, 2024, out of the company's portfolio of 15,450 properties, 15,154, which account for 98.1%, are single-client properties, with the remainder being multi-client properties.
However, single-tenant leases carry specific and significant risks related to the possibility of tenant default. In the event of a financial failure or payment default by a single tenant, the company's rental revenues from that property, along with the property's overall value, are adversely affected.